Killer arguments against LVT, not (28)

Adam Collyer trots out the usual tired old arguments.

1) "A switch in taxes from taxing wealth generation to taxing non-wasting assets, e.g. land, sounds seductive. It sounds as if it is taxing something unproductive (the land) instead of productive economic activity. But in reality, it simply represents a switch from taxing present wealth creation to taxing past wealth creation."

He is well ahead of the debate here. All I have ever proposed as a serious policy is to replace Council Tax & the TV licence fee (Poll Taxes); Insurance Premium Tax and VAT on Domestic Fuel (nuisance taxes); capital gains tax and Stamp Duty Land Tax (jealousy surcharges that inhibit efficient functioning of housing market) and Inheritance Tax (pure jealousy surcharge) which between them raise £40 billion-odd per annum (less than a tenth of government revenues) with a single flat Property Value Tax of 1% of capital value, like they have in Northern Ireland.

Where we take it from there is anybody's guess. But he misrepresents the switch (if we ever were to seriously shift from taxing personal incomes to taxing location/land values). It is not a switch from taxing "present wealth creation" to "past wealth creation":

a) That "past wealth" (i.e. land/location values) was created by efforts of society in general, and future land value increases (or decreases), i.e. "future wealth" will also be created by the efforts of society in general. Current land values anticipate future wealth creation.

b) You have to contrast this with taxation of personal incomes - it is quite clear that taxing the individual efforts of each individual discourages work, dampens economy, has deadweight costs etc. I fail to see how taxing land values discourages people from working, it's like rent - or does he seriously suggest that home-owners with a small mortgage work harder than people who have to stump up the rent or the mortgage payment on the first of each month, or face being evicted?

So to sum up, what he really should be saying is that "it represents a switch from taxing individual efforts to taxing windfall gains that arise because of the efforts of society in general"

2. "That brings me to the second objection. To introduce such a tax would be grossly unfair, however it were done. Those who already own assets would be hit. Those who have yet to buy would benefit at their expense. And that is why often the proponents of LVT turn out to be people who do not currently own land."

Wot? Two thirds of households already pay 1% or more of the value of their property in Council Tax (plus IPT, VAT on domestic fuel etc) each year. So they won't mind. And people at the upper end will benefit from losing SDLT and IHT, so they oughtn't mind too much either.

Then he trots out a classic Home-Owner-Ism: "Those who have yet to buy would benefit at [existing homeowners'] expense." The Home-Owner-Ists' policies are based on steadily rising house prices (whether that is down to restricted supply, light taxation, depressed interest rates or taxpayer-funded subsidies) so they want to benefit at the expense of the priced-out generation; the construction industry; income taxpayers generally and people with cash savings). I don't see what gives Home-Owner-Ists the moral upper hand here. In any event, don't homeowners have children too? So they are cheerfully robbing their own children.

3) "The third objection to LVT is that, like other taxes, it does carry “deadweight costs”. Clearly, it is transferring resources away from land-owners (who pay the tax) and onto wealth-creators (who don’t). Perhaps this might be beneficial (and Mark has certainly argued in the past on his blog that it would be). However, the fact is that with LVT, people would act differently than they do without it.

For example, it would be very hard to leave land idle, because the tax would still be payable. Therefore landowners would be more likely to carry out economic activity with the land, even if this activity is, in the absence of the tax, unprofitable and therefore wealth-destroying. LVT would be creating economic distortions, and therefore deadweight costs."

Rubbish. Very little land is "idle" (the only example I can think of is vacant and derelict sites in urban areas). Farmland is zoned for and used for farming, the rental value of farmland is about £50. As long as the tax were < £50 per acre, there would be no change in what people do. If you went mad and started charging £60 per acre tax, then activity thereon would cease (the same effect as achieved by Single Farm Payments - we paid landowners good money not to do anything, although the system is being reformed).

Residential land is used for housing - that land is not "idle", it gives people enjoyment, and so on. Commercial land is used by businesses to create wealth, it is not "idle". We then turn to the derelict sites, and if they were brought into use that would be A Good Thing and also farmland on the edge of urban areas that is zoned for development, those are the only sites on which behaviour would change.

4) "The fourth objection to LVT is, why single out land? Mark admitted in his blog post that “for the purposes of this discussion, land values include broadcasting spectrum and landing slots at Heathrow” because, of course, those things too have natural scarcity. I do not believe that LVT proponents have suggested taxing broadcasting spectrum or Heathrow landing slots, or indeed any of the other naturally scarce things in this world."

That is another deliberate misrepresentation. I know a lot of Land Value Taxers, and most agree that radio spectrum, landing slots, cherished number plates, fossil fuels, offshore drilling rights etc are included.

5) "Of course, some ways of levying taxes are more damaging to the economy than others. There are many reasons why LVT might be rather less damaging than many taxes. However, there are also objections to it, the biggest being the difficulty of going from where we are now to an LVT-based tax system."

So he appears to concede that LVT is the least-bad tax. That's a start.

As to going from here to there, let's start with replacing existing property taxes (see list above) with a flat 1% property value tax and a flat income tax of 31%. We then phase out The Worst Taxes (VAT and Employer's NIC) and hike the rate slightly in order not to stoke another property price bubble. From there on in, it is the work of decades, by reducing the income tax rate by 1% or 2% each year and hiking the property tax so that property prices rise no faster than inflation, and at the same time phasing in an exemption for the bricks'n'mortar element.

6) "To my mind, there are more important debates to be having, debates that are likely to be more productive. The key debate is the basic one about how much tax the State should take from the people. At the moment, it takes too much. It should take less. [Agreed]

"A secondary, but still vital, debate centres around how to reduce the enormous inefficiencies that result when the State provides services using those taxes. [Agreed, universal benefits and health or education vouchers would cover that]

"Another question is how to make the tax system simpler and more fair overall, without introducing revolutionary changes that could destabilise the economy and our social fabric. [That's easy: start with one flat tax on incomes and one flat tax on property values - that's hardly revolutionary; and then shift from the former to the latter]

"I am sure that most proponents of LVT could find a great deal of common ground with others on all these issues [Yes, the hardcore Land Value Taxers are Single Taxers. They say the state's only source of revenue should be LVT, which by definition reduces taxes as a % of GDP to 20% or 30%, nobody really knows]."

"There are enough battles to fight to last all of our lifetimes, without chasing a will-o-the-wisp like the land value tax. [But until the LVT battle is one, our economy is permanently hampered - when is the right time not to have the argument?]