Adam Collyer bandies around the "s" word:
"Sounds like a good Socialist solution to a shortage and rising [house] prices - whack a tax on it!"
1. Possibly he didn't read the post properly. I was comparing and contrasting the tax systems of The People's Republic of China (25% corporation tax, virtually no property taxes) and The Republic of China (aka 'Taiwan') which has 20% corporation tax and a modest Land Value Tax. You tell me which country is more 'Socialist'.
2. Let me use another 's' word, 'Subsidies'. The Home-Owner-Ist solution - whether that's to rising prices, falling prices, or anything in between - is always to demand ever more subsidies. For example, a £300 billion taxpayer-funded loan to the banks to try prop up the house price bubble; a freeze on Council Tax; restrictions on new construction to increase scarcity value; vehement opposition to capital gains tax on hitherto untaxed and entirely contrived gains on second homes and investment properties*. All of this funded by savage taxation of true wealth creation (i.e. incomes, output, profits etc), as a result of which the number of young people who can afford to buy a house dwindles, and land and housing become every more concentrated in ever fewer hands.**
3. If any other commodity rose in price, because let's say the wheat crop fails in some parts of the world, then the markets would allocate what wheat is still available via the price mechanism, and as we know, the best form of rationing is price rationing. Putting a tax on those wheat farmers who make extra profits would be spiteful, as this is their pay-out for the risk they bear that they may be affected by a crop failure in the future.
4. These basic laws of economics simply do not apply to land, especially as the scarcity is largely artificial in the first place. Land is not like any other commodity. It is not produced, it is, in a literal sense, in fixed supply. Much more importantly, the Home-Owner-Ists refuse to allow new construction to increase to meet rising demand, thus generating windfall profits and capital gains to accrue to, er, themselves. What they are doing follows much the same pattern as The Corn Laws, whereby landowners tried to restrict supply to boost their own profits.
5. As a parting shot, how are 'publicly collected taxes' on incomes, profits and output at an average rate approaching 50% (which are used to subsidise favoured groups, including the Home-Owner-Ists***) in any way not 'Socialist'?
6. And on top of those 'publicly collected taxes', the productive economy (which creates the wealth that ultimately underpins land and property values) has to pay 'privately collected taxes' to quasi-monopolists for the 'privilege' of exclusive possession of one of the strictly rationed bits of land on which they are allowed to live or on which economic activity is allowed to take place. That exclusive possession is of course created and protected by, and synonymous with, 'the State' (i.e. by society in general) and not landowners in particular.
* To be fair to Adam, he thinks planning restrictions should be loosened and is not adamantly opposed to capital gains tax on housing - even on main residences.
** Thus making a mockery of the Home-Owner-Ists' mantras that they 'want to encourage [a wider spread] of homeownership' or that they 'want wealth to cascade down the generations'. In truth, their policies achieve exactly the opposite.
*** The bitter irony being that at least half the population is simultaneously wealth creator and homeowner, so the system robs them with one hand and bribes them with the other.
Sunday Funnies...
12 minutes ago
22 comments:
MW, if you every fall off your hobby horse make sure you are attached to a piece of bungee.
I do not follow your arguments on LVT particular well as they go well above my head. However LVT if it restrains house price inflation then I am all for it.
A, I only do these posts as a response to ever sillier arguments against. The sillier the arguments get, the more determined I get.
"If LVT restrains house price inflation then I am all for it."
It would dampen house price bubbles and enable income tax, VAT etc to be cut (assuming we replace existing wealth or property-related taxes first, in the spirit of fairness). What's not to like?
And to be even fairer to me I also was and am 100 percent against the £300 billion bank bailout!
:)
Actually I want a market solution to the PROBLEM of rising house prices. (It would be a step forward if the whole country could realise that the rising price is a problem and not a benefit.) The market solution is to allow the market to balance supply and demand. At the moment supply is artifically fixed and the government tries to boost demand by all sorts of devices.
AC, fair enough. Now, explain to me how massive taxation of incomes etc is a 'market solution' to anything at all?
Logic says, if you liberalise planning laws (probably a good idea in itself) then while house and land values at the very margin would drop, in more desirable areas they would go up even more.
Reading the responses to your previous post on this subject (or the previous but one, I can't remember) it does seem to me that the strongest inflator of the housing bubble is low interest rates, far stronger than the lack of supply. Basically, when you could only borrow twice your income, the cost of an average house was twice the average income, it appears. Now you can borrow six times your income, because of low interest rates and lo! the cost of the average house is six times the average income. Meanwhile the relative scarcity of land for building on remains unchanged, green belts remain unsullied etc etc.
Now remind me again why high interest rates are a Bad Thing (TM).....
B, I'm an interest rate agnostic. I think we'd be better off without the BoE MPC or any government interference, these things are best left to the markets.
But Home-Owner-Ism says that real interest rates should be permanently kept below their equilibrium level, and IMHO messing about with the market equilibrium is in an of itself A Bad Thing.
And even if we assume that low real interest rates are A Good Thing (rather than merely a symptom of a depressed economy), then surely we want those low rates to stimulate the economy and not merely be diverted into inflating the house price bubble?
MW Nice post
But again, can you show me a situation, on the whole, where HOI's have succeeded, over the long term, to "prevent new construction"
And if they have in what proportion is this to the actual demand
I ask because the logic is impeccable. But the theory does not appear to fit the observed facts.
All houses demanded, on the whole, get built. There are 1.25 million empty homes and counting. I we built an extra 1.25 million, loads of them would be empty too.
@Adam Colyer
At the moment supply is artifically fixed
Yep, by speculators not planners. Disagree. Then show me the evidence please.
Many people are confused by LVT. It is quite simple.
If I buy a car it loses value over time. If I buy a house consisting of 120 year old bricks it gains in value. The bricks do not gain in value it is the LAND under the bricks that gain.
Why?
Because community activity makes that land attractive and hence demand from the community. This activity could be in the form of infrastructure paid for by taxpayers money. Adjacent underground rail stations raise land values around them.
The owner of the land did NOTHING to increase the land value. The value of the land belongs to the community who increased that value.
With LVT the community reclaims the money it spent - BUT, the the true sense of LVT, the owner pays no income tax, not taxing his efforts.
The rich in say, London, who own land, can claw back a lifetime's tax that soaked into the land, just by having a house to live in. In effect they pay nothing towards the services they received. Those who rent, and do not have land value windfalls, pay for those who own land.
1. The state does not take personal wealth - people's work (in the form of income tax)
2. We pay rent in the form of land valuation - the state reclaims the value it created in the land
No tax on personal wealth: wages, saving, etc. Business bahaviour is the same and land ownership the same. A shift of taxes.
The 1929 and 2008 crashes were land fulled, as debt upon debt was poured into non-taxed land.
LVT is the silver bullet. No booms and busts.
John, thanks for that my understanding is complete. It also convinces me that LVT is a must, however there must be some major disadvantage as I am sure it would have been introduced. At least one Chancellor must have recognised the benefits to the treasury of raising taxes from LVT.
MW
There are some major disadvantages.
#1 is that LVT supporters do not listen to the vast majority of people who deny it is a good thing!
Most people "think" LVT is theft, confiscation, punishment. It don't matter what the truth is. This is what they think. It is known as Home-Owner-Ism to you. It is a religion.
So if a chancellor or people in general continue to think this way, it does not matter how good your idea is technically. The dumb and powerful will never let it happen.
The only way to make the change is to change the way people think about what is common and private property. Its a moral question, fully. Ignore this... then you like pain.
Anti, unfortunately, centuries of brainwashing would have to be reversed before any Chancellor would dare do this. Compare and contrast the howls of outrage at Vince Cable's 1% Mansion Tax with the overall popularity of the 50% higher tax rate.
The parties in power know that they can get away with hiking VAT to 19% or hiking National Insurance by 1%, and they know that this loses them fewer votes that increasing Council Tax, so hey presto, that is what they do.
Robin Smith, well that answered my question of why LVT has not been introduced.
MW, thanks also for that explanation.
In the past the powerful landowners go their way controlling The House of Commons by forming the self-interest group, The House of (land)Lords and later owning newspapers, etc, to push across their propaganda, such as, "we look after the land". George Orwell described them as "Tapeworms". Now it is in the form of so-called Green Groups, Countryside Alliance, Council for the Protection of Rural England, etc, to keep people out of the countryside, securing their lucrative acres.
Now we have the owner/occupier to contend with. But when you tell them they pay no: Income Tax, Council Tax, tax on saving, inheritance tax, their eyes light up. The howls of outrage at Vince Cable's 1% Mansion Tax was mainly from the Tory benches.
Luckily not that many realise the land value under their feet. Many assume that when they move home all the prices around go up at the same rate giving them little to no gain. They also know that inheritance tax will take a bite when they die.
LVT will mean lower land prices, making homes affordable to all. Less state funding of homes as the free market will cope with that. Getting rid of the Stalinist quota based planning system is a must.
Many of the LVT supporters, of which it is a large group, especially in the USA, want a term other than Land Value Tax. Natural Community Revenue, appears to be gaining by some. It is reclaiming the revenue created by the community to pay for the infrastructure, which in turn raises the value of the land. Also, Council Tax is a land and buildings tax. You put on a conservatory and you are taxed - it is as daft as the window tax. This is not liked.
LVT is now new. Hong Kong funded an airport and metro out of it. Singapore, Harrisburg, Denmark, etc, use it, lowering income tax. Winston Churchill tried to get it through but was defeated by the (land)Lords - the only war he ever lost. Tony Blair studied the famous 1909 Churchill budget and agreed with "progressive taxes". The budget meant LVT, nor progressive income tax.
The Labour Party had it as a policy from 1906 until 1929, when after the crash they went for nationalisation (of land as well) as a way of defeating crashes and poverty. Unfortunately the Tories have never had it on their radars, being funded by large landowners at various times - yet it is such an idea that would appeal to the Tories, as it enhances the free market. A free market that is not rigged or disturbed by speculation works.
LVT gives a level playing field for the free market, removing speculators. It is more capitalist than what we have now. True Geoism removes all speculation on natural resources from the land - no copper derivatives, etc. Then all energies are funnelled into economic growth enterprise activities, with no booms & busts.
The best way of getting LVT in, is by replacing Council Tax. This is the thin edge of the wedge. It can be increased and income tax reduced in time.
The Internet is a great way of promoting LVT, as the interest is from the bottom up. Previously it was via a small group of academics.
THE PROBLEM
Three million children today are living in poverty. Children born to the poorest families suffer little or no social mobility. Successions of governments, of different parties, can't change this due to the tax system.
Are politicians to blame?
The biggest scam in history was instigated on the people centuries ago by the Lords, Barons and Knights of the land. Governments used the tax system to milk the poor. The injustice has never been put right.
Why did the Lords, Barons and Knights do it?
To enrich the people who own land. It is operated by all democratic governments around the world. The biggest winners are those who own land or homes in the best locations.
People who rent pay rent to landlords and taxes to the government. People who rent pay taxes to fund the service that they receive: police, rail, roads, army, etc. That sounds fair. They pay for what they receive.
Britain's top earners pay on average £1.25 million in taxes in their lifetime. The people who rent their homes are generally in the lowest income bracket. Over their working lives the poor pay over £0.25 million in taxes. The rich on average pay 5 times more in taxes.
That sounds fair. Doesn't it?
Income tax is the more you earn, the more you pay. Called Progressive Taxes.
Sounds fair as the richer pay more. But!!! Progressive taxes has exactly the opposite effect.
Rich people complain that they aay a lot of money to the government. But, the government pays it all back to them.
How do they do this?
Governments spend our tax money on infrastructure, such as:
* Schools
* Universities
* Hospitals
* Rail networks
* Roads
* Parks
* etc
This infrastructure raises the productivity of the economy resulting in economic growth. Because of the way the market economy works, those economic gains are crystallised as LAND VALUES. Then these gains surface as windfalls or capital gains in the property market.
Those capital gains are not shared out equally amongst all of us, as the taxpayers who rent their homes for example, are excluded. The windfalls are pocketed by people who own land. The rises in roperty values more than offsets the taxes they pay into the public purse.
Then who pays for the services the rich people use?
The families on the lowest incomes.
Every increase in house value for top earners offsets any tax they
contribute. During boom times it's possible to claw back a lifetimes taxes in just three years.
Meanwhile...the lowest earners and those who pay rent, pay more overall.
Families on the lowest incomes subsidise the lives of the rich.
Is that fair?
There is only one way to make the tax system fair. Parliament has to tell the taxman to stop collecting taxes from people's wages.
We need a kind of tax reform that Winston Churchill and Lloyd George nearly introduced in Parliament 100years ago. But, the landlords blocked them.
The only war Winston Churchill lost was the war against the British landlords.
If we cancel the tax on people's wages, how do we pay for public services?
By levying a charge on the value of land. People who live in valuable locations ill pay much more than those who live in less expensive properties. That's fair. It also happens to be the most efficient way to fund the service we all share in common.
THE SOLUTION
There is a simple solution to this injustice.
* We should place the cost of public services on the values of land.
* Remove Income tax from people's wages.
* Owners with houses in valuable locations would pay more than those who rent their homes.
* Owners with houses in valuable locations wouldn't be able to claw back their taxes.
That way everybody pays for the services they receive and we are all treated as equals.
Look at economist Fred Harrison's videos. Each one is professionally shot, quite short so easy to digest and simply put across. Fred and other economists state that LVT would solve the boom-bust as land would not run out of control and drag us out of the economic mire.
http://www.youtube.com/watch?v=6ZkfmY1PMng The tax clawback scam
http://www.youtube.com/watch?v=ku2yxP9ceRI No one saw it coming
http://www.youtube.com/watch?v=ki-Od1MMa78 Betrayal of the Lords
http://www.youtube.com/watch?v=MhR6I2hLWrw Casino Capitalism
A man goes to an estate agent in a town wanting to build a factory. The agent says "I have the ideal plot". She takes him out of town, 30 minutes down a small road, 10 minutes across rough track and points to the land. "There it is £5,000".
He said there is nothing here. No electricity, road, buildings,
nothing.
She says "I have another the size you want."
It is in town is next to a rail station, fast road, bus routes, a housing estate near with great schools, a world renowned hospital, crime is low, skills base of the people is high, etc.
She says, "it has all the top class services you need here".
He says "ideal, who do I make the £5,000 out to?".
She says, "it is £1,005,000, as it has all the top class services".
He said "well OK, I'll pay that, as it is ideal, who do I send the cheques to of the people who provide the wonderful services?".
She says, "no you have to pay the £1,005,000 to a man who lives in the South of France".
He says, "well its the same size as the out of town £5,000 plot, so I will send him £5,000 and cheques to those who provide the services, who are they?".
She says, "no all has to go to the landowner in the South of France.".
He says, "how do these people pay to provide all these services then?"
She says, "well you pay Council Tax, Corporation tax, income tax, VAT on the goods you sell, and lots of others and fees, to the council and government and they provide the services".
He replies, "well I pay for these services twice then, that doesn't sound fair at all".
She says, "well yes, once to the landowning man on the beach in the South of France and again to the authorities".
Land Valuation Tax (LVT) on the urban plot would pay for the services. It is due on vacant and derelict land, so speculators would have to pay the full LVT preventing land speculation and hording, which creates artificial land shortages
The value is higher than the out of town plot which will pay less LVT as its value is less because of the lack of demand because of no services.
The winner is the free-loading landowner, who paid sweet nothing for the services that made his land valuable.
"then surely we want those low rates to stimulate the economy"
Why do we want low interest rates stimulate the economy? Sure it makes borrowing money less expensive, but it encourages business start-ups to get going on money borrowed from the banks, who care little whether the business succeeds or fails, instead of shareholders, who care a lot more. Admittedly no-one has any money to become shareholders at the moment because it's all tied up in over-priced property, but that's all part of the same low-interest hell that we are currently in.
B, more good arguments against artificially depressing interest rates.*
Ultimately, the best sources of capital for business are the original owner's own cash; retained profits; new shares issued to fund expansion, and, once a business is 'mature', bonds issued to investors. It is only businesses with very seasonal (but otherwise predictable) cash flows who should be smoothing this by using bank overdrafts (to save the hassle of constantly issuing and redeeming shares or bonds throughout the year).
* I may as well add that a 'strong' currency is good for importers and a 'weak' currency is good for exporters. Seeing as this is an equation with a million unknowns, that is not an argument for having a 'Bank of England Exchange Rate Fixing Committee' analogous to the 'Bank of England Monetary Policy [i.e. Interest Rate Setting] Committee'.
If anyone wants to know what would likely happen if a land value taxing government were to gain power in the UK, they need only look at Denmark in 1957 where it really did happen for a few extremely prosperous years. You can read about it on http://www.glasswings.com.au/geonomics/denmark.html or various other sites.
I do not care if land is state owned and leased back - the rent. Or..
Privately owned and and an LVT levy imposed.
Reading the page on Denmark, it makes me lean towards state ownership of land and leased back as in Hong Kong.
Only because that is not as easy to reverse as the landowners did in Denmark.
But getting LVT through would be easier than getting the state owning all the land. So, maybe 1st and 2nd stage.
We must get to the stage that LVT is ingrained in the country, and could never be reversed. Just like some trying to reverse women getting the vote.
http://www.glasswings.com.au/geonomics/denmark.html
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