Not much is going on apart from LibLabCon brinksmanship, to which I would add that IMHO, changing from FPTP to Additional Vote would be a step in the right direction; whether it would change much in terms of the number of MPs from each party is open to debate but it would make life much more fun for psephologists.
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Anyways, Uncle Tom advanced another supposedly killer argument at comment 21 here, which I don't think I've dealt with yet:
Mark's pet theory about land value tax fails because it is neither [reasonably fair nor reasonably efficient] - the value of land is too subjective, and it fluctuates wildly.
Whether you think it 'fairer' to tax personal efforts (income tax, VAT, National Insurance, corporation tax) or tax the personal benefits that arise because of a state-protected quasi-monopoly (land values etc) is another topic; it is certainly more 'efficient' (there are no deadweight costs to the economy from taxing monopolies, unlike taxes on personal efforts); but the thrust of my response was as follows:
[The value of land] is not subjective, but yes, under current rules, it fluctuates wildly, but it is relative and not absolute values that are important. Actual plot sizes can be calculated to within a good degree of accuracy.
To put this in simple terms, if we made a modest start, and [replaced] Council Tax less Benefit, Business Rates, Stamp Duty, Capital Gains Tax, Inheritance Tax, TV licence fee, VAT on domestic fuel, Insurance Premium Tax etc, and knocked off subsidies to land ownership like Housing Benefit for private landlords and agricultural land subsidies, we would require a tax that raises about £60 billion a year (about one-eighth of all tax revenues).
There are (about) 3 million acres of privately owned, developed land (i.e. let's exempt farm land for the time being, losing CAP subsidies is a better way of doing it) so averaged out, it would be about £4 per square yard per year.
We could, if you wanted, just leave it at that.
Or, we could make it more proportional to relative property values, i.e. a bog standard 1930s or 1950s semi in the cheapest areas is £100k, in an average area is £200k and round where I live about £300k. If we had done the workings ten years ago, the figures would have been £50k, £100k, £150k, so the 1:2:3 relationship is a known and fairly fixed figure.
So taking £4 as a good mid figure (the average semi with an average garden would pay about £1,200 to £1,600 - same as Council Tax plus TV licence, let's say) the tax in the cheapest area would be £2 per square yard, in an average area would be £4 and round where I live it would be £6.
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Of course, a tax on land values reduces the buying/selling price of land and property* (but without reducing the amount that is available, of course!), so it would tend to reduce regional variations in buying/selling prices (while not affecting regional variations in rents) as well as dampening bubbles.
The very fact that land values fluctuate so wildly is one of the negative side effects of having such high taxes on personal effort and such low taxation of windfall gains and 'consumption' of land*; so 'wildly fluctuating' land values is an argument for land value tax and not an argument against.
* Business Rates, which are very similar to Land Value Tax, have the same effect - the average cost/value of land zoned for commercial use is much lower than that zoned for residential, and if you own a factory site in an area suitable for residential use and can get planning permission for housing, it will treble or quadruple in value.
** It is an observable fact that the house price bubble era kicked off after Schedule A was abolished, and the next two bubbles after Domestic Rates were replaced with Council Tax (which has nowhere near kept pace with house price inflation) were even bigger.
Labour news: Sue Gray and budget update
4 hours ago
51 comments:
As you know I favour ways that people could set their own land value.
whether it would change much in terms of the number of MPs from each party is open to debate but it would make life much more fun for psephologists.
It unwinds a lot of the tactical voting effect, especially as about 75% of seats would go to 2nd preferences. So, people could go UKIP on 1st choice but pick another party as 2nd.
Mark, as usual your obsessive compulsion leads you to miss the point. You're trying to tax something hypothetical, and pretend it's a real value. Values can only be measured at the point of transaction; that's why, for all their other faults, proper taxes are always on transactions or actual values (e.g. the money value in a bank account). You know that.
You can make guesstimates of a going rate, but that isn't measuring an actual value. You can deploy your army of assessors like any socialist, but you'll end up with taxing real real money based on imaginary values. There's no way out of that. You should call it IVT, the Imaginary Value Tax, because you're not taxing land (or rent). You're taxing the value of land that you imagine it has. There's no way out of that.
@MW You must have the patience of a saint to deal with all this crap.
I don't think the 100k quid you pay for the land underneath the house together with the much smaller price you pay for bricks and mortar is imaginary(Or perhaps it is. Perhaps we are all just figments in the imagination of God.)
BTW the Greek bail-out seems to involve massive amounts of quantitative easing , credit increases which MW believes we merely imagine to be new sums of money.
To cheer MW up: there was an Independent candidate in Hertford & Stortford whe received no votes.
Ian B, you are completely forgetting that people and markets adjust - while land is a monopoly, there is a free market in slices thereof.
I have dealt with the myth that we'd need 'armies of assessors' time and again (and don't forget the army of civil servants that administer all the taxes I have suggested replacing). HMLR, Halifax, Nationwide calculate average prices for all types of properties in all types of areas on a rolling basis to within a tolerable degree of accuracy.
In any event, it is RELATIVE and not ABSOLUTE values that are important. A five-bed mansion in Hampstead will always be worth ten times as much as a two-bed house in Newcastle (or whatever).
So if we decide which taxes to replace and work out how much we want to raise, we end up with some sort of percentage of averaged out values or £/square yard or something.
Remembering that around 50% of houses or business premises change ownership in a ten-year period, whoever is the next purchaser will bear in mind the future tax payments and adjust his offer price up or down accordingly.
So, after ten or twenty years, the owners would all have 'signed up' to the new tax, either by choosing to buy that property (and taking the discount for higher tax properties, or paying the premium on lower taxed properties) or choosing to remain at that property (despite the higher tax, or possibly because of the lower tax).
What LVT opponents choose to ignore is that when properties are bought and sold, or rented out, it is the high income people who get the nicest ones and the low income people who get the not-so-nice ones.
LVT might speed up this process slightly, that's all, so in ten or twenty years' time from now, it will be people with higher incomes would live in the nicest houses and pay most tax - people on lower incomes would live in smaller houses in not such nice areas and pay least tax - but in each case on an entirely voluntary basis. If a City banker earning millions decides to save tax by buying an ex-council flat, good luck to him.
Is that not better than fining people and businesses for creating wealth?
DBC, I do this for sport, and no, the Greek bailout was not imaginary money, some taxpayers or other are going to have to pay for that in future, and other people are going to benefit.
The sums are staggeringly large and the calculations of winners and losers complex, but there is quite clearly going to be a massive transfer of wealth.
Ian B, as to 'imaginary value tax', sure, we have taxes on 'made up figures', like fuel duty - which raise £30 billion-odd a year, slightly more than Council Tax raises and half as much as what I am proposing here (to put it in perspective).
You decide how much you want to raise (i.e. to cover cost of road maintenance, traffic cops etc) and then divide that by the number of gallons of petrol sold (I suspect that £30 billion more than covers the cost, but that's details).
So effectively it is a tax on the amount of wear and tear you put on the roads. The end effect is that people drive cars a bit less, so the roads are a bit less crowded than otherwise. Maybe some of it goes on subsidising public transport, hooray, roads even less crowded.
There are plenty of people who drive for business who would actually be better off if fuel duty went up by £1 a litre - the roads would be nearly empty, and so they'd get considerably more hours work done in a day (for every hour they might be earning £10 or £20 or £50 or God knows how much).
How does that make fuel duty a bad tax?
MW
Yep but Fuel duty isn't hypothecated into travel spending. It's put in a big pot called vote buying, sorry social welfare and does it's dead-weight cost thing.
Ian B
http://anti-citizen-one.blogspot.com/2008/05/geonomics-geonomics-is.html
AC1, no tax is hypothecated to the last penny, I am talking about general principles, as ably outlined by Milton Friedman.
Mark, we've been over this several times, but I do wish that you would just stop lying. Land isn't a "monopoly" by any normal definition of the word. Please stop it.
Ian B,
I'll be putting my new shed in your garden.
Ian B, we both know that there is no such thing as a perfect monopoly, it depends on the availability of close substitutes and so on.
So even if Firm A has a 'monopoly' on Channel Ferries, he still faces competition from the Chunnel, or airlines. Or potential passengers could just going on holiday somewhere else, or do teleconferencing or whatever.
But there are no close substitutes for land/location, are there? Land/location values cannot be competed away, can they? The fact that there are millions of households in this country who all 'own' a couple of hundred square yards is a separate matter - each of them is a very minor 'shareholder' in the overall monopoly.
If you want to work as a banker, you need to live within commuting distance of the City or New York. If you want to work as a coal miner, you need to live fairly near a coal mine. If you want to run an off-licence, you need a shop on the high street or near a train station or in a residential area.
Feel free to regale me with the Richard Murphy Memorial Lecture about "I can work from home and telecommute" but I've already covered that.
AC1, don't be silly. Ian B has got state-enforced monopoly rights over his back garden ... oh, right.
Ownership is not monopoly. You can't jump refernce frames to pretend it is. If you say "Bob has a monopoly in the fishing industry", then you find that Bob only owns one trawler, you can't then say, "well yes, Bob and all the other fishermen own all the trawlers between them". You've jumped levels. A fishing monopoly would only exist if you could show that one entity owned all (or, by some definitions, a dominant share) of the fishing industry. YOu can show that Bob is a "monopolist" of his own trawler, but that is true of every owner of every item of property, so is clearly not what is meant by the word.
By defining your reference frame as "land" in general, you have to show that some single entity owns all the land in general (or a dominant share thereof). Since that is clearly not true, "land" is not a monopoly.
Ian B, OK, let's take fishing trawlers.
If Bob starts catching loads of fish and making super profits, then somebody else will pay for his own trawler, and he will catch fish and compete away some of Bob's profits.
If the only trawler maker in town gets too greedy, then other people will start making trawlers, and (assuming a fixed supply of fish - different topic), sooner or later the number of fishermen and trawler makers will increase to the level where all super-profits from making trawlers or going fishing will be competed away.
There will be no bubbles in trawler prices or fish prices; the wages and profits of trawler makers or fishermen will be competed down to the same level as in any other industry.
Even if Bob and all the other fishermen and all the trawler makers clubbed together, and tried to abuse their monopoly position, people could buy fish from abroad, or start eating meat not fish, or go vegetarian. There are plenty of substitutes for fish.
Now, let's imagine that the government declared trawler making or fishing to be income tax free - again the same thing would happen, people would leave their other jobs, and go into these industries and so the super-profits would be competed away and there would be no bubble in fish or trawler prices.
Now, let's imagine, the government depressed interest rates to 0.5%, well below market interest rates. There would still be no bubble in fish or trawler prices, because the cost of buying a trawler on credit would go down, but so would the capital cost of the investment needed to manufacture trawlers, and it would all even out.
I cordially invite you to run through the same logical steps with a land-based activity, like farming, or retailing, or working in an office, or living in a house and commuting to where you work.
If Bill The Farmer discovers a way of trebling his output and all other farmers will copy him - will his land value go up or down? And if Bob is a tenant farmer, will his landlord put his rent up or down?
Perhaps world farmers get so productive that they only need half as much land - do you think this would be good or bad for the global economy? Wouldn't it free up people to engage in more profitable activities?
And if people are engaging in more profitable activities, and they need land/location to do it on, do you think landowners will shift from agricultural to industrial, commercial or residential use because it is more profitable or less profitable?
There is no substitute for land, remember.
If the government then declared all rental income etc from land to be tax-free, who would benefit more - the person wanting to rent out or sell land, or the person wishing to use it?
Similarly, if the government declared all farming or industrial profits to be tax-free, do you not think that landlords or vendors of land would put up the rents or selling prices of land?
If the government depressed interest rates to 0.5%, which prices tend to go up most - land prices or the price of agricultural or industrial goods, or services? Who profits most from interest rate cuts?
None of that comment addresses the simple point that land is not a monopoly, Mark. You seem to be suggesting that unfairness is the defining characteristic of monopoly. It isn't, as I said in my earlier comments.
There's also a grand logical error in your presumptions about what farmers and rentiers do, because you're basing it on Ricardo's theories regarding land values and rent, which we now know are wrong (value is subjective marginal utility- Marx made the same error when he based his theory on Ricardo, and it's why Marxism is provably wrong) but there is insufficient room in this margin to write it all down. :)
Ian B, I have addressed it. Land exhibits every characteristic of a monopoly, i.e.
1. if demand goes up, then supply does not go up, the price goes up.
2. The profits to land ownership cannot be competed away.
3. There is no substitutes for land/location. There are no alternatives. We all have to live somewhere. Some locations are better than others for living or doing business.
4. Perhaps you assume that 'lots of people own small bits of land so it can't be a monopoly'. That is the wrong way of looking at it.
Imagine that the government granted a monopoly of the supply of a vital commodity to a public quoted plc. That plc has a monopoly. There are lots of shareholders in that plc.
If I were to point out that the plc has a monopoly, would you counter that there are 'lots of people who own small numbers of shares in that plc'?
Does one shareholder buying or selling his share in a monopoly help compete away the monopoly price that a customer of the plc has to pay to the plc?
5. There is absolutely no logical error in anything I say. Ricardo's law applies just as much to high rise apartments in Monaco or advertising hoardings at the side of the motorway, as it does to farmland, and you know that perfectly well.
6. Can you please stop saying that 'land values are subjective'? Of course they are not. DCB deal with that above.
You might as well point out that different people place a different value on everything so the value of a second hand car, an ice cream, a Mozart CD or an ounce of gold is 'subjective'.
Of course people do. But there is still a market value for everything.
IanB
Value of land hypothetical and subjective? I have a nice flat in the middle of Brighton. I know exactly what I can let it out for and the amount has hardly changed for the past five years. Some of that value is payment for the use of the building and the remainder is the land value, as a rental income stream. It isn't very much, either, as there are 40 flats in the block.
This rental value is very much a realisable actual value. If I am not greedy I can realise it within a month.
If land is not a monopoly, show me an advert for 100 square metres of freehold land within the large areas of London occupied by the Grosvenor, De Walden, Portman, Cadogan and Bedford estates.
Each individual plot of land is a monopoly. There is only 1, High Street, Anytown, AN1 0AA. It is unique. If it is the best location in Anytown, and it is occupied, then the next best available location must be accepted.
Likewise there is only one busking pitch at the bottom of the escalators on the tube at Victoria, probably the best pitch anywhere on the underground. All other pitches are inferior, and this gives rise to the economic rent of the superior pitch at Victoria. And there is nothing subjective or unrealisable about it.
Of course, a land value tax based on capital values is another story. The selling price of land titles includes a subjective and speculative component and transactions do not take place all that often. There are unfortunately some advocates of LVT who don't understand the theory.
Ph, indeed.
We have discussed the whole 'capital or rental values' at length before, and while we disagree about the journey, we agree on the destination. As to 'transactions not taking place that often', it is an observable fact that
a) about half of all UK properties have changed hands in the last ten years and
b) capital values are broadly proportional to rental values (you can minus off the bricks and mortar on either side of the equation).
And sure, selling values have a speculative element (positive or negative).
We have debated this at length before, and my view is, when e.g. a new railway is announced, capital values jump immediately in anticipation (even though rental values won't go up until the railways opens). Therefore, a tax on that speculative value is a good source of funds to pay for the railway. If the railway is cancelled, then capital values go down again, of course.
Conversely, if it is rumoured that a major local employer is going out of business, then capital values fall straight away, so people get their tax relief immediately, so they've more to spend in the local shops instead, or possibly are more willing to take a pay cut to keep the employer going.
Why do you want to tax capital values? Rental properties change hands often after just a few months and the values are much easier to determine, as we found when trying to do a survey of capital values in an area round Oxford.
Why should people be taxed on the value of a prospective railway line? Sure, tax them on the new value when the trains are running, but it is not fair to expect them to cough up in advance. These investments should be paid for by bond issues on the security of the increased tax revenue flow when the investment is up and running.
It is a bad principle to levy a tax on the value of an asset when that value cannot be realised without liquidating the asset.
Selling prices will not rise speculatively if it is certain that there will eventually be a higher tax liability.
It is not a good idea to stir up unnecessary opposition, and the original concept of LVT was not one of a tax on the price of land titles.
> It is a bad principle to levy a tax on the value of an asset when that value cannot be realised without liquidating the asset.
That levy can be deferred by not claiming the full %Age of the selling price. In effect like a CGT.
If the levy must be deferred, then why not just let it kick in when people start to enjoy the benefit of the new infrastructure?
Of course that assumes there is a benefit. There are some dodgy schemes out there eg Crossrail in its current form. Hopefully most of that will get the chop.
Crossrail alternative
The levy shouldn't be deferred until the external resource is built because if they sold in during construction they'd still get a higher price.
Ph, yes, I agree to all that (and I'm not that bothered, it'd be a good start if we just had more council tax bands going all the way up to Z, for example).
But...
a)people are more familiar with capital values, i.e. people can tell you what their house would sell for, but few people know how much their house could be rented out for. (again, you can minus of b+m on either side).
b) does it really make much difference? Isn't the endgame that
i) (apart from maybe fuel duties) the only taxes are on state-protected monopolies (land, cherished number plates, airport landing slots, radio frequencies, possibly income from copyrights and patents etc) and
ii) we end up with a position where buying/selling prices of land are nominal amounts only, i.e. that the selling price of a 3-bed semi+garden in Dundee = the selling price of an identical 3-bed semi + garden in Hampstead = cost of building an average 3-bed semi, in which case, job done. Because of the way markets work, you'd find that the difference in the tax between Hampstead and Dundee = the difference in rents that would be charged for either house.
Phys, as to Crossrail, why not tell people that (part of) the cost will be met by a surcharge on Council Tax/Business Rates of x%, and just put it to the vote? Maybe it's a good idea, maybe it isn't. Maybe people, in full possession of the facts, will come to the 'correct' conclusion (whatever that may be), wisdom of crowds, and all that.
AC1, yes and no. As Phys says above, the capital value only jumps in anticipation of the higher future net rental value. If a potential purchaser knew that the jump in rental value would be offset by an equal and opposite higher tax bill, then there would not be a jump in capital value either (probably).
As I said, I'm not really too fussed.
Most people in this part of the world are more familiar with rental values than capital values. That is why places stick on the market for months when nobody can agree a price. I haven't the foggiest idea what I could sell my house for but know exactly what it can be let for.
Capital values are very difficult to determine when there is doubt over planning consents. This is an objection to LVT that we have regularly had to fend off, and it is a valid one. Rental values depend on actual granted permissions and that is the end of the matter. There can be no dispute.
If we had LVT in place, we should also have the data to make better informed judgements about what infrastructure is a good investment and what is not.
Nobody is going to sell on at a higher price when the infrastructure is being built, if they know that a higher tax will become payable when the project is up and running.
Ph, you know what, you have ground me down (pls confirm your agreement as to the endgame - it wouldn't really matter if the tax bill were decided by trial and error, provided the end result is the same).
But my last line of defence on capital values is this (and perhaps you have a counter argument ready):
1. Bubble values are bad.
2. The total selling price of a building consists of total rental value (of location plus b+m) divided by discount rate/interest rate.
3. We know that ultimately, capitalised rental value of b+m = replacement cost/value of b+m, this is a known and fairly fixed figure.
4. We also know that rental values are fairly stable.
5. Therefore, by applying maths, if interest rates go down (and are expected to stay low for a significant period), total capital values go up (and vice versa), if we minus off b+m value (from 3), the balancing figure must be the 'land value'.
6. For example, Business Rates are a tax on total rental value - land plus b+m. In most places, BR is less than what a 100% LVT would be, but in some places (nice building, shit area) they are more. We have still had a bubble and bust in commercial property prices (although in absolute terms, much smaller than in residential property prices).
7. Ergo, even with a tax on rental values (i.e. a stable figure that varies little from year to year, putting changes in planning consent to one side), the capital land value will fluctuate => bubbles => bad (from 1).
It's the bubbles that worry me as much as anything. A tax on capital values would act like a higher interest rate and tend to keep prices low (in absolute terms) and stable (in relative terms).
1. Bubble values are bad.
Yes
2. The total selling price of a building consists of total rental value (of location plus b+m) divided by discount rate/interest rate.
Plus hope value and a factor due to the mood of the market.
3. We know that ultimately, capitalised rental value of b+m = replacement cost/value of b+m, this is a known and fairly fixed figure.
Replacement building cost is known. Land price is the big variable.
4. We also know that rental values are fairly stable.
Yes
5. Therefore, by applying maths, if interest rates go down (and are expected to stay low for a significant period), total capital values go up (and vice versa), if we minus off b+m value (from 3), the balancing figure must be the 'land value'.
Yes. But land titles get traded, first, for their hope value, and second, for their expectations of further rises, so we end up with a scramble to buy. That is the bubble.
6. For example, Business Rates are a tax on total rental value - land plus b+m. In most places, BR is less than what a 100% LVT would be, but in some places (nice building, shit area) they are more. We have still had a bubble and bust in commercial property prices (although in absolute terms, much smaller than in residential property prices).
Partly because vacant land and unoccupied buildings carry a low or zero liability so can be the subject of speculation, and partly because the charge is not high enough, and partly because of the business cycle which is amplified by other land speculation as it interacts with the banking sector.
7. Ergo, even with a tax on rental values (i.e. a stable figure that varies little from year to year, putting changes in planning consent to one side), the capital land value will fluctuate => bubbles => bad (from 1).
Only if the land value tax is at too low a rate and assessments are not kept up to date.
It's the bubbles that worry me as much as anything. A tax on capital values would act like a higher interest rate and tend to keep prices low (in absolute terms) and stable (in relative terms).
With sufficiently high rates of LVT, there is not going to be much interest in land as a speculative medium for making money out of.
Phys, thanks, count me in :-)
Mark, when you going to join LVTC? We always need more contributors to the website, if you join you can have your own section if you want and get more people reading you.
Ph, I'll have to think about that. Would I be allowed to post Cow Attack stories as well?
Our site is not entirely serious. We have a section called Dodgy Dossier where that kind of thing can go. Have a look.
@MW
Don't let Henry grind you down.Your original instinct that it does n't really matter whether its capital or rental values is correct .What matters is getting over to the public that rising property values are a bad thing: there is no point in this pettyfogging argument.Unlike Henry
most people live in areas,like huge estates, where they have no idea of what the rental value of their house is ,let alone the rental value of the land beneath.It is hard enough (see this blog)explaining to most people that the selling price of their property includes both the land price and the value of the bricks and mortar.
We should not be talking amongst ourselves,burbling on about "economic rent" which some pedantic Georgists extend to football players! A lot of this kind of argument is just "I'm more Georgist than you",a self-referential waste of time like the denunciations of some football fans"You're not a proper supporter because you don't go to the away games".
P.S. Rental values are not more real than capital values.Believe or not I had to sell a huge commercial property to its tenants once: I multiplied the annual
rent by 20 years.It was in retropect a stupid thing to do but it was n't my property! and it did show that rents are often just sub-divisions of capital values and capital values multiples of rents.
I used to think that it didn't matter whether values were capital or annual until we got involved in the valuation at the Vale of White Horse. We then hit three problems. It isn't Georgist dogma, it is a practical issue.
1. There was an element of hope value in the prices which had to be stripped out of the assessments.
2. Where sites had development potential, assumptions had to be made about what planning consents might have been granted. ie the valuer had to second-guess the planners.
3. The existing capital values were depreciated by the amount of property tax actually payable. Because property in residential use was subject to much lower tax than that in business use, which was liable to the much higher NDDR. Consequently, the selling prices of the latter were artificially depressed in relation to the former. A correction - the capitalisation of the Council Tax or UBR, had to be applied.
By the time these three corrections and adjustments had been done, the selling prices were very different from what they originally were.
A fourth problem arises once the LVT system comes into effect. The tax results in a reduction of the land price ie it cuts away at its own base. It is like sitting on the branch of a tree and sawing oneself off.
There's more but I must go now.
In haste as this argument is likely to disappear off the bottom of the blog when MW hears of another cow attack or lady with a huge,shapely,arse.
Why not include hope value in the assessments: the sellers would.?
Possible planning permissions would show up in elevated above normal asking prices.Or you could just go on existing values.
These are not major problems!
The sawing off the branch you're sitting on is a major point: in favour.The Sentinel LVT aims to get land prices down as low as possible and keep them down by taxing them when they show signs of rising.
Too many land taxers, like the Systemics, want high land prices to raise more tax.This is stupid: these land taxers have a vested interest in high,destructive land values.
> The tax results in a reduction of the land price ie it cuts away at its own base.
No, it removes the rent-element of the price.
DBC, Phys, while I enjoy an intellectual debate, I am no purist.
Key to this is explaining to people why it would make us, collectively, better off, that is the challenge - and Home-Owner-Ism is very deeply engrained in this country.
The endgame is a tax system where the buying/selling price of land is +/- nothing and the buying/selling price of an existing building = the cost/value of the bricks and mortar (or a negative amount if the building needs to be demolished first).
Whether we arrive at this by having Council Tax bands all the way up to Z; a much higher tax rate on rental income; a % tax on total capital values or total site-only values; a property bubble tax aka Sentinel Tax; a tax on total rental values (like Schedule A or Business Rates) or on site only rental values; or any combination of the above is, to be honest, neither here nor there.
We could just as well arrive at this happy state of affairs by starting with a flat tax of £2 per sq yard per year for developed land in every postcode sector, and then increasing it by 25% per year until the selling/buying prices in any postcode sector 'level out' (i.e. fall to pure rebuild cost).
(and reducing other taxes by £2 for every £1 extra land tax, of course!)
So in less desirable areas, the tax might end up as £2.50 after one year and then stop going up; in Mayfair it might take two decades for the tax to reach however many £100s per annum required to get selling/prices down to pure rebuild costs.
Which is IanB's suggestion of an 'Imaginary Value Tax'.
AC1, you are more of a 'capital value' man, aren't you?
I reckon prices won't move as you swap LVT for income Taxes.
At the end game point where land prices are close to zero, then it would be impossible to make assessments on capital values, wouldn't it? So they would have to change over to annual rental values at some point.
LVT is a share of the rental value collected as tax, preferably close to 100%.
If existing taxes are cut, then these will go into land values which will tend to hold up - from the exchequer's point of view it sets up a benign cycle. As the rate of LVT continues to be put up, it should generate a substantial surplus which can be distributed as a basic income.
The question of explaining the system and its benefits is a matter of good communication using the media that are available as effectively as possible, including, for example, animated diagrams.
The real problem is that it is nearly impossible to get a platform on which to put the idea across. Try presenting the case for LVT on Any Answers, for instance. You will be locked out. It is not allowed to talk about it.
And then of course there is home-ownerism.
AC1, there's only one way to find out...
Phys, "where land prices are close to zero, then it would be impossible to make assessments on capital values, wouldn't it?"
Correct. But let's assume that somehow or other, we arrive at a £ amount per square yard in each postcode sector (or even unit) which gets buying/selling prices down to +/- b+m cost (not forgetting that buying/selling prices are easier to monitor than rents and a matter of public record anyway).
All you then have to do is to keep a watchful eye on buying/selling prices - if they fall below b+m cost, the rate has to be reduced, by a few pence or a few pounds; and if they rise above b+m cost, they have to be hiked by a few pence or a few pounds.
Mark, what you say is exactly right. When most of the rent is collected, land changes hands at small premiums which are the capitalisation of the uncollected rent.
But in that situation the annual rental value is only slightly more than the amount that has been collected as LVT. It would be impossible to levy the tax on the basis of these small residual capital values.
The annual value equals the amount of LVT collected, plus the decapitalised premium.
You cannot ask more than 100% of rental value or the land will be abandoned.
Ph: "You cannot ask more than 100% of rental value or the land will be abandoned."
That's only true for farmland.
If there are already buildings on it, then the additional tax would just act like an income tax on the income from the building. So while such a situation is not ideal or desirable, it is not the end of the world.
If the land is ripe for development and the tax is (inadvertently) more than 100% of rental value, then the current owner will just pay somebody to take it off his hands, or he will make sure he maximises his income by getting the building knocked up pronto presto.
This is of course a highly theoretical situation but if all other taxes have gone, rental values are at their natural maximum and if all that rent is collected, it is impossible to ask for more.
This is the present situation in marginal areas eg the regional fringe areas. There is urban land that has gone sub-marginal. The burden of existing taxes tips all attempts at business into unprofitability.
Under 100% LVT and no other taxes, there is no further leeway remaining.
At 100% LVT and with no other taxes, the pips are on the verge of squeaking if they squeezed. Same as happens now, in fact, only the rent goes to landlords. When they try to put the rent up any more, the tenants are liable to walk away. See here
What about an IPVT?
That could add rather a lot to the Citizens Dividend (to replace the welfare state)
Ph, yup, agreed.
AC1, I mentioned that as well.
I wonder will patent holding little old ladies be mentioned?
AC1, nearly all patents are held by corporations and they only last twenty or twenty five years. It's copyrights you want to worry about - which last up to seventy years after the author or artist's death. But as LOL's already pay income tax on royalty income, this is not an issue.
Why not worry about both?
I'd like patents to last for ever like copyright, but have a Laffer maximised IPVT attached.
Let every IP owner set a buyout price and set the tax at say 7% of that.
AC1, with the exception of Peter Pan, copyrights do not last 'forever'. Returning to the theme, whether the copyright or patent owner sets a capital value and pays tax on that; or whether he just pays tax on the cash income is neither here nor.
I disagree, a system that allows the user to set the price they'd get bought out, but then charges them for that tends to ensure that IP is licensed to other users as much as possible rather than used as a blocking device.
AC1, you are making it too complicated. What you are building up to is that the creator of the IP has to pay a fee in exchange for state protection of his sole rights to use it (which is fair enough).
So obviously there has to be an auction process, however, during the first x years after creation, it is unfair to make the creator pay as much as the next highest bidder (or else there is complete disincentive to writing, painting, inventing etc).
So for the first x years, the rule would have to be that the creator gets the protection for a small fee or for free (as at present), but after that time, it is up for grabs - the copyright either reverts to the state, who auctions it off periodically (like radio spectrum) or the state protection just lapses and it is a free-for-all (as at present).
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