Killer arguments against LVT, not (25)

RefuseToBuy over at HPC came up with this: "LVT replacing business rates? All the virtual internet companies would be run tax free. Music industry too. There is more to the economy than just land."

To which I responded:

Firstly, that is neither an argument for nor against taxing land values - labour and enterprise are the largest part of the economy and in a perfect world they would NOT be taxed. Conversely, fags, booze and petrol are a small part of the economy, but because demand is price-inelastic and because they have external costs, that's a good reason for taxing them.

Secondly, land values do not drive the economy, the economy drives land values (increase in land values are windfall gains)

Thirdly, you would be amazed at how important and hence valuable locations, and the permission to do what it is what you want are. If people can trade in non-physical goods over the internet, then good luck to them - that's what it's all about -efficient use of land! But CDs are still sold in High Street shops (and land values on the High Street are usually very high) so it's all linked together somehow.

PS, are you perhaps confusing "Business Rates" (a flat tax on rental values i.e. not a million miles from LVT) with "corporation tax"?.
---------------------------------
Fair play to him (or indeed her), he responded by saying "Ah yes. I am confusing Business Rates with Corporate tax. I'm not a tax expert" but then went on to say "LVT does share costs out according to how much of the land you take up. I wouldn't want it to replace all tax though. I don't see why labour and enterprise would not be taxed a perfect world. It also depends what the tax is going to be spent on. For example, the tax from enterprise could allow more money to be spend on universities, helping increasing enterprise. "

Hmm. I agree with the first sentence. The second and third sentences miss the point slightly - if you cut taxes on labour and enterprise by £1, then gross rental values will go up by £1 (rents always rise to soak up additional profits above a bare minimum) so in theory you could replace just about all taxes with LVT. But another theory says that LVT would never collect more than about a fifth of GDP as against half of GDP that is being collected in taxes now (which I see as a good argument for only having LVT, but hey).

And, on a purely pragmatic level (rather than on a moralising one), a flat income/corporation tax (and no VAT or National Insurance) of 30% or less (the lower the better, obviously) would probably be relatively harmless in terms of Laffer effects, and would still give the UK a big advantage to most other developed countries.

The last two sentences are fair enough, tax revenues can be spent on something sensible or wasted, but if they cut education spending and taxes simultaneously, there's no reason to assume that overall educational standards would go down. The main reason why I prefer education vouchers to no subsidies or state involvement whatsoever is purely the social mobility point, to level up the playing field a bit (sure, low income adults can choose not to have children, but children can't choose not to be born to low income adults, can they?)