Tuesday 17 May 2011

Killer Arguments Against LVT, Not (127b)

Once more unto the motherlode:

The flaw in a land value tax is that some land simply does not generate an income from which it could be paid...

Woah! Stop right there!

No land generates [cash] income, never has done, never will, although all land generates some non-cash income. It is merely that the owner can (or could) demand payment from those who wish to occupy it (and is prepared to forego that payment if he wishes to occupy it himself):

a) It may be that the land contains valuable minerals or occupies a prime location from which to carry on a business, in which case people will pay large amounts to occupy it. The large amount = the total income they can generate minus a reasonable payment for their own efforts i.e. wages + profit.

b) Or it may be land in a residential area, and people pay a large proportion of [the wages they can earn within easy commuting distance minus the costs of 'reasonable minimum standard of living'] for the privilege of exclusive possession of that site [plus or minus how nice or not that particular area is].

c) The rental value of any site (and hence the taxable amount) in either case is just that balancing figure of [total income minus 'reasonable payment for own efforts' or 'the costs of a reasonable minimum standard of living'].

d) If no business can generate a super-profit by trading from that location or if wages within easy commuting distance of that residential site only just cover the costs of a 'reasonable minimum standard of living', then clearly the rental value of the land is zero (and there are plenty of areas in the UK where the rental value of land is so close to zero as makes no difference).

e) So, provided tax rate is set correctly (which is not difficult, you just do your workings and set the tax rate at less than 100% - as long as land and buildings are still selling for more than their rebuild cost, you know the tax rate is less than 100%), the owner of the land will always have a source of income to cover the tax. Either he is taking advantage of the opportunities which that site offers himself; or he can rent out or sell the site to somebody else who wishes to do so.
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To prevent this post from becoming too lengthy, I'll just post the rest of the comment without further analysis. See if you can spot the only sentence (or inference) which is factually and logically correct (I've numbered the paragraphs so that you can just leave a number in the comments when you spot it):

1) ... A rental value tax claims to address this, but doesn't entirely because the theoretical calculation of what rent a property might generate is no guarantee that it actually does so.

2) Relief in the basis of ability to pay just turns it back into a variety of income tax.

3) If you insist that land for which the tax is not paid reverts to the state would that appropriation be compensated or would it just be theft in the guise of a penalty?

4) If owners without the liquidity to pay the tax will have to sell to avoid forfeiting it, the result of which will be the further concentration of land in the portfolios of the rich.

5) Non-owners may be attracted by promised reduction in their income tax but they'll be less happy to find themselves paying as much by rent rises instead while socially this would be the creation of a new economic feudalism.

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