An argument that people use to oppose taxes on land or property values is advanced e.g. here:
martinwc2: Surely the main argument against a tax on homes is that cash is demanded when there is no underlying cash flow? E.g. income tax arises upon cash income, even with capital gains tax, it falls due after a realisation. With houses, cash is extorted and funds must be taken from elsewhere. It's utterly irresponsible to force house sales to meet tax or force borrowing, especially when values fall as well as rise...
There are two simple counter-arguments to this:
1. Most people start off their housing career as a tenant and pay rent, and then they 'buy' a house and pay rent on the money borrowed to do so (aka 'interest'). Where is the underlying cash flow to pay the rent or the interest? Is the landlord or the bank 'extorting cash' and 'taking funds from elsewhere'? Is it not the case that if the tenant fails to pay the rent or the borrower fails to pay the mortgage instalments that he will be evicted or repossessed (or would be evicted or repossessed in a sane world)?
2. On a practical level, taxes have to be paid. If you evade income tax or other taxes long enough and they catch you out, then they declare you bankrupt and if you own a house, they will force a sale. Whether the sale of a house is 'forced' because of non-payment of income tax or non-payment of land or property tax is neither here nor there - the good news in the latter case being that there will always be an asset there to pay it, therefore tax losses will be lower, therefore, unlike taxes on incomes or production, honest taxpayers will not have to pay a slightly higher rate of land or property value tax to compensate for non-payment by others.
3. You can even combine 1. and 2. into a more cerebral, over-arching argument.
We agreed earlier that "All money that changes hands purely because of existing laws (as distinct from free exchange) counts as 'tax'" and one of my basic suppositions is that 'the state' (i.e. 'laws') and 'landownership' are more or less synonymous - you can't have one without the other. Therefore, any money that changes hands because of land ownership is in fact tax.
Ground rents of land can only arise if there is a state there to protect land ownership. For sure, the right to exclusive occupation of particular bits of land is more or less a necessity for anything but a hunter-gatherer society (even in most Communist countries, people had exclusive occupation of the housing they were allocated and factories had exclusive occupation of the site and so on), but that is a long way from saying that land can be owned and occupied in perpetuity without any sort of payment to anybody whatsoever.
Therefore, embedded in the rent or mortgage that somebody pays is a 'tax' element that goes straight to the landlord or to the previous landowner via the bank (who merrily add on their own profit margin). So if we expect a tenant or borrower to pay the tax to ensure continuing exclusive possession, why is it so dramatic and terrible to expect all land owners to cough up?
Wednesday, 14 April 2010
Killer arguments against LVT, not (32)
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15 comments:
None of this answers the criticism. All it amounts to is "so what?" when the criticism states the "what" and seeks a substantive answer to the suggestion that it is unfair to levy taxes on anything other than cash received.
At the moment some taxes are levied on invoices issued rather than cash received and it can cause businesses and the self-employed a real problem. That problem can be alleviated by writing off unmet invoices after a specified period (I believe it's 3 years) but it is still a problem until then and is perceived as unfair by those who are caught by it.
LVT has the potential to make that problem far more widespread. For all the benefits that are claimed for it (which I find difficult to accept anyway) there is no escaping that it will require some people to pay tax regardless of their ability to lay hands on the cash.
To compare that to renting or buying and finding you can't keep up the rent or mortgage payments is no answer. They are voluntary transactions not obligations forced on people by the State.
It might be possible to alleviate this problem by phasing-in LVT over a lengthy period so those who might be forced to trade-down have time to consider their options thoroughly and are not subjected to the additional risk of a short-term forced sale. But you still have the little old lady problem to which LVT is unable to provide a humane answer.
TFB "there is no escaping that it will require some people to pay tax regardless of their ability to lay hands on the cash... To compare that to renting or buying and finding you can't keep up the rent or mortgage payments is no answer. They are voluntary transactions not obligations forced on people by the State."
How is there any absolute practical or moral difference between the two? When you buy or rent, you are FORCED to buy a rent something in the restricted areas on which 'the state' allows housing to be built, ergo the price you are FORCED to pay BYT THE STATE is rather higher than in the absence of planning restrictions, and so on.
You are doing the usual right-wing thing and only looking at PUBLICLY collected taxes and ignoring PRIVATELY collected taxes (i.e. ground rents or their capitalised equivalent).
"It might be possible to alleviate this problem by phasing-in LVT over a lengthy period so those who might be forced to trade-down have time to consider their options thoroughly and are not subjected to the additional risk of a short-term forced sale."
Correct. So let's make a start by rolling Council Tax and IHT etc into a 1% property or land value tax and busk it from there.
"But you still have the little old lady problem to which LVT is unable to provide a humane answer."
*sigh*
1. Allow her to roll up the tax to be repaid on death.
2. She can ask her heirs to pay the tax on exchange for inheriting.
3. She can take in a lodger or relative to share the bills.
4. I refuse to build my tax policies for sixty million people on the basis of the specific and narrow interests of 0.1% of the population. Why do you accept taxes like VAT or National Insurance or Income Tax or Corporation Tax which all depress economic growth, halve people's incomes and cause unemployment but not one with no such effects?
*/sigh*
So let's say i pay of my mortgage, and i lose my job, ( and if i havent payed my mortgage i would defer it for a short period).
?
Anon, in practical terms you (and your Mrs if you have one) would both be entitled to non-means tested benefits of £3,300 a year each (or you would be if I were in charge), which would cover the property tax bill on an average house many times over.
Further, it would be a cinch to make the bank responsible for collected and paying over the tax, so it would just add £100 or £200 to your monthly repayment. It is then up to the bank to decide whether to defer all or part of the total mortgage payment.
If you apply commonsense to these 'problems' then they just melt away.
So after I pay my land tax to the authorities, they then hand me the bill for their land tax which they occupy, they then buy more land which then puts my land tax up until they own all the land and expect me to pay for all they require. And I bet they measure their land at low watermark.
PW, wot? I might as well say:
"So after I pay my income tax and VAT and National Insurance to the authorities, they then hand me the bill for employing another million people in non-jobs, which puts my income tax up until they employ all the people and expect me to pay for all they require."
Your last comment betrays a complete lack of understanding of the basic rule that says all 'land' (i.e. beaches) further out than the high watermark belong to Crown Estates (part of the state) anyway.
I prefer to look at practical examples - imagine a chap who lives in a council house or housing association house and runs a business from premises owned by Crown Estates. Which payments do you consider to be more akin to a 'tax' (and hence stifle wealth creation) and which payments are more akin to rent (and do not stifle wealth creation):
a) All the PAYE, VAT and corporation tax he pays?
b) The approx. half of the rent for his home and for his business premises that relates to the location value/the land value?
The whole "ability to pay" argument is built on a fallacious assumption that all cash is disposable, but assets in any other form are untouchable. If the value of your assets is greater than the tax being demanded of you, you are technically able to pay. The ease with which you are able to pay may vary, but that isn’t inherently a factor of what form your assets are in.
Given that, I don’t see why some people view it as so horrific to tax the hypothetical wealthy widow in her mansion that we should shift the tax burden on to the young family living in a rented hovel and potentially the poor widow in her rented hovel.
Paul, indeed. I'd guess for every poor widow in a mansion there are a dozen poor widows in an ex-council flat.
But it appears that people still feel very strongly about "the poor widow in a mansion", so to be fair, every LVT bill would include a tick box asking "Would you like to pay a 20% premium on your bill to be re-distributed to poor widows in mansions?" then we'll see where people's sympathies really lie.
"E.g. income tax arises upon cash income"
Not always it doesn't, if you don't pay via PAYE, income tax is payable on historic, not current income, so it is very easy to be landed with an income tax bill without you having the means to pay it.
Also, this "killer argument" applies only to those who have no mortgage or other loans secured on their property, otherwise loss of income/funds = loss of house anyway. Therefore, it should not be too difficult to borrow money against the property to meet the relatively small cost of the LVT.
" Surely the main argument against a charging rent is that cash is demanded when there is no underlying cash flow? "
Oops I misquoted.
WV: whournz Who Earns? how apt.
Sigh all you want, Mr W, it won't have any effect. The little old lady problem is not a book-keeping exercise it arises from her being in the position she is as a result of a lifetime of taxes being levied predominantly on income received and having arranged her life and finances in the expectation that that will continue, then having the goalposts shifted when she is in no position to do anything to protect her position.
Of course there are always losers when any radical change is made to taxes or, indeed, to anything else. The question is whether the claimed benefits are sufficient to justify those people being losers. If it is not fair and there is no way of preventing that unfairness arising then the change cannot be justified, however many reasons there are for saying that it will have long-term structural benefits.
I am yet to hear any argument sufficiently strong to justify a change of tax regime that upsets legitimate expectations built up over decades, under numerous governments, by those least able to adapt to the change you propose.
Please don't sigh at me as though I were a stupid child unable to do long division. I would hope you know me better than that.
"The little old lady problem is not a book-keeping exercise"
It is, actually.
"... it arises from her being in the position she is as a result of a lifetime of taxes being levied predominantly on income received and having arranged her life and finances in the expectation that that will continue,"
When the LOL bought her house fifty years ago for £5,000, did she have a reasonable expectation that it would now be worth £1 million? That's an extra £995,000 of value which is entirely unearned.
When TFB bought his house fifteen years ago, did he have a reasonable expectation that it would treble or quadruple in value?
"... then having the goalposts shifted when she is in no position to do anything to protect her position. Of course there are always losers when any radical change is made to taxes"
What have I ever proposed that is in any way radical? I have proposed rolling up Council Tax, Inheritance Tax, Stamp Duty Land Tax, Insurance Premium Tax, Capital Gains Tax etc (total revenues £40 billion or so) and replacing them with a flat tax on property values of 1% per annum (which would also raise £40 billion or so) with a roll-up option for LOLs.
Please don't tell me that this is radical.
"I am yet to hear any argument sufficiently strong to justify a change of tax regime..."
OK, briefly, land value tax...
1. has no deadweight costs so does not cause unemployment etc. It's not 'like rent' it IS rent.
2. Is easy to collect, impossible to avoid (thus the honest don't pay a higher rate to cover the losses of the dishonest) but to a large extent voluntary - you choose where you want to live and what type of house/flat.
3. Is a tax on 'consumption' (of land) but without also being a tax on 'production' (i.e. like VAT).
4. keeps house prices low and stable and thus flattens out boom-bust cycle.
5. On a moral level, ground rents only arise because of the existence of a state to enforce the rights of landowners (the existence of a state and landownership being more or less synonymous) so LVT it is a question of 'rendering unto Caeser what is Caeser's'. (this was Adam Smith's killer argument in favour of LVT).
There are dozens more, all of which you are perfectly aware of, I am sure.
Mark, this is one of your poorer LVT posts. As others have said, you simply haven't answered the criticism. Your answer boils down to "shit happens already, so who cares about more shit?".
If you don't like rentiers, do a one-off confiscation of all that land they own due to special priveleges (this isn't my policy, but I'd not fight very hard at all to protect Prine Charles's property portfolio). But the big flaw in LVT is that it is a tax levied on what you think somebody can potentially earn from an asset, and that flaw will always remain. It is the equivalent of taxing all women on their potential eranings as prostitutes, regardless of whether they do or not, because they could rent their bodies out, you will tax their bodies as if they all do rent them out. I don't think many women would be thrilled, on demand of the Whore Value Tax, to be told that it's fair because your WVT assessor has assessed a high potential rental value.
You want to force every landowner to get on their back and think of England, or pay a regular fine for not doing so. It's simply morally wrong.
Also-
On a moral level, ground rents only arise because of the existence of a state to enforce the rights of landowners
All "rights" in those terms exist because of state enforcement. That is, using the WVT example, the only reason women can assert ownership of their bodies is due to state laws against violence and rape (under the current system, let's not get into anarcho capitalist enforcement), otherwise anyone could invade their bodily property without repurcussions. As such, the state's legal system protects bodily property ownership and creates the opportunity for bodily rental (prostitution). The same argument applies as to land.
Land property rigths are just one of the property rights the state protects. The only difference between land and other property is a perceived limited supply (but all property is limited of course, including women's bodies which men may desire to trespass upon).
TFB: "Of course there are always losers when any radical change is made to taxes or, indeed, to anything else. The question is whether the claimed benefits are sufficient to justify those people being losers. If it is not fair and there is no way of preventing that unfairness arising then the change cannot be justified"
That seems to be taking a one-sided approach, where any perceived unfairness arising after the change is unacceptable, but any pre-existing unfairness is tolerable, because people are used to it. I don't go along with that. I think the most equitable system should be preferred, irrespective of whether or not it is the one currently being used.
I think issues you raise are valid concerns to have when looking at transitional arrangements when changing between systems, but I don't think they should have any bearing on the decision to change system.
The old widow was trotted out when slavery was abolished in the US by anti-abolitionists who tried to create a sense of injustice around the idea of an old widow, who'd been left a couple of slaves by her husband to see her through her final years, being denied the benefit of that planning.
Now, that concern might be enough to make people conclude that the state should try to mitigate the effects of abolition by offering poor old widows affected in that way some compensation, but as an argument against abolition as a whole, I just don't think it's anywhere near good enough and to me, the same applies here.
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