Killer arguments against LVT, not (64)

I had feared that I was running out of raw material for this series, but luckily Andy Burnham came to my rescue.

He vaguely floated a slimmed down version of my original proposal of years ago, i.e. to merge Council Tax, Stamp Duty Land Tax and Inheritance Tax into a flat rate Land Value Tax*, which I consider to be broadly interchangeable with a flat rate Property Value Tax i.e. pretty much what they have instead of Domestic Rates in Northern Ireland.

PVT in isolation is less 'progressive' than LVT (which you may see as A Good Thing or A Bad Thing), but this effect can be easily cancelled out by having a Citizen's Income scheme, which is inherently 'progressive' (i.e. the CI would more than refund people for the element of the PVT they pay that relates to the bricks and mortar and not the location).

There were two articles in The Guardian on this (Land value tax – not old or New but true Labour and With land value tax, Labour is getting it right**) and the comments section are a rich seam of Home-Owner-Ist economic illiteracy.

Shadowfirebird parades his ignorance thusly:

While I think the idea has some merit, it's silly to suggest that a land value tax would be proportionate (1). Just because I own a large amount of land, doesn't mean I have a lot of money (2). I could have inherited it (3) ... or spent it all on buying the land.(4)

Presumably farms would have to be exempt, for example, or else you would bankrupt every farm in the country (5). No, the only proportionate tax is a tax on income. (6)

1) 'Proportionate' to what, exactly? How is a flat percentage tax on land values not 'proportionate' to land values?

2) Of course it does not necessarily follow that you have lots of current income if you own lots of land, that isn't the point. LVT is a tax on consumption of land. If you drive a lot of miles in your car, you pay a lot more in petrol duty than others; if you drink or smoke a lot, you pay a lot more booze and fag duty than people who don't etc. Further, if you rent privately or are paying a mortgage, half of what you pay is LVT - it's just that the tax is collected privately by the landlord or the bank. From the point of view of the payer, it doesn't make the slightest difference who collects the tax, with the bonus that if 'the state' collects it, it will (hopefully) be spent on things that benefit the payer.

3) If you inherit a load of valuable land that you don't want to occupy yourself, then sell it and swap it for assets that are not liable to LVT (which is anything apart from land). What's the problem?

4) That's a highly unlikely scenario. Housing is a normal good. A lot of people who live in £1 million mansions will be higher earners (let's say £200,000 a year or more gross). If we went the whole hog and rolled all taxes (including income tax, VAT etc) into Land Value Tax, the fiscally neutral rate would be about 8% per annum, so instead of these people paying over £80,000 in income tax, VAT, Council Tax etc, they'd pay £80,000 in Land Value Tax.

What's the big difference - apart from the fact that LVT has much lower dead weight costs than income tax, VAT (and is easier to collect, so on balance, 'honest' taxpayers will benefit at the expense of tax evaders and avoiders). There may well be a hundred thousand pensioners who live in £1 million houses for which they will have paid 2'6 decades ago and who are sitting on massive untaxed gains - but if the biggest political stumbling block is the Poor Widow Bogey, then as far as I am concerned, let's just give them exemptions or discounts (or the option not to pay Land Value Tax but to leave the house liable to Inheritance Tax or something).

5) Why would farms go bankrupt? If you were to extend LVT to farmland (about which I am indifferent - let's get rid of CAP payments first. The tax would be in the region of £30 or £40 per acre and would raise a paltry £1 or £2 billion per annum), then a farming couple with an average sized farm of 150 acres or less, i.e. most farms - or as much as a couple can manage, would receive as much in Citizen's Income as they paid in LVT - but there'd be no income tax on the annual profits, so most farmers would end up better off (especially tenant farmers). And if somebody owns a much larger farm and employs people, then their CI would to a large extent subsidise the wages that he has to pay.

6) Clearly, if your definition of 'proportionate' is 'proportionate to income', then income tax is probably the most 'proportionate'. But let's not forget that housing is a normal good, in other words, the amount of housing that people consume is a fairly constant fraction of household incomes at all income levels. So if we replaced all taxes with a flat tax on housing, for most people it wouldn't make that much difference to their total tax bills (putting pensioners to one side for the moment).

* For clarity, I'd distance myself from at least two thirds of the other proposals in his mini-manifesto Aspirational Socialism.

** Thanks to SW and Physiocrat for the h/t.