The OECD recently repeated their ground rules for taxation:
Taxes can be a disincentive to work, invest and innovate, with adverse effects on economic growth and welfare. But these distortions can be minimised:
• Change the overall tax structure to raise more revenue from taxes on consumption and residential property tax and less from personal and corporate income taxes;
• Broaden tax bases to enable rates to be kept as low as possible;
• [Let's politely ignore the bit about 'Green taxes']
• Ensuring that all citizens pay their fair share of taxes contributes to fiscal consolidation. OECD initiatives to counter offshore non-compliance are yielding billions of euros in extra tax revenues. [This point is superfluous if you stick to point one - you can't move land or 'consumption' offshore, as a caveat, VAT is not a tax on consumption, it is a tax on production]
This prompted the inevitable Home-Owner-Ist wailing in e.g. Estate Agent Today. I won't dignify that article by quoting from it, but, notwithstanding they complete overlook the bit about "less from personal and corporate income taxes", what these Vested Interests quoted in the article seem to be claiming is variously that:
1. LVT would push house prices down
2. LVT would make houses less affordable
3. Landlords would be discourage from renting out
4. Landlords would be able to increase the rents anyway (which is only true if income tax were reduced)
5. People would be 'forced' to sell
6. Nobody would be able to buy
7. Existing owners would be disadvantaged
8. Potential buyers would be disadvantaged relative to existing owners
9. There would be no new development.
None of these are correct (except maybe 1 and if that is true then 2, 6, and 8 cannot be true etc), and in any event, they all contradict each other. Even point 9 is not necessarily correct, and even if it were, our NIMBY nation sees that as A Good Thing.
IF all the things that they say were simultaneously true THEN the only logical conclusion it that we would end up with huge amounts of vacant homes (because existing owners can't afford to live there any more; potential buyers can't afford to buy; landlords don't want to let them out; and even if landlords want to let them out, potential tenants can't afford the rent etc).
Logic says that this would not be the outcome, and observed facts tell us that the reverse would happen
The UK already has Land Value Tax on commercial premises (or its close equivalent, Business Rates) and:
i. New office blocks are being built all the time,
ii The main thing stopping factories, power stations, airports, railways, roads etc being built is NIMBYism (which is totally anti-free market, so things are bound to go wrong),
iii. When Labour reduced the exemptions from Business Rates for vacant properties, occupation rates actually went up slightly. Remember The Golden Rule - if you tax something, you get less of it (unless it's in fixed supply, like land), so when they started taxing vacant buildings, we got fewer vacant buildings.
Cross posted at HPC
The new Scotland
1 hour ago
11 comments:
> Remember The Golden Rule - if you tax something, you get less of it
There is one exception to the rule. If you tax land, you can't get less of it.
Of course what we're really talking about is Taxing Land Exclusivity (the right to exclude all others, i.e monopoly) and that means that people will exclude less and use their land for economic purposes more.
AC1, of course, can you think of a pithier way of wording it, though? I'd have thought it was obvious that you can't get less or more land (except through cliff erosion and reclamation). If you tax land values, you tend to get lower values (but the same amount of land).
Taxing Land Isolation increases Land Reciprocation?
AC1, I said 'pithier' not 'totally obscure'! I've changed the post anyway.
Episode 100 is going to call for a celebration.
JH, feel free to come up with a killer argument, I can earmark it for episode 100, if you like.
Dear Mr Wadsworth
" ..so when they started taxing vacant buildings, we got fewer vacant buildings."
Indeed there were, partly because the owners peeled the rooves off to make them not-buildings, like the former Battersea Power Station.
DP
Anon, try applying commonsense. Business Rates is inferior to proper Land Value Tax because you can avoid BR by "tearing the roof off" but you can't avoid proper LVT. Apart from that, the two are fairly similar.
Anon, they only pulled the roof off Battersea Power station because they wanted to pull it down and were prevented by it being listed. No sane owner will unroof a vacant building unless he wants to demolish (in which case why not go the whole hog and demolish?) or the roof has had it anyway - it would cost far more to put the roof back than he would save on rates in the short term and he's not going to be able to let it without a roof.
Dear Mr Wadsworth
It was Business Rate that was applied (as you stated in point iii) which according to newspaper reports resulted in rooves being removed to avoid it, effectively reducing the number of vacant buildings by reducing the number of buildings (four walls and a roof).
The circumstances of Battersea Power Station may indeed be as described by Bayard; I understood it was tax avoidance.
DP
Anon/DP.
I said 'you have to apply commonsense'. Whatever the extent of this de-roofing is, it does exist to some extent - but this is why the cunning cove prefers pure Land Value Tax to Business Rates!
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