Killer arguments against LVT, not (44)

People who have absolutely no idea what they are talking about keep lining up those killer arguments to be flattened by the Wadsworth LVT steamroller (TM Jim). I lobbed in the LVT grenade over in a thread on the IEA blog a couple of months ago and look what we found in the rubble:

Richard Wellings Says: "Mark,
(1) What would happen to old people on low incomes with big houses if a flat-rate land/property tax was introduced? Would they be thrown out of their homes and their property confiscated? [which he followed up with: "If LVT did mean forcing many elderly people from their homes, it would be almost impossible to implement politically."]
(2) And what about semi-subsistence smallholders who wanted to ‘opt out’ and live off the land? Would they be allowed to pay the land tax in carrots and turnips?"

I'll deal with the Poor Widow Bogey (for the dozenth time) tomorrow if I may. The debate on his question (2) developed thusly:

Philip Says: "... your last point is exactly the idea in terms of the economic justification. Say Baldrick is growing turnips on top of land that could be used for a diamond mine. The tax is levied not on the income from the turnips but on the rental value of the land which depends on its possible use as a diamond mine. The tax is therefore levied without any penalty for putting the land to its best value use – the diamond miner pays exactly the same tax as the turnip grower. As such, there is no disincentive to maximise the value of output unlike with a tax on rents, work and profits.

Jim keeps digging [obligatory pun]: "... the turnips vs diamond mine analogy nicely encapsulates my opposition to LVT. I maintain that I should have the right (3) to use my diamond mine as a turnip patch if I so choose, and not be forced to sell it, or mine diamonds against my will, in order to pay the LVT. In my view the property rights of the individual outweigh the overall (potential) positives for society as a whole from LVT.

I am for the individual against the collective, and I see LVT as a form of the collective imposing their view on what ’should’ be happening on a piece of land (4), rather than the right of the individual to choose his or her land usage, and be taxed on the income produced thereby (5)."

OK. Deep breath everybody.

Let's set the scene, a decade or three into the future and imagine we had phased out (a) all existing taxes on incomes and production (income tax, National Insurance, VAT, corporation tax, total current revenues £350 billion per annum) and (b) all existing taxes on land, property, wealth etc (in descending order: Council Tax, Business Rates, Stamp Duty, capital gains tax, inheritance tax, insurance premiums tax and for good measure the TV licence fee, total current revenues about £70 billion) and we collected as much as we could from land value tax. Total LVT receipts might be a quarter of GDP, which would average out at about £12,000 for an average house per annum (and maybe £9,000 for a median house).

In a proper Georgist world, LVT receipts are used to pay for the core functions of the state and the rest dished out again as Citizen's Dividends, so by definition, the median household in an median house is a net nil taxpayer, if Poor Widows are your concern, it would be a cinch to pay out most of the Citizen's Dividends to the elderly, of course.

Addressing point (2), having done a few minutes 'research', I know that the rental value of agricultural land in the UK is about £50 per acre per year. So Richard's Wellings' 'semi-subsistence smallholders' eking out an existence on (say) two acres of land would be paying about £100 in rent or tax per annum (and whether they pay this as rent to the current 'owner' or as tax to the local council makes not the slightest difference to anything anyway).

I doubt very much that these people would completely cut themselves off from the outside world and so we can safely assume that they would be selling some of their carrots and turnips to pay for things like seeds, replacement farm tools, medicine or toilet paper or something.

So I simply do not agree that expecting them to sell an extra £100's worth of carrots and turnips in exchange for society in general respecting and protecting their exclusive possession of two acres of land is excessive, neither does it make a scrap of difference whether they pay that £100 in tax or as rent to the current owner. Further, assuming some sort of Citizen's Dividend were paid out, 'semi-subsistence smallholders' would actually be ahead on the deal. See also my comments on (5).

As to point (3) I find it useful to look at actual facts rather than dabbling in hysteria
a) AFAII, there are no significant diamond reserves in the UK.
b) The most important mineral under UK soil, in terms of value is coal.
c) If our mythical smallholder were to discover a stupendously rich seam of coal (which could be extracted profitably) under his two acres, what would happen? Absolutely nothing. Please remember, in the real world, that to run a coal mine you need hundreds and hundreds of acres of land, the mining rights to two acres are worthless.
d) So would his tax go up? No of course not. More importantly, before you start digging, you have to get all sorts of planning permission and pay for the mining rights. Until and unless a mining company gets the permission to dig, acquires all the required bits of land and pays for the mining rights, the value of the land at the surface does not change.

His point (4) uses the s-word 'should'. Is he not even dimly aware of planning restrictions in this country, which dictate exactly what you are or are not allowed to build or do on any patch of land? Is this not an extreme form of "the collective imposing their view on what ’should’ be happening on a piece of land? Is there any fundamental difference between NIMBYism and a Socialist command economy? That's not a rhetorical question, by the way.

At least Jim has the nerve to stick up for income tax in his point (5). Quite why a tax that discourages individual efforts is preferable to one that encourages individual efforts is a mystery to me, but hey. As ever, he fails to realise that here in the real world, the existing tax and land use system in this country prevents exactly that which he claims to support, i.e. "the right of the individual to choose his or her land usage, and be taxed on the income produced thereby"

Before our income-producing average guy has the chance to engage in the mutually beneficial free exchange of goods and services, he first has to pay a privately collected tax to whomever it is who currently has dibs on that bit of land on which he'd like to carry out those exchanges. if you want to rent or buy a shop, you have to bid more than the next best offer, i.e. whoever can squeeze the biggest profits by trading from that site has to pay over the bulk of his super-profits to the existing 'owner'.

This privately collected tax (rents or mortgage repayments) leaves the trader with little choice as to what to do on that site and takes away a large chunk of the profits. It is impossible to have a non-Socialist economy where anything else happens - whether we tax incomes or land values, in the long run, the people who can generate the highest incomes and profits will always end up living in or trading from the best locations (and there is nothing wrong with that, of course).

By this stage, of course, the killer arguments have completely contradicted themselves, mired themselves in falsehoods and half-truths and collapsed under their own weight.

If you wanted to drop out of the rat race and become a 'semi-subsistence smallholder' anywhere in the UK, it is not just a question of scraping together the £100 a year in ground rent or tax for the actual land, the biggest problem you'll face is finding two acres on which you can build yourself somewhere to live.

The local NIMBYs will make bloody sure that that you never get planning permission for anything new, so you have to find a couple of acres on which a house is already standing - and as we know, houses sell at a premium of tens or hundreds of thousands of pounds over their bricks and mortar value, so the biggest (and in most cases insurmountable) financial hurdle to becoming a 'semi-subsistence smallholder' is not the £100 rent for the land, it's the tens or hundreds of thousand pounds premium you have to pay to be able to live on your two acres.

Here endeth.