Killer Arguments against LVT, not (116)

Another argument that people have launched against LVT is that
a) it is a tax on 'assets', and therefore
b) by implication, Land Value Taxers want to tax all 'assets', be that paintings, cars, the bricks and mortar of a building etc.

The thing fails because assumption (a) is wrong. Before we decide whether land is an 'asset' or not, let's look at the two basic types of assets:
a) Proper assets
b) Financial assets

a) A proper asset is something like a painting, a car, a building.

i. People have invested materials and effort into these, and in a freely competitive market, the selling price will be approximately equal to the cost/value of the materials and time invested in them, plus a small profit margin to cover the producer's risk element and cost of capital on the fixed assets which he needs to make the finished product.

ii These cannot be created out of thin air

iii. If they are destroyed, there is a real loss to the owners without there being a corresponding gain to anybody else.

b) A financial asset is something like a bond (or indeed a bank deposit) or an accrued pension entitlement from your employer.

i. These arise because the recipient has lent the payer money in the past, or because the pensioner has worked for that employer in the past for slightly less than a full market salary and the balance is paid out in the years after he stops working.

ii. Interestingly, financial assets/liabilities can be created out of thin air - if you bet somebody £100 that something will happen and it does, hey presto, you have a financial asset of £100 and the other party has a liability of £100, but let's ignore that for now.

iii. It is an asset from the point of view of the recipient, but is always an equal and opposite liability from the point of view of the payer, and the two by and large net off to nothing. So if you drop dead on the day your pension was due to start, your loss is your former employer's gain.
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There is no moral or economic case for taxing either of these types of assets (and it would be an administrative nightmare and open to massive evasion anyway). A tax on paintings or cars is like income tax on the person who manufactures them or like an annually recurring VAT on the purchaser; a tax on financial assets like bonds, bank deposits, pension rights is like income tax on the interest or deferred employment income.

In my view, income tax and VAT are Bad Taxes, so that rules out a tax on proper assets and financial assets.
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So we come to land, which behaves in some ways very much like a financial asset...

i. The buying or selling price of land at any location is just an estimate of the net present value of the future rental income that the owner will be entitled to collect (or enjoy himself, if he intends to occupy it himself). So by and large, the value of land goes up when interest rates go down and so on. And of course, the value of the rental payments to the owner is equal and opposite to the corresponding liability to pay those rents - the two net off to nothing. So like a financial asset, land is only an asset because it is a liability to somebody else, if you net the two off it is a big fat nothing.

ii. Can land be created out of thin air? Not really - even land reclaimed from the sea needs a sea bad - but location values very much are, i.e. if a farmer gets planning permission, the value of the land increases a hundred-fold. If the planning permission is then revised down to a lower density, the value of the land goes down again etc. And the location value of any plot is created by the actions of 'everybody else' (for example, when trouble kicked off in the Middle East recently, it was reported that demand for residences in London had gone up because all the despots were looking for somewhere safe to hide; land values in the Middle East presumably fell).

iii. Where location values differ from other financial assets is this: a financial asset arises because the lender has given the payer money in the past and they have a right to be repaid that money in future. There is reciprocity involved - it is a two-way street. For example, I lend money to the government and get a bond (an asset from my point of view) and the government has a liability (to repay me with interest). Even if I sell that bond to somebody else and the government is now liable to repay him, we can still see that it is a two-way street. (I am not making excuses for governments running up huge debts, but it is the government which runs up the debts, not the people willing to lend them money).

BUT... there is no such reciprocity with land.

The people with the liability (people who are renting or who want to buy) have never received anything from the land 'owners' with the right to collect the rent or sell the land. Land 'owners' in their capacity as land 'owners' never paid 'everybody else' for whatever it was they were doing to create those location values. For sure, there are plenty of things which happen which depress location values as well, but by and large the net overall effect is positive.

And for sure, most owner-occupiers are also income tax payers (so have paid towards a lot of the cost of publicly funded improvements) but IMHO it would be better to get rid of income tax (which forces tenants to pay for the COST of publicly funded improvements through their tax bill and for the VALUE of publicly funded improvements through their rent bill) and just have a Single Tax on the location value.