From the responses to the previous instalment:
Ian B: "Rental is not ownership. You only have the thing while you are paying out for it. Once you stop paying, you lose it again... (1) So this is a fundamental moral problem for an LVT. You are demanding tax for something which is owned, even though it produces no income and never will, in the case of a residential plot. (2)"
1) The same applies to people paying off a mortgage, of course. More fundamentally, a full-on LVT/CI aka Georgist system also entails slimming down the activities of the government to its bare essentials and dishing out most of the LVT collected as a Citizen's Income (and health and education vouchers, those being 'merit goods' of wider benefit to more than just the recipient), so by definition, a third of households would make a modest surplus (CI > LVT), a third would be in a break-even position (LVT = CI) and only a third would be paying rent on the shortfall (LVT > CI).
2) Let's look at substance over form. Land provides services of significant economic value (if it didn't, land would have no value), and a tenant pays rent, which is collected as income by whoever is registered as owner at HM Land Registry (he may or may not be paying some or all of this on to the bank as mortgage interest).
That's simple enough.
So let's imagine an owner-occupier who wants to relocate for a couple of years and then move back home. To save himself the hassle of selling/buying etc, he might just rent out his old house for £10,000 a year and rent his new place, also for £10,000 a year. So he receives £10,000 income and consumes land services worth £10,000. That's also simple enough.
But why is the picture any different when he moves back into his old house again? He is still receiving the same income and consuming the same amount of land services; he is simultaneously supplier and consumer. Another analogy is what happens if a man marries his housekeeper? Instead of paying her wages and deducting rent for her attic room, the couple now each spend their share of the husband's income and she lives there rent free. Does GDP fall as a result of this happy union? Surely not.
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Ian B then rounds off with the real killer argument, and this almost deserves to be saved for the centenary edition of the series: "People like owning things. The justification for this is... that people just like owning things."
This is what it all boils down to really. The whole Home-Owner-Ist scam only works by tapping in to this atavistic instinct to 'own' things, in particular to 'own' land (it's a historic thing - in olden times, only freeholders were allowed to vote etc); even though in the long run their system makes us collectively far worse off (there are some winners, of course, at least in relative terms).
I was brought up in the same mindset 'An Englishman's home is his castle' and all that, but on closer inspection, very few people really 'own' land, and even if they do (having paid off the mortgage etc), the inflated price they have had to pay, with interest on top, to satisfy this atavistic urge; and all the income tax they have to pay instead of LVT, far, far exceeds any benefits.
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The Fat Bigot picks up on one of my claims and retorts: "The affront to common sense is that doubling incomes by removing existing taxes will result only in a slight net increase in the cost of land ownership. Unless the total tax-take falls (some chance) a doubling of incomes by removal of existing taxes must result in the same amount being charged against land. It affronts common sense to describe this is a "slight" increase in the net cost of land ownership."
I've done the maths, and what I say is true. The figures he misses off - or deliberately ignores - are:
* The netting off of LVT minus CI (see (1) above).
* Armies of quangocrats and corporatists would be done out of their easy taxpayer-funded sources of income (this concept is not unique to Georgism, of course).
* In an ideal world, capital land values would fall significantly, so owner-occupiers and landlords would lose their paper wealth; and the net income of landlords might fall a bit (higher gross rental income and no more income tax to pay; but higher costs of ownership).
* Local councillors would not be able to trouser lots of brown envelopes when planning permission is granted. If NIMBYs succeed in preventing new development to protect their utility value, then they will be asked to pay for the privilege.
* People would only have to take out mortgages to cover the bricks and mortar value, which would be (say) half current values, and with their higher net incomes, they would be able to pay them off over ten years rather than twenty-five, so banks would only earn a third as much in interest margin.
* Etc. I'm quite aware that not everybody likes Georgism!
Nothing
3 hours ago
36 comments:
affront to common sense is that doubling incomes by removing existing taxes will result only in a slight net increase in the cost of land ownership.
He's right in a way. The total tax take does fall -- by the amount needed to fund all those useless jobsworths, currently parasiting themselves off the rest of us.
Would I be right in thinking, in addition to your list, that one huge benefit of moving to a system with a downward pressure on house prices (i.e LVT); would mean that all that capital that people think is "invested" in their houses would become free to do productive work in the economy?
OP, the only important figure is the amount spent on crap; whether the govt collects £300 billion in LVT and dishes out £225 billion as CI; or whether it collects £500 billion in LVT and dishes out £425 billion as CI barely matters to the general public. It's a question of keeping govt spending down to a bare minimum (which I reckon is about £75 billion a year).
"all that capital that people think is "invested" in their houses would become free to do productive work in the economy?"
Yup, but I'm covering 'arguments against' not 'arguments in favour' :-)
"Ian B then rounds off with the real killer argument, and this almost deserves to be saved for the centenary edition of the series: "People like owning things. The justification for this is... that people just like owning things."
My argument against this would be (and correct me if i'm talking crap):
Actually, people like the security of staying in one place BUT:
What happens if you don't pay the mortgage? reposession
What if you have no mortgage BUT you don't pay your taxes? government make you bankrupt which normally involves you losing your home because if you had the cash to pay the taxes you would have paid them to maintain that security of living in your own home.....
I know this bit isn't in the example but the other "killer argument against" which suggests LVT purely based on the fact that its basis of calculation is the land is a bad thing because you risk being dispossessed of your "asset" if an out and out lie because people are dispossessed by government already if they're made bankrupt for non payment of current taxes and I cite as example of this my own mother...!
SW, yes of course, but to understand your points requires a certain degree of sophistication; let's not forget that people have it drummed into them from birth that incomes are fair game for taxation; people accept that as normal etc.
My one-line response would be "ah... but what we have is just the illusion of ownership." and leave people to work it out for themselves.
Mark. Ownership has merit all in itself. I don't know why you think that statement to be unsophisticated. It is simply an obvious thing. There is no deeper argument necessary. It does not require a utilitarian justification.
As a similar example, why is the law against rape (a violation of a person's self ownership) a Good Thing? It is because people do not like being raped. You don't need to demand, "justify that". It just is. It isn't because women are suffering from some kind of false consciousness that has fooled them into thinking they shouldn't be raped. They just don't like it. That is all that needs to be said. Neither would that change if somebody were to argue that abolishing bodily self-ownership would be more economically efficient. That isn't the point of self ownership. It isn't about economic efficiency. It is just about people preferring control of their own bodies.
Your prior argument about what people might do with land is rather silly too. It is like arguing that nobody has a right to own a power drill because somebody might run a tool hire business and thus their power tools become a source of income. That might be the case. But nonetheless, the right to own a power drill, and not be taxed simply for owning it, in case they rent it out, makes no sense at all, unless you're taking the position that nobody should be allowed to own anything. Which is where your argument seems to end up.
Broadly, it is the difficult distinction between consumer goods (a cost) and investment goods (a potential benefit). Land can be a comsumer good or an investment good. It is simply dishonest to claim that all land is an investment good, as you are doing.
Land currently accrues in price because the State, banks etc force it to do so. That does not make it a productive good. For owner-occupied residential plots, it is an inflating consumer good. You need to concentrate on the inflation part, not the ownership part.
Ian B, you've done the Whore Value Tax before (I think) this is a non-argument, of course everything is 'better' (of which 'economic efficiency' is a subset) if the police go after murderers and thieves and rapists.
Where did I ever say that nobody has the right to own a power drill? You earn some money and go to the shop and pay for it. The people who created and supplied that drill are paid for their efforts. They created the value in the drill and it's theirs to sell. No prob's there.
The point about land is that the location value is not to created by the owner or occupier (to anything more than a very minimal extent) so why can people sell things they haven't created?
And isn't the other aim of Georgism, to scrap income tax, a way of ensuring that people keep more (or all) of the value they create? So to accuse me of being 'anti-ownership' is a bit feeble.
"Broadly, it is the difficult distinction between consumer goods (a cost) and investment goods (a potential benefit)."
I have never distinguished along those lines as it is a pointless and futile task.
The distinction I make is that there are
a) Things that individuals create (everything apart from land values) aka 'real wealth' (wouldn't be taxed at all in a perfect world) and
b) Things which 'the nation' or 'society' creates aka 'state protected privileges (mainly land or location values) and which you can tax as much as you like without any harm being done to anybody.
That's the distinction.
PS, land increases in price because of Ricardo's Law. The government and the banks like to inflate land values and blow bubbles, that's a separate problem. They can do that with shares as well - this does not mean that shares should be taxed.
If I recall correctly there were proposals from at least part of the Labour party back in the Sixties to convert all freeholds into "Crownhold" as a redistributive measure. It would not automatically go to the heirs of the existing occupiers. There was a traditionalist edge to the argument that the Queen could "resume" all freeholds of her prerogative power - (though natural justice would have demanded compensation, it wasn't in the scheme)
Some time prior to that home owners actually paid tax on the notional rental of the home they occupied. I think it was called Schedule A.
The grotesque rise in value of freehold property is largely due to the exemption from capital gains tax on the principal dwelling. People "trade up" the property ladder as a sort of second pension -especially with the incentive of a depreciating currency. Back in the Sixties I remember quite a few really substantial local businessmen who still lived in the relatively modest houses they had bought when they married in the Thirties and Forties. Sound money would cut the inflationary incentive and either abolition of the captial gains tax exemption or a return to something like Schedule A would take the steam out of the rising property market which lays impossible burdens on the younger generation, making it necessary for two good incomes to buy a reasonable house.
Ah, Ed, the good old Schedule A tax, on top of which was Domestic Rates. Between the two, they amounted to something similar to Land Value Tax, which is why we had a long period of house price stability between WW2 and about 1970 - and this was the period in which owner-occupation made huge strides forward, which sort of illustrates my point.
[Of course - two other things they had in the good old days were lots of new home building and strict mortgage lending criteria (as well as silly rent controls and punitive taxation of rental income).]
So it is particularly nauseating that people of a certain age who were happy to buy a cheap house way back when and benefitted from all this, and thus morally accepted Sch A and Dom Rates as a given, are now so passionately against taxation of housing, building new stuff, sensible mortgage restrictions etc.
Ian B, there's a communal aspect to land ownership though which sets it apart from capital goods like power drills.
When society becomes richer through infrastructure upgrades for example the surplus value doesn't attach itself to the prices of local shovels and hammers, yet it does help to push up local house and land prices due to their increased utility.
The privatisation of the nation's rents then prevents workers and *real* capitalists from enjoying the full fruits of their production, and this is enshrined as a cornerstone of our society to help 'preserve ownership', it doesn't make sense. It drives a massive wedge between effort and reward and effectively undermines the very concept of private ownership.
I understand that psychologically you have a point but empirically the argument doesn't stack up.
"The point about land is that the location value is not to created by the owner or occupier (to anything more than a very minimal extent) so why can people sell things they haven't created?"
To extend on that point, regardless of what you believe the origins of the universe etc.. are and how the planet and thus the land came into being, what is undeniable is that it was not a creation of man.
Only recently (last few hundred years) in terms of the entire history of the world has land ownership been a protected state monopoly, prior to this land ownership changed hands at the end of a club, then at the point of a sharp weapon and finally at the barrel of a gun.
"all that capital that people think is "invested" in their houses would become free to do productive work in the economy?"
Yes, one of the major downsides of the current state of affairs is that "all that capital", people's spare money, which financed the entire Industrial Revolution, is now uselessly tied up in housing. The only people with money to invest now are the banks, which suits them just fine.
"Only recently (last few hundred years) in terms of the entire history of the world has land ownership been a protected state monopoly, prior to this land ownership changed hands at the end of a club, then at the point of a sharp weapon and finally at the barrel of a gun."
Secure property rights are necessary for progress in all manner of ways. Land ownership is not a protected state monopoly. The state justifies its existence by (amongst other things) claiming to protect our property rights. In fact it can play the part of aggressive invader (one example: Diego Garcia).
Land is not a creation of man, but land bears the same relationship to man as the fruit he gathers. He mixes his labour with the land, and thereby gains a property in it. This property he can sell. I do not grasp the Georgist distinction between land and all other things. No doubt you can refer me to an earlier chapter.
It boils down to what 'ownership' of something means. I contend there is no difference between owning a plot of land and owning a similarly valued chunk of gold. Each is in limited supply and was not created by human hand. The gold was mined and refined by human hand, but existed prior to being discovered. Similarly land existed prior to man 'finding' it, and improving it in various ways (making it suitable for farming for example, or building a dwelling on it).
On the basis that my owning some gold deprives everyone else of owning that bit of gold, why should GVT (gold value tax) not be introduced also? Similarly copper value tax, iron value tax, aluminium value tax, oil value tax etc etc ad infinitum? After all I might lease out the natural resources I control and collect that most evil of things - RENT!
And as with land my only claim to ownership of any natural resource is the law, which provides me with title. So what could be more natural than taxes based on those natural resources to finance the State that backs my claim to ownership?
SW, B, ta for back up.
TT: "He mixes his labour with the land, and thereby gains a property in it."
Half correct. There is a distinction between the improvements value (paid for by owner, belonging to him and not suitable subject for taxation) and the location (which sort of happens by itself, only belongs to the owner because of legal conventions and is a suitable subject for taxation).
So, to sum up:
a) you extend or improve your house -> the value goes up -> NOT taxable.
b) The railway company builds a new station near your house -> the value goes up -> taxable.
"I do not grasp the Georgist distinction between land and all other things. No doubt you can refer me to an earlier chapter."
I refer you to Chef Dave's comment, else apply common sense, or see a)/b) example above.
Sobers, we've done this one to death. Yes, LVT applies to gold, but NOT to ownership of the finished ingot (99% of the cost/value of which relates to work applied to the rocks under the ground, smelting, design, transport, retail overheads etc).
The tax is paid by the owner of the gold mine in his capacity as "owner of gold mine". This is much the same as all governments charging mining companies for drilling rights or extraction rights, they ALL do it, including Thatcher in the 1980s (North Sea oil). Same as the 3G spectrum licence fee.
Obviously, it seems fairer to tax actual minerals as they are extracted rather than their mere existence, but hey.
"So what could be more natural than taxes based on those natural resources to finance the State that backs my claim to ownership?"
Well actually, isn't that similar to what the systemic fiscal reform group have as policy? Combination of land & resource taxes in order to reduce/abolish income taxes & production taxes.
"SW, yes of course, but to understand your points requires a certain degree of sophistication"
Unfortunately true, and given that i've just come out of a parents evening where I was told my 5 year old son corrected the teaching assistant when he spelled something wrong.........sophistication & intelligence are sadly in dwindling supply in this nation.
Sobers, as an afterthought, we also have a tax on oil consumption called 'fuel duty', which is not really a tax on petrol consumption, it is a tax on ROAD usage. Again, most governments do this, and IIRC correctly, Fuel Duty raises as much tax as Council Tax.
If we didn't have all these roads to drive round on, there'd be no demand for petrol, so petrol duty is like mobile Land Value Tax (VAT on top is spiteful, of course).
With e.g. gold is quite different as its value is quite independent of where it happens to be or what it is used for. Gold has no 'location value'.
SW, good for your little boy! Give him an extra hug tonight!
Hey Mark, have you seen this?
http://www.dailymail.co.uk/news/article-1362308/George-Osborne-change-VAT-rules-DVD-price-rise-cost-shoppers-130m.html?ito=feeds-newsxml
chefdave-
When society becomes richer through infrastructure upgrades for example the surplus value doesn't attach itself to the prices of local shovels and hammers, yet it does help to push up local house and land prices due to their increased utility.
If you mean "public" infrastructure upgrades paid for by taxes, the answer is to not to have socialist infrastructure. Georgists tend to argue that e.g. a (state) transport link or leisure centre raises property values. The first point on this is that the State shouldn't be building these things.
The second is that the raised values might be unwanted by property owners and renters. They can't not have the leisire centre, even if it just fills their street with unwanted visitors. In many cases, public infrastrcture drives the original inhabitants out of an area.
In a model where all land is private, there is no problem. Each property is gaining from its neighbours, so the gains cancel out. The net benefit across the whole community is zero, since the property owners as a community have themselves paid for all the improvements. There may be some who improved a great deal, and others who did not improve at all ("free riders") but the average gain in price is the average investment by property owners. As such, the community as a whole owes nobody to anybody else that can be collected in tax.
You could (if you were silly) compare each plot's value to an assessment of what degree of improvement the individual owner has done, so that non-improvers pay a tax and "over improvers" get a rebate, but the net would still be zero for Georgists to collect as an LVT.
IB: If you mean "public" infrastructure upgrades paid for by taxes, the answer is to not to have socialist infrastructure.
It's actually totally irrelevant who builds the infrastructure, because people have to pay for the use of the infrastructure *ON TOP OF* what they have paid to be located near it! Land value is not, I repeat, NOT the value of the nearby improvements/benefits, but the value of being *near* those improvements/benefits.
Looks like I need to finish that follow-up post...
IB: Each property is gaining from its neighbours, so the gains cancel out.
Actually, no they don't. They flow in a particular direction. Zero-sum games don't have to be fair, you know.
IB: Ownership has merit all in itself...It does not require a utilitarian justification.
(facepalm)...you can't logically use the word merit and then try and decry utilitarianism...you can try and claim that it is logical or just or whatever, but not meritorious...
TT: He mixes his labour with the land, and thereby gains a property in it.
So exactly how hard do I have to punch that tree before it is mine forever?
This idea, while seductive in it's simplicity, belies it's ultimate root which is simply survival of the 'fittest'. I use the term loosely because the definition of fit is not what you think it is. The funniest thing is that if you accept Lockean property rights, then the dead will forever control the living. The actions of some Joe 10, 50, 100, 4000 years ago are the key to who controls land now.
I understand the attraction of the idea that something can be ours without any responsibility to anyone. I really do. But physics doesn't give us that morally as an option. And neither does Locke.
Sobers: I contend there is no difference between owning a plot of land and owning a similarly valued chunk of gold. Each is in limited supply and was not created by human hand. The gold was mined and refined by human hand, but existed prior to being discovered. Similarly land existed prior to man 'finding' it, and improving it in various ways (making it suitable for farming for example, or building a dwelling on it).
There is some truth in what you say. But you have the consequence wrong. (Incidentally, it's in no way interesting what people do to 'improve' land - they are entirely welcome to the value of their improvements, it is the value of the location that is important)
Your example doesn't show that land is free, it shows that gold (and other physical stuff) has a cost.
A quick response to your fallacious dig at me.
The proposition in your original piece was that half income is taken in taxes and that LVT would result in only a slight increase in net cost of land ownership. I pointed out that this makes no sense if the tax take remains the same, to which you retort that armies of quangocrats would go thereby reducing the need for so much tax to be raised.
You are putting forward a distorted equation. Armies of quangocrats should go whatever system of taxation is in place - you will recall this was once my portfolio in the bloggers' cabinet. If they do go, the current system of taxes would need to raise less; so you shouldn't be comparing current taxes & quangocrats to LVT minus quangocrats.
In fact land is man-made. At least any piece that's worth living on has been rendered habitable, ie arable as opposed to wilderness. LVT is no good because there is state coercion involved. For instance why should nimbys pay a don't-ruin-the-view tax when they could collectively buy surrounding land and preserve it?
TFB, let's assume net tax take stays exactly the same.
People's disposable income would slightly more than double (average tax rate is about 50% plus they'd get Citizen's Income, however modest).
For people who already own a house, they then pay the same in LVT as they paid in income tax. So no change.
For subsequent buyers, they pay similar in tax, BUT the cost of houses will adjust down according to the LVT which is added, so their net housing cost is much the same out of a larger net income.
The vast majority of people would end up better off under LVT, even if it raised the same amount.
Richard: "In fact land is man-made. At least any piece that's worth living on has been rendered habitable, ie arable as opposed to wilderness.(1) LVT is no good because there is state coercion involved. (2) For instance why should nimbys pay a don't-ruin-the-view tax when they could collectively buy surrounding land and preserve it? (3)"
1) compare and contrast your house going up in value because YOU spend money on it or because it goes up in value because SOMEBODY ELSE spends money (new shopping centre, new railway, new factory, whatever). Of course they are both man-made. So what?
2) You appear to be pre-NIMBY - how is that NOT 'state coercion'? Are not ALL taxes 'state coercion'?
3) Of course they are free to do so. That reduces the value of the land which now will never be built on and increases the value of their houses by a much larger amount and so their tax bill GOES UP.
"pro-NIMBY" not "pre-NIMBY".
"Your example doesn't show that land is free, it shows that gold (and other physical stuff) has a cost."
Or in other words, the gold gets removed from the ground and refined into bars, coins, jewellery etc...
I can't pick up the land my house is on and dump it in the middle of the atlantic and have my own little island!!
Mark,
In answer to your points.
1. Somebody up above argued that land was not man-made. Terrain isn't, of course, but "land" ie somewhere to live, is. This has no bearing on your argument, as you say.
2. Yes, tax is coercion. Which is why arguing is pointless if we forget that someone is forcing us to cough up. Call it LVT if you want, but it's still your hard-earned cash disappearing into someone else's pocket. Less painful perhaps than the current mortgage scam system, granted, and well-argued too, but "least bad" doesn't equal "good."
3. You are correct, that's exactly what would happen. But that's because the State thinks it's ethical to impose what amounts to a nice-view tax.
"3. You are correct, that's exactly what would happen. But that's because the State thinks it's ethical to impose what amounts to a nice-view tax."
Well, all you are doing here is labelling this as a "nice view tax" when in actual fact the value of surrounding land & therefore property prices (which include land) goes up not as a result of having a nice view BUT as a result of the scarcity of housing in that area with: Good commuter links, good schools, good hospitals, good leisure facilities, lots of affluent people with whom to ply your trade... If they allowed more housing to be built & suggested/provided good sites for this which would lessen the ruining of the view, the total value of the land in the are would go up but would be spread amongst a larger number of land owners resulting in either a similar or potentially reduced tax bill simply for allowing homes to be built and spreading the liability. Thats the biggest problem with NIMBY home-ownerists, too much you can't build here rather than what about 300 yards over yonder?
Richard:
1. I am indifferent how you argue it. Location value is largely man-made (by others) and that is what would be taxed. This doesn't apply to value of farmland where the soil itself is largely man-made by the occupier from time to time and is very low value (one-hundredth as much as residential land) and for those two reasons not worth taxing (but certainly not deserving of subsidies).
2. "Less painful perhaps than the current mortgage scam system, granted, and well-argued too, but "least bad" doesn't equal "good."
Less bad = almost infinitely better. Instead of paying your 'hard earned money' as rent of mortgage payments into private pockets and income tax into government pockets, the rent element goes as LVT to 'the state' (which is all of us) and that is the end of it.
3. The nice view to which you allude is presumably NOT man-made and the NIMBYs rely on the force of law to restrict other people's access to it. So why is it so terrible to make them compensate those who are restricted?
SW, that's another way of answering bullet 3. What puzzles me about NIMBYs is that they are happy to disadvantage their own children and grandchildren. Does seem a bit counter-intuitive...
SW - good argument. The more people in an area, paradoxiaclly, the more living space.
MW - Point 1, we agree. Point 2, your logic is fine if you define the State as all of us, whereas I would contend that the State is merely a covering fiction for a caste of people with a monopoly on force, who fleece the masses and leave us just emough to stop us chasing them up the road with pitchforks.
3. You are right, generally speaking, although a nice view (ie Central Park, NY) might be man-made. Needless to say, as a believer in the right of property I could hardly object to someone building a house in "my" view when I've just built one in someone else's!
"property prices (which include land) goes up not as a result of having a nice view BUT as a result of the scarcity of housing in that area"
I think you will find that this is not the case. Building many new houses in the area SHOULD push the price down (supply and demand), but in practice, the new houses go on the market for the same price as the existing houses and are generally sold for that price. This is probably because there are only so many square metres of land within easy reach of the railway station etc. and some of it will be built on already. Even when every square metre that can be built on has been, the demand is still enough to prevent the price dropping.
House prices are, by and large, determined by people's ability to pay and hence interest rates. Cheap money = expensive houses.
"he is simultaneously supplier and consumer"
In the context of sex isn't that called wanking?
Richard: "I could hardly object to someone building a house in "my" view when I've just built one in someone else's!"
Spoken like a true libertarian!
B, yes, easy mortgages have a lot to do with it, but that's argument 9,784 for LVT - it acts like a higher interest rate so tends to keep prices low and stable, and also acts as a cut off - too far out and it's not worth building a house so it would deter 'urban sprawl' (to the extent we agree that is A Bad Thing).
NickM, yes, hence the example of man marrying his housekeeper.
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