Adam Collyer left a comment on "Killer arguments against LVT, not (36)":
"most poor people live in small houses or in cheaper areas where LVT wouldn't be much; most rich people live in big houses in nice areas where LVT would be a lot"... It depends what you mean by "poor". You are as usual blurring the distinction between being rich in assets and being rich in income. You can own a big nice house but have hardly any income (archetypal widow for example) in which case...
I am not blurring anything. That's exactly what I'm not doing. Just to be absolutely clear about this for the dozenth time.
1. There is proper 'wealth creation' i.e. going out and working or starting a business etc. which by definition creates new, net wealth. This is liable to income tax. Whether for moral or practical reasons, I oppose taxes on individual efforts and wealth creation.
2. And there is privately owned land, which by definition is not 'net wealth' (to which see point (c) below)
So it must have been clear that I was using shorthand for the rather more cumbersome "most people who have lower incomes or had lower incomes during their working lives live in small houses or in cheaper areas where LVT wouldn't be much; most people who have higher incomes or had higher incomes during their working lives live in big houses in nice areas where LVT would be a lot..."
"The 5% of poor people who happen to live in a big house in a nice area will have to trade down; roll up the tax to be repaid on death; take in a lodger; get their heirs to pay it etc etc. Such is life." Easy to say if you're not likely to be a victim.
As I explained, 'my' theoretical inheritance would be diminished by about £700 a year for every year that my parents lived. And, as I also explained, if we used LVT to replace taxes on incomes and production, then every £1 I lose off 'my' inheritance is an extra £1 added to my net income. Why does having a higher net income now and a smaller inheritance later make anybody a 'victim'?
"If they don't want to pay it, then let them roll up the tax." (a) Ah, yes. So LVT is really Inheritance Tax in disguise (b). Put it another way: it's a wealth tax (c). Attractive if you're a Socialist I guess (d).
a) I can sympathise with the traditional objection to LVT or indeed Council Tax that pensioners want to stay living where they are living, and that their (largely taxpayer funded) pensions are not enough to live on and pay the LVT or Council Tax. But this is purely a cash-flow issue. So why not make the due date for the tax payment one that is convenient for all concerned?
(i) Inheritance Tax is a tax on the deemed value of all your assets when you die (subject to a hundred exemptions) - regardless of whether they represent money on which income tax has been paid or whether they represent hitherto untaxed windfall gains on rising property values. Again, for both moral and practical reasons, I oppose a blanket Inheritance Tax.
(ii) LVT is a tax on land values. Conflating LVT and IHT is tantamount to saying that fuel duty is a tax on cigarettes, or something.
(iii) Or let's imagine HMRC said to pensioners, your pensions will be paid to you without deducting income tax, but we will reclaim the income tax from your estate. Does that magically transform income tax into Inheritance Tax?
c) Private land ownership is not net wealth (the buildings on the land very much are net wealth, of course). For example, Crown Estates (owned by the government) owns loads of office blocks in Central London, it is indistinguishable from any other private landlord. It hands over its net profits to the government. If Crown Estate sold off these buildings to private owners for a lump sum, the income taxpayer would end up slightly worse off, because the government would squander the proceeds and in future, the government's revenue shortfall would have to be made up with ever so slightly higher income tax. Whether the tenant pays market rent to Crown Estates or a private landlord is neither here not there. The same applies to Council Housing (with caveats).
d) OK. Complete these sentence in a hundred words or fewer:
(i) "A tax on wealth creation encourages wealth creation in a capitalist economy because..."
(ii) "A tax on wealth creation cannot be regarded as Socialist because..."
Wednesday 19 May 2010
Killer arguments against LVT, not (37).
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10 comments:
This is great. Have you thought of writing a book, like The Plan?
MA, thanks but no thanks. There are realms of books on this sort of stuff - the few that are sold are preaching to the converted. I prefer debating with the faux libertarians in real time - this is all a good dress rehearsal for me.
I am certainly not a faux libertarian, or any kind of libertarian!
Some of what you say is valid, some not (IMHO).
My key objection is to your statement that "Private land ownership is not net wealth". From an economic point of view, that is nonsense, because the land can be sold (even to a foreigner) and has value.
And from a personal point of view, of course, I used the fruit of my labours to buy it. It is not all a "windfall" TO ME. Only the INCREASE in value since I bought it is not the fruit of my labours.
If you tax it so that its value is reduced, you are in fact taking away money I earned by working for it.
If I work hard and earn £100K, which I use to buy land, and then you tax it, you are taxing my wealth.
AC (whose comment hasn't appeared yet):
My key objection is to your statement that "Private land ownership is not net wealth". From an economic point of view, that is nonsense, because the land can be sold (even to a foreigner) and has value.
OK, I take it you realise that that the only reason we have private land ownership is because profligate governments have been strapped for cash in the past and needed to raise money fast?
So let's imagine Crown Estate sell off their office buildings directly to Johnny Foreigner and pisses the money up the wall. Has that increased or decreased our net wealth?
And from a personal point of view, of course, I used the fruit of my labours to buy it. It is not all a "windfall" TO ME. Only the INCREASE in value since I bought it is not the fruit of my labours.
Agreed, it's only the increase that is a windfall to you personally. But what you pay for is the windfall to the previous owner plus what he paid for it, and so on, right back to the Normans who originally stole it from our shared ownership, when its value was negligible, to be fair. So of the cumulative value, not a single penny is the fruit of anybody's labour (excluding the bricks and mortar bit), it is just all cumulative windfall gains.
If you tax it so that its value is reduced, you are in fact taking away money I earned by working for it. If I work hard and earn £100K, which I use to buy land, and then you tax it, you are taxing my wealth.
Nope. It's the income tax you have to pay to generate a net income of £100k that is taxing your, personal 'wealth' (i.e. your ability to generate wealth). If we taxed land more and taxed incomes less, you wouldn't need to earn £200,000 gross to keep £100,000 net to buy that land.
In a perfect Georgist world, you wouldn't pay income tax and wouldn't need to pay anything up front to buy the land - all you would do is settle up with the previous owner for the value of the bricks and mortar and assume the liability to pay the LVT in future.
@ac
There is a form of LVT the Sentinel version that only taxes increases in land values; no attempt to recover past increases.
DBC, we are agreed on Sentinel Tax, or as I call it "Property Bubble Tax". I touted it in the second half of this post, but inevitably it got a firm thumbs down from the Home-Owner-Ist faction.
At some point somebody who knows more about tax than I do has to come up with a combined tax ,deducted from salary PAYE
,with a landed property element that varies on a reciprocal basis with the earned income element ,so that increases in land tax due are compensated by reductions in income tax-without the punters noticing what is going on (because total deductions don't change).This will also deal with Henry's caveat that effective land taxes saws off the branch you're sitting on and lowers the tax take (not when income tax goes up to compensate).Not that I'm keen on Income Tax.
It only involves intergrating Income Tax records with Council Tax,not that difficult with computerised records .Not that I'm keen on computerised records : file cards + fax machines represent
the future as I'm apt to say to people wandering boredly away.
Re Sentinel Tax: wouldn't it be simpler to remove the Capital Gains tax exemption for homes? I wouldn't disagree with that...
Problem with CGT on houses is that it is supposed to have a track record (in Japan)of slowing down the market in house sales.
The idea with the Sentinel Tax ,which stems from J.S. Mill's idea for land tax,is that it is introduced when the property market bottoms out and taxes only subsequent rises.So the thinking is that people will be so tax averse that land prices will remain permanently low.(Imagine that!)And so the tax may never be implemented ( a bit unlikely). If your land does rise in value ,your income tax will be discounted in proportion so your total tax does n't increase .See MW's income tax land tax reciprocating mechanism (elsewhere on blog) .
AC, such a CGT would only 'work' if it were a 100% tax (or else there is still every incentive to hold out for a higher price), which then brings with it its own Unintended Consequences.
I am drafting a full reply in my mind, comparing and contrasting the TV licence fee and Inheritance Tax (both of which raise about £3 billion a year) - one is a small regular payment without the option; the other is a huge burden for randomly selected people at irregular intervals on arbitrary 'values' .
DBC, agreed, see my previous comment
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