I have long been telling anybody who cares to listen that we ought to be levying lower taxes on incomes and production, and levying higher taxes on land values (notwithstanding that tax and spend in this country is way above any rational level, so overall tax and spend should come down by about a third, different topic).
The Home-Owner-Ists occasionally admit that this would probably be better for the economy and future generations, but they oppose it for the simple, selfish reason that such a tax shift would tend to reduce the price for which they can sell 'their' land. Fair enough, the Home-Owner-ists got that bit right. The fact that they consider the selling price of 'their' land to be more important than their net cash income or the future health of the economy is their decision.
In my earlier post, I described the Lib-Con proposal to "Freeze council tax in England for at least one year, and seek to freeze it for a further year" as "Pure Home-Owner-Ism. Make[s] life cheaper for people who already own houses but more expensive for everybody else."
Adam Collyer is one of those who opposes levying taxes on land values for the reasons outlined above. But he has now left a comment to say "MW, I'm afraid I agree with all that, except the first bit - Renters pay council tax as well as mortgage payers."
How can you argue with people who completely contradict themselves? He appears to agree that higher taxation of land values and lower taxation of incomes and production would push house prices down (thus particularly benefitting those who don't yet 'own' land, and those with a high income-to-property ratio - and he opposes it for exactly that reason); in the next breath he is saying that lower taxation of property values and higher taxation of incomes and production* would not benefit those who don't yet 'own' land.
In any event, he is wrong on the second issue. Of course tenants pay Council Tax (I am a tenant and I pay Council Tax), but it's just part of their overall occupation costs, for which they pay market value; if Council Tax goes up, then rents will go down in equal and opposite measure - a Council Tax hike does not affect a tenant in the medium term.
If a tenant is looking to buy a house one day - and most are - then any Council Tax cut or freeze merely increases the amount that other people competing for the same house can pay by way of mortgage (for a given total housing budget), thus pushing up the selling price. A Council Tax cut or freeze benefits the person selling or remaining in the house and not the person buying it.
This is exactly the same effect as an interest rate cut - it benefits the vendor and not the purchaser, because house prices will just go up accordingly.
* You have to remember that while the Lib-Cons promise not to increase Council Tax (which raises £20 billion to £25 billion, so the value of the freeze is £1 billion or so a year), they are seriously proposing to increase tax on salaries by 1% (which will increase the tax burden on employment by £5 billion-odd) and to increase VAT from 17.5% to 20% (which will increase the tax burden on profits and wages by about £10 billion). Why increase the tax burden on incomes and production in order to pay for, inter alia, an effective cut in Council Tax?
Diminished
2 hours ago
30 comments:
Andy, do you want the economics explanation or real life examples? You have to get away from the idea that land values are an absolute. They are not, they are merely a balancing figure.
1. People are prepared to commit a fixed share of their budget to housing costs - be that rent+ C tax or mortgage repayments + C Tax. This is an observable fact.
2. Once people have 'jumped on the ladder', then they are affected by interest rate changes (the debt is a fixed amount) or C Tax changes.
3. We know from interest rate changes that house prices go up or down so that for a potential buyer, the overall servicing costs at the onset stay the same.
4. We know that if more of a given total budget is taken up by C Tax, then the rent paid to the landlord goes down. This can be observed in practice by comparing rents in a high council tax area with those in a neighbouring low council tax area.
5. The landlord cannot just 'pass on' the increase as he is already charging as much as he can possibly get - why would he be charging less?
6. Taxes are only 'passed on' if not to do so would render that economic activity unviable, e.g. VAT - but a higher VAT inclusive price means that for a given total spending budget, less of that item is consumed so gross output goes down.
7. With C Tax this is simply not the case. The volume of houses is fixed - it would only be possible for rents to be pushed up if a lot of houses were demolished.
8. So if C Tax is increased, the net rent that the landlord can collect goes down and, for a given interest rate, the purchase price of houses goes down as well.
9. This is merely the equal and opposite argument, which the Home-Owner-Ists accept as valid, which says that higher taxes on land values would push down buying and selling prices.
10. That is why the Home-Owner-Ists oppose LVT (fair enough) - but when it suits them (as in the quote from Adam C) they say exactly the opposite - that higher property taxes DO NOT affect property prices as the landlord (or potential vendor) would merely 'pass them on' to the tenant or purchaser.
"Why increase the tax burden on incomes and production in order to pay for, inter alia, an effective cut in Council Tax?"
Setting aside the arguments concerning LVT for a moment, this freeze will benefit those of us who actually pay the council tax - in my case the electors from the West of the London Borough of Haringey - while not inconveniencing the benefiterati (ie non-payers) on the East of the Borough. Since the electors of Haringey - or rather the benefiterati - re-elected Labour with an increased majority (funny, they may leave school or Africa or Asia unable to read or write English but they know on day 1 where their hand-outs come from) I am - selfishly - grateful to the coalition for, in effect, trying to prevent my local council mulcting me to buy the next council election.
U, I am opposed to all rent-seeking. I am opposed to corporatists, subsidy junkies, Home-Owner-Ists, the Quangocracy and of course the benefiterati (especially the ones who get extra money for coming from abroad and/or being diverse). I refuse to look kindly on any of them.
Being fair about this, the average increase in the value of a house over the last ten or fifteen years has been more than you could have claimed in benefits in that time.
You also overlook that C Tax is a red herring, it is a modest poll tax which raises just over half as much as fuel duty.
The money that the benefiterati get is funded by central government out of your income tax etc, as is three-quarters of local council spending.
"if Council Tax goes up, then rents will go down in equal and opposite measure - a Council Tax hike does not affect a tenant in the medium term."
I understand the theory. But is there any evidence this happens?
Also it does not just benefit home owner - it helps council tenants.
Freeze council tax in England for at least one year, and seek to freeze it for a further year ...
How is that Homeownerism? I don't own and yet I am liable for council tax.
MW
Sure, in sterling terms, the increase in value of my house far outstrips what an individual would receive in benefits over the lifetime of my occupation of that house but so what? A "value", I might add, which I do not wish to realise and for which - at the time I purchased the right to benefit from that value - I took a substantial financial risk.
I owe no duty to the benefiterati just because I appear to have benefitted (quite unintentionally and in one restricted area of my life) from crap decisions made by politicians who they have elected. I pay quite enough tax generally (including, despite my position in your cabinet, to African and Asian kleptocrats) to want to see more of it leached locally to keep the benefiterati in the style to which they've become accustomed and Haringey's diversity outreach workers and community organisers in their non-jobs.
BTW council tax is not a poll tax. One of the beauties of that much-maligned tax was that everybody paid (hence the riots from the leachocracy). If everybody paid the council tax there'd be no need to freeze it since there would be a concurrence of taxation and representation. The council tax effectively enshrines representation without taxation.
I'm also aware that council tax pays a small part of money expended by the council. Were there to be a proper balance between local expenditure and local taxes, and general expenditure and general taxation there's be no disagreement here. However, much of local government expenditure is mandated by central government (eg education) so there's no rationale in being taxed locally in respect of expenditure which is, in essence, national.
Anon, there is loads of evidence, between different boroughs (see above); over time (i.e. bubble after Schedule A was scrapped and another one when Dom Rates were scrapped); between different countries and so on.
JH, I am also a tenant - see my replies above. If they were to e.g. double C Tax next year, do you think your landlord is more or less likely to be able to push through a rent increase?
U, indeed, the hard workin' man owes little to the benefiterati or the quangocracy; the honest businessman owes nothing to the subsidy junkies and the corporatists; the UK owes the rest of the world absolutely nothing.
It's just that there are plenty of other blogs who lambast such rent-seekers, so it would be a duplication of efforts for me to go into it here, so just for sport I pick on the biggest group of rent-seekers of all, the Home-Owner-Ists. Lashing out at estate agents, greedy bankers, second home owners or landlords is to completely miss the point (which is why I trouble myself little with these groups).
And yes, Council Tax is not a per-person poll tax, it is a mixture of per-dwelling poll tax (like the TV licence fee) and property size tax, and I have no objection to a tax based on the size of a property (but a tax based on value would be better).
"there's no rationale in being taxed locally in respect of expenditure which is, in essence, national."
Correctamundo. But this is not an argument against property taxes, is it? Business Rates is the closest thing we have to land value tax, and although it is collected locally, it is pooled and redistributed nationally, for example.
"If Council Tax goes up, then rents will go down in equal and opposite measure - a Council Tax hike does not affect a tenant in the medium term"
Hmmm - that's a bit like saying that if the government hikes duty on alcohol, the price of beer won't rise because the breweries would be forced to cut their prices.
In actual fact, if council tax rises, the effect is simply to transfer more money from the public to local councils.
But do remember I also said I agreed with all the rest of your previous post!
By the way, Council Tax is very different from LVT because it does not vary with the current land value. It is based on a notional property value in 1992 (?I think) and if my house triples in value, my council tax stays the same.
AC: "Hmmm - that's a bit like saying that if the government hikes duty on alcohol, the price of beer won't rise because the breweries would be forced to cut their prices."
Exactly not. It has got to do with elasticity of supply and competition.
1. The brewers' super-profits are competed away, so they run on the basis of price = cost + tax + small profit margin. They would love to charge more than this, but if they do, and make super-profits, those super-profits will be competed away by new entrants.
2. If beer tax is hiked, then brewers have to hike their prices, or else they will be running at a loss. If the qty demanded at the higher price is lower, some will go out of business.
3. Quite the opposite with landlords (or people wanting to sell a home). Super-profits cannot be competed away, as land is in strict supply and is a quasi-monopoly. There is no substitute for land, and there is no substitute for a particular location. So landlords are already charging as much as they can get (with or without council tax), they cannot charge any more.
4. The landlord's costs have little relationship with the rent. It costs much the same to insure and maintain a three-bed semi in an expensive area as in a cheaper area, despite the rents are twice as much.
5. So unless the tax + maintenance + running costs exceeds the rent (which is obviously not the case), the landlord is always better off continuing to let out or sell the property, than leaving it vacant.
6. So whatever the level of the property tax (up to a maximum of rent minus running costs), quantity supplied does not go down and rents do not change. They cannot charge any more than what they were already charging.
7. Interest on a purchase loan is not really a cost for these purposes. If interest rates were to sky rocket, it might happen that some landlords are repossessed, and the next landlord buys the property for less with a lower interest cost - it is still the same building for which a landlord can charge the same rent.
8. Compare this with the rent of houses in an area that becomes prone to flooding. Tenants offer lower rents, and the insurance companies increase the insurance premiums. Do you think that landlords in that area can say to their tenants "Well, sorry, although this area is now prone to flooding, I have to increase your rents."?
And yes I know how Council Tax was calculated.
AC:"In actual fact, if council tax rises, the effect is simply to transfer more money from the public to local councils."
The largest source of funding for councils is the Whitehall, who pays them out of income tax and VAT. (see also Umbongo above). This government intends to hike VAT and NI by £15 billion and cut/freeze C Tax by £1 billion.
So if you want councils to get less money, why not let them get on with increasing C Tax by £1 billion and ask the Lib-Cons to cut VAT and NI by £15 billion and cut Whitehall grants to councils by at least £16 billion?
I think your reasoning is totally bizare and makes no sense.
Ignoring the odd reasoning of council tax trading off against rent - which it doesn't they are separate costs - you are ignoring the driving economics of housing provision.
Consider: If lots of people didn't buy houses using their own money new houses would not be built except at public expense. The harder you make it to buy or own houses with punitive taxation or built-in costs then the fewer people will buy with their own money, and there will be an increasing housing shortage. You need private buyers.
Woodys42: "I think your reasoning is totally bizare and makes no sense."
You are perfectly entitled to your opinion. I am interested in real life and economic theories, and if the theory predicts real life, and if real life helps illustrate the theory, then that is how I see things.
"Ignoring the odd reasoning of council tax trading off against rent - which it doesn't they are separate costs.."
As I have explained, this can be observed in real life, it is FACT.
" - you are ignoring the driving economics of housing provision. Consider: If lots of people didn't buy houses using their own money new houses would not be built..."
Maybe. But most people WANT to buy houses, the only thing stopping them is that they are so bloody expensive, which is partly to do with the credit bubble, partly to do with tax and a lot to do with NIMBYism.
"... except at public expense."
I think you'll find the NIMBYs have a thing or two to say about that as well.
"The harder you make it to buy or own houses with punitive taxation or built-in costs then the fewer people will buy with their own money, and there will be an increasing housing shortage.
You need private buyers."
Let me remind you, half the cost of a house is the bricks and mortar and half is the land value/bubble value, which in turn is a result of NIMBY-imposed rationing, that extra £80,000 or £100,000 for a few hundred sq yds of land (which without planning would be worth pennies) - that's what I call 'punitive, inbuilt costs' - not the £1,200 a year for Council Tax.
And while we're on the subject of tax, do you not think the average household income tax and VAT bill of £20,000 to £30,000 might have more to do with it than the £1,200 Council Tax?
In any event, it is the housing shortage that led to high prices, and not high prices that led to a shortage. In a truly competitive market, there are no bubbles, because higher prices lead to an increase in supply. With strictly rationed things like houses, higher prices merely lead to even higher prices - it's called a bubble, and after it burst you get a recession, and if the bubble was big enough, when it bursts you get a depression. Fact.
I've read your remarks, Mark, on HOists and in response to the question of how you would go about disenfranchising those who own homes and did it in good faith all those years ago.
I still don't see clearly how you would go about taking their homes - surely not by government decree?
The Home-Owner-Ists occasionally admit that this would probably be better for the economy and future generations, but they oppose it for the simple, selfish reason that such a tax shift would tend to reduce the price for which they can sell 'their' land.
No Mark, it's that you're taxing something imaginary; that is the hypothetical rental value of land which is not rented, or the hypothetical sale value of land which is not for sale.
If you object so strongly to profit from land, why don't you tax rents or sales of land?
Then you can still capture all that nasty unjustified rent profit you hate so much. Why tax something hypothetical instead of a real transaction? Why tax estimated "value" instead of actual values measured by the economy during rental or sales transactions? Answer me that question Mark, please.
JH: "I still don't see clearly how you would go about taking their homes..."
I never said taking homes. I said instead of taxing incomes and production, we should tax land values.
Imagine that we had a system where we only taxed land values and not incomes, and some politician said we ought to move to taxing incomes.
If (which I hotly dispute) taxing land values = taking somebody's home, then surely having income taxes of nearly 50% = making people slaves for three days a week?
IB: "If you object so strongly to profit from land, why don't you tax rents or sales of land?"
I don't object to profit from land. When did I ever say that? I am just saying, unlike most other incomes, it is purely windfall gain that arises from the collective efforts of society in general and thus the profits should not be privatised - profits from land are in fact privately collected taxes, but they are still taxes.
So let us untax individual efforts and tax windfall gains or benefits from collective efforts.
Cash rental income is taxed (provided people declare it). Sales of land are already taxed (subject to exemption and provided you declare it).
I am not sure whether you accept that this is true or not, but it is, or even whether you think it should be tax free or not, but hey.
The point is that the non-cash rental income and cash capital gains from owner-occupation are only very lightly taxed by comparison (and certainly much more lightly than normal income and production which is very, very heavily taxed).
I believe in substance-over-form.
Let's imagine a tenant agrees to buy the house he is living in from his landlord. It is the same person living in the same house, and probably paying a mortgage to the same bank.
Can you please explain why you think it desirable that, from that transaction onwards, the owner of that land no longer has to pay any tax? Do you not think that at the very least this is a massive distortion, and indeed tilts the playing field away from the much maligned landlord?
Let's imagine a tenant agrees to buy the house he is living in from his landlord. It is the same person living in the same house, and probably paying a mortgage to the same bank. Can you please explain why you think it desirable that, from that transaction onwards, the owner of that land no longer has to pay any tax?
Er, because it's not providing any income Mark. It is now a cost to the new owner.
Like, you might tax the income (or profits) of a company that hires lawnmowers to people, but not tax a man for owning a lawnmower, because it isn't actually making him any money. You see the difference?
Many things have a possible potential rental value, as with my earlier Whore Value Tax. But they only have that value if they are actually being rented.
Value only exists during transactions, Mark. It doesn't exist at other times. You do realise that?
Ian B: "Er, because [the house is] not providing any income Mark. It is now a cost to the new owner."
I would assume that the house is generating non-cash income or benefits to the new owner, which are by definition equal to the non-cash income or benefits he was receiving when he was still a tenant. It is the same person in the same house paying the same mortgage to the same bank.
Value only exists during transactions, Mark. It doesn't exist at other times. You do realise that?
What is this fixation with transactions? If a load of gyppoes came and squatted in your house and garden, would you say you have lost something? And if so, how would you quantify your loss?
I would assume that the house is generating non-cash income or benefits to the new owner, which are by definition equal to the non-cash income or benefits he was receiving when he was still a tenant.
I'm trying very hard not to believe where you're going with this.
What you seem to be saying- and correct me if I am wrong- is that the benefits of ownership of a good should be taxed? So, following with the previous, the fact that I benefit from owning my lawnmower gives you a right to tax it? You are actually seriously stating that the benefit of owning something- anything- is equivalent to an income?!
What is this fixation with transactions? If a load of gyppoes came and squatted in your house and garden, would you say you have lost something? And if so, how would you quantify your loss?
I don't need to, since they are infringing my property rights. It would be quite impossible to assign a value to that infringement, and would not in fact be appropriate. This is the major problem with trying to value compensation claims, and why american-style legalism leads to crazy tort spirals. Because there is no way to meaningfully assess the value in the absence of market transactions.
Sorry, just to finish; if somebody trespasses on my land, I ask them to leave. If they don't, I may kill them, because they are on my land. Under Common Law, the State might come and kill them for me. Whatever.
It's a property rights issue, not a value issue.
IanB: "What you seem to be saying- and correct me if I am wrong - is that the benefits of ownership of a good should be taxed?"
As I have explained before, what I am saying is that people should pay to society in general (via tax and redistribution) for the benefits that accrue to them personally because of state-protected exclusive possession of land, or of radio frequencies, or a cherished number plate or any other limited resource (which, from the point of view of everybody else who would like to occupy that land, radio frequency or use that number plate, is an equal and opposite disadvantage).
Quite clearly this does not apply to lawnmowers. I have never proposed a tax on lawnmowers. Neither Adam Smith, David Ricardo, Henry George nor Milton Friedman proposed a tax on lawnmowers. Feel free to try and prove me wrong.
In fact, there is very much a tax on lawnmowers - VAT when you buy it and the corporation tax and income tax on the lawnmower manufacturer's profit. I have always said we should scrap VAT and reduce corporation and income tax, so if I were in charge, lawnmowers would be much more lightly taxed, if at all.
If you buy a lawnmower you are not depriving anybody of anything at all, you have paid the lawnmower manufacturer for the full value of the lawnmower; 'the state' plays no part in the creation of that lawnmower and society in general is neither benefitted nor burdened by your ownership thereof.
If your neighbour wants a lawnmower he can buy another one off the manufacturer.
If you buy a lawnmower you are not depriving anybody of anything at all, you have paid the lawnmower manufacturer for the full value of the lawnmower; 'the state' plays no part in the creation of that lawnmower and society in general is neither benefitted nor burdened by your ownership thereof.
This seems like a divergence in your thinking. As I understand you:
- Land is a fixed resource, my ownership of it deprives another of the ownership of it and therefore any benefit I derive from that ownership should be taxed and so redistributed to society in return for my use of a fixed resource.
- The resources (which are not infinite) that go into manufacturing any product (in this case a lawnmower) are not depriving anyone of anything.
These two are mutually exclusive. Whether I agree with your stance on LVT or not is not the point. You cannot argue that land is a finite resource but the raw materials inherent in all products are not.
If I extract metal and form it into a lawnmower, that metal cannot be used to simultaneously make a microwave oven. I continue to derive "benefit" from my lawnmower, while depriving my neighbour of a microwave. Why then should the ownership of a lawnmower not be taxed by your same argument?
Andy, indeed, out of the £200 you pay for a lawnmower, a few £ relates to iron ore extracted from the ground; a few pence relates to the oil extracted from the ground to make the plastic bits; and the factory that built it has to be sited on land somewhere; and the shop you bought it uses land and so on.
These all involve land.
But the iron ore or oil producer will be paying for his mining rights in his country (and if not, good luck to him); the factory is probably in China and they have their own tax system; and the shop in the UK from which you bought it pays its Business Rates.
Further, you have to store the lawnmower somewhere, so part of what you are paying LVT for is the couple of square feet on which the lawnmower is stored.
But that is quite separate and distinct from having a tax on the value of the lawnmower itself, the bulk of which is wages and profit margin. There is no justification for an extra tax on the lawnmower as it has already borne its share of LVT.
out of the £200 you pay for a lawnmower, a few £ relates to iron ore extracted from the ground; a few pence relates to the oil extracted from the ground to make the plastic bits; and the factory that built it has to be sited on land somewhere; and the shop you bought it uses land and so on.
These all involve land.
You have avoided addressing my point.
If I buy a mine, then the land that that mine is on attracts a higher LVT because of the resources in the ground. Once all the resource is extracted, that value is gone, and so the LVT would (presumably) be lowered to reflect its new lower value. In which case: land with resources in, unused, attract a high (ongoing) taxation. When those resources are removed and made into lawnmowers, the lawnmowers do not retain that value.
Perhaps you would like there to be a lawnmower area tax? Land without a lawnmower on are taxed at LVT1 and with a lawnmower on at LVT2?
Andy: "If I buy a mine, then the land that that mine is on attracts a higher LVT because of the resources in the ground."
Correct.
"Once all the resource is extracted, that value is gone, and so the LVT would (presumably) be lowered to reflect its new lower value."
Correct.
"In which case: land with resources in, unused, attract a high (ongoing) taxation. When those resources are removed and made into lawnmowers, the lawnmowers do not retain that value."
Correct. What is the scrap value of the few pounds of steel in a lawnmower when it finally conks out after decades? A few quid?
This is not a 'natural resource' in the same sense as the iron ore under the ground. The iron ore under the ground was put their by nature/fluke/A Divine Being. The lawnmower is there because you paid for it.
"Perhaps you would like there to be a lawnmower area tax? Land without a lawnmower on are taxed at LVT1 and with a lawnmower on at LVT2?"
No. I wouldn't. I have never said that there would be or should be. I would rather discuss the pro's and con's of what I have proposed rather than the pro's and con's of something completely different.
If nothing else, a lawnmower tax would be unworkable on an administrative level.
If nothing else, a lawnmower tax would be unworkable on an administrative level.
Apologies; I must remember that sarcasm doesn't translate well in textual messages. I was quite sure that a lawnmower tax wasn't something you would be promoting. I was using it as the logical end point of regarding finite resources "owing" society.
This is not a 'natural resource' in the same sense as the iron ore under the ground. The iron ore under the ground was put their by nature/fluke/A Divine Being. The lawnmower is there because you paid for it.
I'm afraid that it appears like you are twisting definitions to suit your conclusion. Why is iron ore in the form that it must dug from the ground different from iron ore in the form of a lawnmower? Would your position be different if the $DIVINE_BEING had buried lawnmowers instead of iron ore?
You've also avoided my point again.
Your justification for LVT is that land is a finite resource. The ownership of which by an individual deprives society of it. Why is this not so for every other natural, finite, resource?
If you were to respond: ideally we would tax every natural resource in the same way, but it is impractical, then I would have more respect for your position. However, it seems that you are simply defining things the way that suits your argument.
Let me rephrase the argument again then: let us say that I have the technical facility to take iron ore out of the ground and put it, whole into a giant warehouse. It is now out of the ground and simply resting on the land of my warehouse. You agree that the value of the original mine (for LVT) has decreased. Where then is the corresponding increase? It cannot be in the land of the warehouse, because when I sell the warehouse I will take my iron ore with me to a new warehouse.
I know where it is, and have been trying to get you to say, but you cannot as it wrecks your argument: the value that has gone from the land is in the iron ore. It was never in the land, it was in the ore.
Since LVT means that that value is taxed in an ongoing way, you must tax the iron ore in an ongoing way. So, at the extreme you must tax the ownership of lawnmowers.
Andy: "Your justification for LVT is that land is a finite resource. The ownership of which by an individual deprives society of it. Why is this not so for every other natural, finite, resource?"
My philosophical justification for taxation of state-guaranteed exclusive possession of land incl. iron ore, plus radio spectrum, landing slots etc, is that the people who benefit from the exclusive possession (the 'owners') pay to 'the state' for those benefits, and 'the state' passes on that money to those who are restricted by 'the state'.
My practical justification for LVT replacing income tax, VAT and so on is that it is easy to assess and collect and has no deadweight costs on the economy.
"I know where [the iron ore] is, and have been trying to get you to say, but you cannot as it wrecks your argument: the value that has gone from the land is in the iron ore. It was never in the land, it was in the ore."
Correct.
So the miner pays for exclusive possession of the mining rights. Let's say the iron ore/mining rights are worth £1 billion. So over the lifetime of the mine, he pays £1 billion for the iron ore. When the ore is all removed, the mining rights are worthless and the miner stops mining and stops paying.
The cost/value of the ore is only a small fraction of the value of the steel; which in turn is only a small fraction of the lawnmower.
But never mind, when you buy your lawnmower, a very small part of the purchase price (£1? £2?) relates to the value of the iron ore; so the lawnmower owner has paid his dues of £1 or £2 to the miner, who in turn has paid his dues of £1 or £2 to 'the state'.
You can follow this through for all the raw materials embedded in the value of the lawnmower - it has already been paid for (and if it was imported, who cares? It is up to foreign countries to sort out their own tax systems).
And you can follow this through for the LVT or Business Rates that the importer, the warehouse, the wholesaler and retailer pay for the storage of the lawnmower in the interim.
That's all paid for and embedded in the price of the lawnmower.
And that is the end of the matter. To tax the value of the small amount of iron ore in the lawnmower would be double taxation.
In any event, I invite you to explain why the state should stop charging for mining rights and protecting exclusive possession of land; and charge more tax on incomes and production and labour.
As to your 'warehouse' example, the problem solves itself. You have already paid £1 billion for the mining rights and extracted the iron ore. You have paid for the iron ore.
What you do with it then is your business. Store it, export it, sell it to a foundry, whatever.
In any event, I invite you to explain why the state should stop charging for mining rights and protecting exclusive possession of land; and charge more tax on incomes and production and labour.
I don't wish to. I have no better answer to the difficult question of taxation than anyone else. However, just because I can't supply the right answer doesn't make yours not wrong.
I'm actually not even saying that you're wrong, I'm saying that you are logically inconsistent. No one says taxation has to be logically consistent (and if that is your answer, I'm happy enough).
As to your 'warehouse' example, the problem solves itself. You have already paid £1 billion for the mining rights and extracted the iron ore. You have paid for the iron ore.
That is a very sudden shift.
If the extraction of ore must be paid for by buying mining rights then why is the land more valuable when the ore is in it? I'm not really sure what mining right have to do with it -- surely they are entirely represented by the increased LVT? Or are you advocating (in contradiction to you usual stance) that a separate tax in the form of mining rights exist?
You can't have it both ways. Either
- LVT is increased because the land contains ore. While the ore is in the land, LVT (applied annually say) is higher than when the ore is not in the land.
- LVT is the same regardless of the presence of the ore, and the extraction of ore is paid for once and once only in the form of mining rights.
Which is it?
If the second case, then fine, your case holds up. The mining right costs is simply embedded into the particular mass of ore extracted, and simply passed on in the single sale price of whatever is manufactured.
If the first case, then the value that was in the land, and taxed annually, is extracted and then that annual tax must be embedded in the mass of ore extracted, and hence the product manufactured must itself attract an annual tax.
It's strange that you raise the issue of "double taxation" as being something that is bad. LVT is nothing if not double, triple, infinite taxation.
Andy, I think you second explanation is better, i.e.
"LVT is the same regardless of the presence of the ore, and the extraction of ore is paid for once and once only in the form of mining rights."
You have to look at each state-protected exclusive right separately - for example, Capital FM have to pay one sum of money for the radio spectrum and another sum of money for their Business Rates. Maybe the directors of Capital FM drive round with personalised number plates, that's a separate right, and so on.
"It's strange that you raise the issue of "double taxation" as being something that is bad. LVT is nothing if not double, triple, infinite taxation"
No it's not, very much not.
LVT is a 'natural tax', if the state doesn't collect these windfall gains on behalf of society in general, then whoever is granted the right will keep the windfall gain to himself. Not taxing them only benefits the rights holder but not 'the consumer'.
Seeing as these latent windfall gains are there - nobody created the land; or the radio spectrum or the minerals etc. and cost nothing to produce, they might as well be auctioned off and dished out as a universal benefit.
Income Tax and VAT are totally artificial taxes. They are actually taking something away from the person who created it. If income tax and VAT were abolished then both the producer and the customer would benefit.
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