Killer arguments against LVT, not (58)

I haven't done one of these for a couple of weeks, but Adam Collyer has delivered us another wheel barrow load, so let's get on with it (Part 1/3):

"From an economic point of view, I actually agree that LVT would be less damaging than VAT, NIC’s, income tax etc. (I have other objections to LVT though.) But it would still be damaging. The State taking money out of the private sector and spending it reduces economic output. (Obviously we do need some State spending, and the negative economic effects of that are a price we have to pay.)"

That started well but fizzled out badly! Anti-Citizen One then beat me to it with this "But money raised via Government created monopolies is just a form of privatised taxation."

Anyway, I am an economist, not a politician, if one tax is less economically damaging than another, then we should choose the former, end of. If there are real hardship cases, we can invent relieving provisions later on, like exemptions or deferments for pensioners; capping LVT demanded at a certain per cent of an owner-occupier's cash income etc.

Real life evidence, as well as logic, leads us to the rather surprising conclusion that taxation of land values or any other government-protected monopoly actually boosts the economy*, and that reducing taxes on land values (in a UK context, Business Rates or fuel duty) has no overall positive effect. Even if LVT has no positive effects, and is merely less damaging than other taxes, that still leaves us with the inevitable conclusion that raising less taxes from VAT, NICs etc and more from current taxes on land values (as distinct from taxes on property transactions, like Stamp Duty or Capital Gains Tax which are in themselves very damaging) would have an overall positive effect.

To be fair, Adam conceded that "In one sense [land ownership] is privatised taxation. However, the proceeds don’t go to the State. Which is a pretty big difference."

Why does it make a difference? What is the big difference between a landlord spending it on restaurants and sports cars or, worst case, politicians doing so (Category 5 spending in my previous post)? We know that however greedy politicians are, they only siphon off a bit for themselves, that is the least of our worries.

The idea that all government spending has negative economic effects is hokum as well - Category 1 spending on 'core functions' adds an enormous amount of value for little cost. Just imagine the state stopped providing defence, law and order (in the wider sense), public health (in the very narrow sense), road maintenance, refuse collection, fire brigade etc. These cost an alarmingly small amount of money, perhaps five per cent of GDP or a tenth of government spending. Does anybody seriously imagine we'd be wealthier overall if the government stopped paying for all this and released all the criminals from our jails (which cost less than £3 billion a year to run, i.e. 0.2% of GDP)?

Government spending only causes economic damage (as opposed to the dead weight costs of the taxes used to raise the money) if it is in Categories 3 to 7. And I'm quite happy to admit that well over half of government spending falls into these categories, so the key is to have 'enough' in Category 1, a lot more in Category 2 and as little as possible in the others (and to replace Category 4 with cash vouchers). Finally, however taxes are raised, I will always rail against spending in Categories 3 to 7, this is an entirely separate issue.

* Examples of such positive effects are: dampening property price bubbles and hence credit bubbles, thus keeping the economy on a stable course (this is probably the most important one) and encouraging more efficient use of existing land and buildings (thus protecting The Hallowed Green Belt and reducing the number of vacant and derelict properties).