Killer arguments against LVT, not (62)

Sobers steps up to the oche again on Killer arguments against LVT, not (61):

1. [Land Value Tax] IS the nationalisation of land because the State gets to decide what the value of the land is, which is related to what use the land is put to. Thus if the State decides your land would be more productive (and therefore more valuable) in use X rather than use Y (which is what the 'owner' wishes to do) then it will levy LVT on use X, thus providing a hefty nudge to the landowner that they had better either start doing X, or sell up to someone who will.

a) Complete in a hundred words or less: "Income tax, VAT etc are not 'nationalisation' of effort and enterprise because..."

b) Who says that 'the State' decides to what use land is put? People decide that, it is people who can afford to have a house built who want to have a house built; it is NIMBYs who decide that new houses shouldn't be built; it is households and businesses who need sewage works, rubbish dumps, power stations, roads, airports; and it is NIMBYs who insist that there is no need for these things.

c) The democratically elected 'State' is merely the arbiter between all these competing interests which makes the final decision. If there were no demand for new housing in an area (e.g. on top of a cliff which is crumbling into the sea), then 'the State' can grant planning permission as much as it likes, that housing won't get built and the value of that land will not increase.

d) And who says that 'the State' decides what the value of land is? Under current rules, it very much does (by restricting or granting planning permission; by improving local amenities or not, as the case may be). But the market value is decided by, er, the markets. Any sensible LVT system would be based on actual selling prices or actual rental values, in the same way as a sensible flat income tax system would be based on actual profits or actual incomes.

2. Equally the 'benefit' a householder gains from a new amenity that is built locally (say a new railway is built (which would be decided by the State of course) and as a result of a new station close by house prices rise due to better access to London) is entirely illusionary until the house is sold. Thus you can be living in your house quite happily, paying your LVT at whatever rate, earning X, and BANG! A new station arrives, your house is worth 25% more. Your LVT goes up in proportion. Do you get any extra cash to pay it? No. Have you had any actual physical benefit from the 25% rise in your house price? No.

a) Again, 'the State' would only allow a new station to be built if there is demand for it, and who demands it? The households and businesses in the area where the station is to be built. They are of course perfectly entitled to campaign against a new station being built if they so wish, and I suppose they are also perfectly entitled to campaign for a local railway station, school or hospital to be shut down if they think that the reduction in their tax bill would more than compensate for the loss of these amenities.

b) Do they get 'any extra cash to pay it? Yes of course - businesses have a wider pool of potential customers and employees, so their profits go up. People living in the area have shorter commute times to work, so either they can work longer hours (and earn more) or they have more leisure time (so they can do DIY instead of paying for somebody else to do it).

c) Why would they demand it if they got no 'actual physical benefit' from it? If Sobers were correct, then we would observe that rents (and hence house prices) were no higher in places that are well served by rail or buses or indeed roads (which is quite clearly not the case, by his own admission). Or do tenants have the right to reduce their rents by that element of value of the house's proximity to a railway station? Do home buyers have the right to reduce the purchase price by the embedded value of the proximity to the railway station?

Nope. So under a full-on LVT system, the additional tax would be no more than the sum total of all these extra benefits (we already have 'land value tax' of course, it is inescapable, it is just that under current rules, the tax is collected privately rather than publicly).

d) If proper capitalism is about 'risk and reward', why should homeowners be entitled to the upside (the increase in amenity, rental or capital values) when the station is built, but be compensated for any downsides (some houses will inevitably be affected if a new railway is built)? A tenant has to bear the risk that his rents will go up; and somebody who loses his job because of the Home-Owner-Ist induced recession is out of pocket by tens of thousands of pounds a year; is it so terrible for a homeowner to bear the risk of paying an extra thousand pounds or two a year if the area becomes more desireabe?

3. Until you sell your house you get nothing. So surely it would make more sense to tax the capital gain when the house is sold, than the nominal rise in value? Why should a householder be forced to pay more, because of a development that they have no say in whether it happens or not, and they get no cash benefit from (until they sell up)?

Nope. Benefits accrue to the people living in an area as soon as the station is opened. Admittedly, some will benefit more than others, but such is life - if you don't use the station, then sell your house to somebody who will = efficient use of scarce resources. Capital gains tax is an inherently bad and distortionary tax, as is Stamp Duty Land Tax, as it discourages efficient use or allocation of anything to which it applies.

4. As far as I'm concerned the whole basis of private property ownership is that you hold the land to the exclusion of all others, and are totally able to choose (without outside pressure) what you do with said land. (And yes I realise we have planning restrictions in this country - I regard them as anti private property ownership as well).


a) Sure, of course you 'hold it to the exclusion of all others' by definition (and there is no dispute that this is A Good Thing). But who guarantees this? 'The State', which is a 'thin blue line' or referee between all these competing interests. And what underpins this? The fact that 99 % of the population respect these laws, customs, traditions (and 70% are themselves owner-occupiers, so it is a mutually beneficial arrangement).

b) Seeing as exclusive occupation of land is a purely private benefit to the occupant with a concomitant burden on everybody else, it is a zero sum game with the gains being privatised and the costs and burdens being socialised, why not have a tax system that evens this out, rather than a tax system that actively discourages effort and enterprise?

c) In any event, aren't we always told that 'Britain is a crowded island' and isn't price-rationing the best form of rationing?

5. The whole basis of your LVT argument is that private property is guaranteed by the State therefore we should tax land to fund said State. I can see no logical reason why the State should be funded by any one particular method above all others - it is reasonable for the State to be funded from income taxes, value added taxes, import duties, indeed any of the taxation methods available.

a) I never said 'private property' in general or in the wider sense, and in fact I oppose taxation of the most private and personal property of all - your own skills, effort and initiative. Or the taxation of any other physical goods, like cars or lawnmowers because this is merely a disguised tax on the value of the output of the car or lawnmower manufacturer, i.e. it is disguised income tax.

b) In practice, the State does not and cannot protect your exclusive possession of your car - that's why they are fitted with locks and immobilisers and covered by insurance. The State cannot protect exclusive possession of your iPod or purse or wallet - if they are lost or stolen, then they are gone.

c) I have always said that the least bad kind of taxes are user charges on 'State protected quasi-monopolies', being primarily land ownership, but also radio spectrum, landing slots at airports, cherished number plates etc.

d) All the other taxes which Sobers mentions are taxes on private property and/or the free exchange of goods and services, none of which are provided or guaranteed or created in any way by 'the State' or society in general. And they have huge 'dead weight costs' - these taxes make us not just individually poorer but collectively poorer (even ignoring the losses incurred when the State wastes a large part of the revenue raised), unlike LVT which has (in practice) no dead weight costs at all.

e) And what's this nonsense about 'funding the State'? The State is merely there to provide core functions, provide low-cost mass insurance/subsidise merit goods and pay out universal benefits (the categories overlap). Some of these things cost hard cash and should be paid for first; what's left over can be dished out as a Citizen's Income/Citizen's Pension or used to repay the National Debt (or whatever).

What's wrong with rendering what is Cæsar's unto Cæsar, and letting every individual keep what he or she has created for him- or herself? (That's not a rhetorical question, by the way).