The Faux Libertarians and Home-Owner-Ists appear to have stopped providing me with raw material for this series, so I Googled around a bit and stumbled across an exchange over at The UK Libertarian.
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Let's quickly remind ourselves of the position in which the productive UK economy currently finds itself, skip to to the second half of the post (after the dotted line) if you know all this stuff:
* For every £100 gross income, it hands over about £20 rent to landlords (most businesses are tenants, the minority that are owner-occupiers tend to be the least efficient, as they cross-subsidise their notional trading losses with their notional rental income); £40 in taxes (ninety per cent of tax revenues are borne by the productive economy) and £40 in net wages or dividends/profits.
* The most valuable asset of businesses are of course the employees, who have to be paid each month, if they weren't paid they'd go elsewhere, whether you call this a 'cost' or a 'profit share' is a separate issue. Similarly, the taxes and rent that businesses pay are monthly, recurring costs. They can only survive by generating more profits per £1 cost than other competing businesses (who would otherwise pinch the employees and outbid them on the rent).
* Most 'capital assets' (machinery, software, know how, good will, brand names, patents etc) are relatively short lived and have to be constantly replenished, maintained, improved etc. A patent for example lasts for twenty years, but even if indefinite, would lose its value over time (how much would the exclusive right to manufacture Bakelite telephones or 78 rpm record players be worth nowadays?), goodwill can expire like a puff of smoke (Nissan, Arthur Andersen).
* For sure, buildings are capital assets as well, but office buildings and retail premises are a commodity, it doesn't matter who occupies them (they require little in the way of novel or specific expenditure) and industrial units are laughably cheap.
* Land use is entirely dictated by planning rules, you can't just change the use of a building from offices to a pub; or from a hairdressers to a betting shop; or build new industrial units where needed, because the local council know there are a lot of votes to be won from those existing businesses or NIMBY residents who prefer the status quo.
* Local councils have no financial incentive to allow more efficient use of land because all taxes on business (including Business Rates) go to central government.
* On top of that, economic activity is regulated to within an inch of its life by a myriad of overlapping and contradictory rules and regulations.
* Under a full-on Georgist system, where all existing taxes on income, output or profits are replaced with Land Value Tax, the total tax paid by businesses would fall dramatically (from 90% to 20% of all taxes) and the taxes on residential land and buildings would go up accordingly, so for £100 income, they'd pay out £20 in Land Value Tax, maybe £10 in buildings rent and the wages/dividends share would go up from £40 to £70.
* There'd be no pressing need to tax farm land as it is relatively low value; farm land's value has more to do with fertility than location; farmers would still pay LVT on their farmhouses; and it would take a few years for farmers to adjust to losing their lovely CAP subsidies anyway.
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Bearing all this in mind, following an eminently suggestion by LVT-supporter Richard Allan, Faux Libertarian Rob wades in as follows:
Richard Allen, land is effectively socialised now anyway... If it was expressly socialised then just imagine the restrictions on use that would occur. Rather than investment decisions being taken on the basis of market reality they would be at the whim of a few planner who would no doubt reward those farmers/landowners who flattered their prejudices instead of the farmers that turned the biggest profits.
Owning capital on which one can base production is rather important when talking about making long term investment decisions (which we are here). Even if you give me a 50 yr lease at 25 years old I won't see the benefit of the long term investment I make, so in short I won't make that investment.
You say “it’s possible for land (i.e. the stuff that’s not a product of anyone’s labour) to be owned separately from the stuff that IS a product of labour, even when the latter is standing on the former and an integral part of it”. Aye it would be “possible” but certainly not desirable.
Does anybody have a clue what he's talking about?
The idea that Land Value Tax is 'socialising' land and would lead to even more restrictive planning restrictions is a nonsense. If truth be told, income tax, VAT etc is 'socialising' people's labour, and on top of that come all the regulations, punitive tax on unfavoured industries and subsidies to favoured ones.
And it's the NIMBYs who want land use to be strictly controlled (or 'socialised', to use the Faux Libertarian's expression) - if a local council were entitled to a share of the LVT collected from commercially used land (or indeed Business Rates), then, even if it were to spend that tax on White Elephants, at least it would be more likely to allow more industrial units to be built, shops to be put to their most profitable use etc.
Under LVT, all the other true 'capital assets' - machinery; software; good will; a well trained and motivated workforce; or the buildings in which they carry on their business - would be entirely untaxed, so there would be a lot more investment in all these things.
As to "possible" in his final paragraph, most sensibly run businesses are perfectly aware that of £100 takings, not all of it is profits - £20 goes to the landlord or the bank; £40 goes in taxes; nearly £40 goes in net wages or to suppliers (who in turn pay wages) and a small bit is profits belonging to the owner of the business.
Working out quite how much has to go in tax is very tricky of course, and if you get it wrong HMRC will bankrupt you; under LVT, the total rent/tax burden would fall from £60 to £30 (including buildings rent); it would be a monthly, predictable, recurring expense, and they'd have much more left over to play with, expand the business, re-invest etc.
For sure, there are some owner-occupier businesses who fail to account for notional rents which actually make losses year in, year out. Most of these would quickly realise that they'd be better off renting out their premises to a more dynamic, profitable business, this is called 'creative destruction'. I may be right wing and heartless, but if we are prepared to accept unemployment as a cost of 'creative destruction' is it so terrible that unprofitable hobby-businesses run by land owners are similarly destroyed?
What's not to like?
Tuesday 15 March 2011
Killer Arguments Against LVT, Not (100)
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11 comments:
100! Wahay! You talked me around about fifty something.
You uncorked the fizzy stuff at the MW household after than marathon?
Congratulations on reaching 100! Time to release the book :)
I made a few posts over at the UK Libertarian, but was abushed by the Royal Libertarians that reside there and grew tired of having intelligent people stick their fingers in their ears and hum; "la la la, I'm not listening to this commy propaganda, la la la"
Royal Libertarianism to me means unlimited freedom for the chosen few, and self-sacrifice for the many so they don't accidentally violate the hallowed property rights of landowners. Unfortunately they seem incapable of recognising this logical disconnect as it doesn't fit with their ideology, a trait that I wrongly assumed was confined to socialists.
I'm not angered by this, I just feel let down by a group that were so close to making the grade!
SL, there was no uncorking involved. I am perfectly aware that Dave Wetzel and Fred Harrison have been doing this for thirty years and have achieved nothing. Tom Paine achieved nothing, neither did Henry George, neither will I.
CD, do you call them 'Royal Libertarians'? I call them 'Faux Libertarians' which is basically the intellectual wing of Home-Owner-Ism.
I vaguely plan to write a book, but faced with a massive (and highly successful) propaganda operation that has convinced most people that "Rising house prices = rising wealth" and "We can't build any more houses or factories because Great Britain is a crowded island" it's hardly going to be a best seller, is it?
It's unfortunate that as a theory Georgism can be attacked from so many different angles, so I agree, it's unlikely to be a best seller. But maybe a different approach is needed.
I know it sounds a tad crude but perhaps a "rich dad poor dad" type book would be more suitable for the British public, if you can prove that Georgist theory works by making money off the back of it people are more likely to sit up and take notice, it would go down a storm in America too. Most people (quite rightly) don't have time for academic niceties, but put it in terms they're familar with and understand and it could become much more influential.
Of course all this rests on the UK being able to make it out of the trough, and at the moment that seems unlikely. As Harrison says in that video I linked, the British economy is "unfit for purpose". But if things do clear up it's obvious what's going to happen again, and this time the internet makes it so much easier to get the message across.
You've only got to look at the game Monopoly to realise that if you package it correctly the public will actually lap Georgism up. Perhaps a real-life version of Monopoly in paperback?
CD, hmm, you'd think that the Georgists would be able to tap into the anger directed at the bankers, but nope, the sheeple don't hate the bankers for inflating house prices in the first place, they hate them for not pumping them even higher.
MW - Do the anthology of your posts as a first step. You never know, only a few people originally thought the Bible of the Koran were anything but of interest to a narrow audience, until the prosthletysers got going. The Web and POD are enabling a lot of very fast dissemination these days.
In regards to business costs, all the true entrepreneurs I know love paying wages to their staff. They hate paying rent and taxes.
"right wing and heartless"? No. This is the Big Lie expounded by weak minded bleedin' hearted lefties. It is the kindest thing you can do to be truthfully, but gently, direct to anybody about the error of their ways. Letting anyone go on doing what is self evidently destructive both to themselves and wider society is genuinely heartless. It shows a rank disregard for the wellbeing and wealth of ones fellow man. This is probably the Biggest Lie at the centre of the attack on freedom and responsibility. It is made by those who wish to enslave you into irresponsibility.
L, I put that in for the benefit of The Fat Bigot, who once came up with a "killer argument" based on the fact that near where he lives there is a dear old lady who owns a large shop from which she runs a hobby-business, making very little money and employing nobody.
He thought it outrageous that a tax system would 'force' her to rent out the shop to a more profitable business which would provide more goods and services, employ more people etc.
"Does anybody have a clue what he's talking about?"
Nope, though I'd guess this is a straw man exercise as follows: LVT = nationalisation of land. If you don't own your land (I think we are talking farmers here), you are not going to make long term investment decisions, therefore LVT = no long term investment decisions. Setting aside the fact that the initial premise is false, has this idiot ever checked how large agricultural landowners work? It's in their interest to get the tenants to invest in their farms and to do this they offer them very long term tenancies, in some cases, for up to three generations (grandfather has the right to leave tenanted farm to father who can leave it to son).
B, yes, possibly he's talking about agricultural land, but a) that's barely worth taxing (just tax the farm houses) and b) tenants are more productive than owner-occupiers, as you point out, so turning owner-occupiers into quasi-tenants is a good thing, not a bad thing.
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