Killer Arguments Against LVT, Not (126)

What really puzzles me is that the minute you mention taxes on land values, people go completely hysterical, and it's not just the Home-Owner-Ist propaganda kicking in, I suspect it is because people do not have a clue about maths, let alone economics or equity.

I had a hysterical reaction five years ago when I originally suggested replacing Council Tax, SDLT, Inheritance Tax, Capital Gains Tax and the TV licence fee with a flat one per cent annual charge on the current market value of all residential land and buildings - and not being totally daft, I made it clear that there would be a roll-up/deferment option for pensioners.

The way the maths works, very few people would actually be much better or worse off in £-s-d, whether on a year by year or on a lifetime basis - with the big upside that about a thousand pages of tax legislation could be swept away and the more modest upside that maybe housing would be allocated ever so slightly more efficiently, thus preserving The Hallowed Green Belt - but nope, hysteria was the order of the day.

Since then, on the basis that you may as well be hung for a sheep as a lamb, I have proposed that you might as well replace all taxes with Land Value Tax, which means raising eight times as much, and I get exactly the same grief - not eight times as much, which confirms that people really don't have a clue about numbers (if raising £40 bn in LVT is bad and earns you grief, then surely raising £320 bn in LVT is eight times as bad, yes?).

And lo, let us once again dip into the recent rich harvest of crap over at The Guardian:

How do you propose to fairly tax the owners of farms (1) or woodlands (2) without making their products disproportionately high? (3) What about industrial and retail land, which is the seedbed of small business which create new jobs? (4) And critically, what about pensioners: many are asset rich, living in houses where the mortgages have been paid off, but cash-poor with modest weekly incomes (5). A land tax would (literally) kill some of these people: it would be a choice between paying the "unavoidable" tax or turning on the heating...(6)

That said, the UK tax code is Byzantine in complexity, and there is a good case for ripping the whole thing up and starting again (7). I'm a former partner in a Big Four accounting firm, not a tax specialist, and a lawyer. And even I pay an accountant to keep my tax affairs in order: not to avoid anything, just to make sure I pay the right amount and don't trip up. There's a lot of dead money sloshing around like that (not dead to tax advisers, obviously). (8)

Yup, that's what you get for your money over at a Big Four accounting firm!

1) The article made it quite clear that LVT would be a replacement tax for income tax etc. It wouldn't be rocket science to work out how much income tax etc the agriculture industry currently pays. Let's say it's £2 billion in income tax a year (half a million people @ £4,000 each) and they farm 50 million acres, so the average income tax bill/acre is £40 a year. The author of the article mentioned specifically that it would be important to increase the personal allowance to £10,000. Maybe this would reduce the total amount of income tax paid by the agricultural industry by a quarter, in which case, provided the tax on agricultural land were no more than £10 per acre, then no harm done!

2) Profits from forestry are, bizarrely enough, income tax free to the landowner under current UK law, but not the income of forestry workers (which is subject to PAYE as normal). The rental value of forests is very low - about £10 per acre a year - because the value of a growing tree only increases by £1 per year or so (and half of that gain goes on wages and upkeep). So a tax on forests of about £5 a year would more or less balance out the 'cost' of increasing the personal allowance of forestry workers to £10,000 (or whatever the precise figures are).

3) The commenter fails to realise that farm and forest rents are a balancing figure! Total income, i.e. the value of the output, is more or less fixed (they compete with produce from abroad, the price of which would be unaffected by minor tinkering with the UK system); costs are more or less fixed (wages are dictated by how willing people are to do the work, again, a lot of the workers might be from abroad), and the rental value is merely an estimate of the net profit. A tax on a balancing figure, the net profit, affects neither the total income, i.e. the value of the output, nor the costs.

4) Ahem. It's not the 'land' which creates the jobs, it's some bloke (or blokess) with an idea, with ambition, with a bit of money to invest who taps into a new market and harnesses people's skills who create jobs, so reducing the tax on income and profits, however slightly, makes it more likely that jobs will be created. The land is just where all this happens.

I could rehearse the same arguments as in 1) or 2) or merely point that 'industrial and retail land' is already subject to something very similar to LVT, referred to as 'Business Rates'. Reducing taxes on incomes and increasing Business Rates (whether you call it LVT or not) on a £ for £ basis must have some mild positive effect on business activity. Worst case, an existing business is so badly run that it can no longer afford the LVT. In which case the owner decides he'd be better off shutting up shop and renting out the premises, which is guaranteed to make him a small profit for no effort whatsoever, with the added bonus that the new tenant will be running a more profitable business, creating more jobs, adding more value etc. Win win!

5) The Poor Widow Bogey, outing number 1,234,567. Exemptions, deferments, discounts, higher state pension, yawn.

6) Nope. It would be a choice between paying the tax, turning on the heating, trading down, taking in a lodger, selling up and moving in with family, rolling up the tax, asking the heirs to pay, taking out a lifetime mortgage etc. etc. There must be millions of lonely single pensioners who are shivering away in three bed 'family homes', would it be so terrible if some of them moved into blocks of flats or sheltered housing, thereby slashing their tax bills, preserving the wealth that will 'cascade down the generations', getting a bit of company and an on-site warden etc?

7) Exactly. And as all tax is ultimately a tax on incomes, why not move to a far simpler, yet sophisticated, way of taxing incomes (by taxing land values) rather than stick with a complex, yet damaging, way of taxing land values (by taxing incomes)?

8) Very much so. I'd be first on the scrap heap, but hey, our whole economy is based on lies, I just sort out the paperwork.