Responding to the rhetorical question Why isn't land reform up for debate?...
Becky: Because idiots like you (1) would lead the debate who clearly have no idea about modern agriculture (2) - you just like quoting from some book you have read which is mostly about aristocratic land owners. (3)
There is no indication that you understand that the world is not simple and the context of land ownership differs massively from place to place in the country. (4) Any taxation would likely not be of income possible from the land (5) but from amount of square feet owned.(6) So someone owning 50 houses in Chelsea would probably be punished equally harshly as a sheep farmer owning 200 acres in the Scottish Highlands. (7)
There is no real way of differentiating land value (8) and treating people fairly.(9)
1) Starting off with an insult is a risky strategy; it's usually far better to show that you know what you are talking about and the other person doesn't, then allow readers to draw their own conclusions. As Becky illustrates, trying the second approach can backfire badly as well.
2) I know little about the practicalities of farming, but looking up rental values for farmland is quite simple, and farming is subject to the same laws of economics as everything else. And I don't see the relevance anyway - is detailed knowledge of every single different industry or job a pre-requisite for the design of the corporation tax or income tax systems?
3) Which book? Have all land value taxers only ever read one book between them? In any event I haven't read that particular one.
4) This whole sentence is meaningless.
5) Well, that's exactly what proper LVT is, it's a tax on the achievable rental income from that land...
6) ... expressed as a tax/sq yard or tax/acre and multiplied by the size of each plot, obviously.
7) A bit of quick Googling tells us that the rental value of the cheapest houses in Chelsea is about £3,000 a month (don't ask what the most expensive ones cost!) and the rental value of one acre of agricultural land in the Scottish Highlands is about £25. So the rental value of 50 houses in Chelsea is at least £1.8 million a year and of 200 acres of Scottish Highlands is about £5,000. So she's out by a factor of hundreds, there is just no comparison.*
8) It's easy working out what the rental value of each particular bit of land is, you just compile statistics of rents and selling prices for different types of land in each area (i.e. with or without planning permission), knock off a bit for the improvements element, do a bit of interpolating and Bob's your uncle.
9) As to 'fair', most people's view is that the only fair tax is one which everybody else is paying, so by reverse logic, the fairest tax is one where everybody has to pay something.
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* In any event, there's another way of guesstimating how much tax owners of agricultural land in any area would pay, and that is to tot up all the council tax, income tax (on farming or rental income), PAYE, irrecoverable VAT etc they pay under current rules, minus off agricultural subsidies and that's your net target figure, assuming we scrap all the existing taxes and subsidies (it's probably not a very big net amount) which you divide by the number of acres in each area.
So the tax would be between £5 and £40 per acre (depending where and what type the land is). Or even better, the tax would be levied on the higher of:
a) The rental value of the dwelling house(s) (ignoring the land completely), and
b) a lower rate per acre applied to total acreage (ignoring the house(s) completely)
That way we don't need to worry about distinguishing between people with big gardens; hobby farmers; self-sufficient people; proper commercial farmers etc.
Do You Know Where it is Yet?
2 hours ago
27 comments:
A neat bit of dissection, but I'm sure there are an awful lot of Beckys.
There are. And thanks to the idiot, Becky is on the first step of the road to getting it. That's a big deal.
You can tell because of the insult. She recognises her hypocrisy and is trying to defend it by discrediting him.
Before now she didn't even know she didn't know. Now she does know that much.
I wish you'd make up your mind what you want to tax, selling values (ie capital values) or notional rental income, because they aren't the same thing, especially the higher up the house price ladder you go.The rental yield on £1m house is probably 3-4% of capital value, whereas a £100K house can probably yield 5-6%.
Ergo if you tax pure capital value (£1m selling price times x% LVT rate), then the incidence will fall further up the price scale, at least it will initially. Whereas if you tax notional rental value the incidence will fall further down the value scale (and also further down the income scale, as we all know, rents are liked to income levels).
So which exactly are you proposing?
S; "I wish you'd make up your mind what you want to tax"
Land rental values. But that's a slightly unfamiliar concept, so I refer to capital selling values as a proxy, it makes the calculations easier.
"The rental yield on £1m house is probably 3-4% of capital value, whereas a £100K house can probably yield 5-6%."
Agreed.
But it's higher earners who buy the most expensive houses, and they pay a disproportionate amount of income tax, VAT etc. Higher earners will benefit most (in absolute or relative terms) when these taxes are phased out and so it is not improbable that rental values of the most expensive houses will go up more than the rental values of cheaper houses.
At the bottom end, replacing the tax free personal allowance with a Citizen's Income will push up rental values of cheaper houses as well, so we can't say for sure how it will all pan out.
I'll stick with a flat 8% of current selling prices for the simple reason that LVT receipts would need to be about £300 bn (to replace most other taxes) and all UK land and buildings are worth about £4,000 billion.
AKH, thanks. the country is approx. 99% Beckys, there's a lot to do.
Well thats not really land 'value' tax then is it? It pretty much the same as the old schedule A (?) tax on owner occupiers imputed rents. And as such you're really taxing incomes again, not capital values.
Thus the LVT payable on a 1m house will not be ten times the LVT on a 100K house. It will probably be 5-6 times the amount. So which ever way you crunch the numbers the 100K house ends up paying proportionately more.
If you start with the 1m house and say 'I want them to pay the equivalent of 8% of capital value, ie £80k pa' then assuming the rental value of the 1m house is 40K, LVT is set at twice the rental value. But the 100K house has a rental value of about 6K pa, so its LVT would be 12K, or 12% of capital value. If you start with the 100K house paying 8% of capital value, you end up with the 1m house paying 53K LVT or just over 5% of capital value.
So people with lower value house will pay more under an imputed rent tax, than under a '% of capital value tax'. Under capital value tax the losers are less in number, but lose more each. Under imputed rent tax, the losses are spread more widely.
Ergo the more losers you have, the less likely you would get the votes in favour.
S: "Well thats not really land 'value' tax then is it? It pretty much the same as the old schedule A (?) tax on owner occupiers imputed rents. And as such you're really taxing incomes again, not capital values."
Like I said, proper LVT is a percentage of land rental values not capital values. But one question which people ask is "How much would I pay under a full-on LVT system?" to which the most helpful answer I can give is "About 8% of the current value of the home you live in".
"Thus the LVT payable on a 1m house will not be ten times the LVT on a 100K house. It will probably be 5-6 times the amount. So which ever way you crunch the numbers the 100K house ends up paying proportionately more."
Maybe, maybe not. So what?
If the tax is phased in over five to ten years and it turns out that the tax on a house which cost £1m in 2011 is 5-6 times as much as the tax on a house which cost £100,000 in 2011, as long as that is a fair reflection of the relative rental values, then that is absolutely fine.
"So people with lower value house will pay more under an imputed rent tax, than under a '% of capital value tax'."
Maybe, maybe not, see previous response.
"Under capital value tax the losers are less in number, but lose more each. Under imputed rent tax, the losses are spread more widely."
You're doing the usual left-right flippy floppy, donning your David Cameron hat and crying that this is an attack on wealth and then switching to the Ed Miliband hat and saying "It's an attach on the poor".
What you resolutely overlook is that about half of LVT receipts would be dished out as Child Benefit (as now) Citizen's Income or Citizen's Pension (as a quasi personal land allowance), people who live in the bottom half of houses would have a net tax minus CI bill of plus/minus nothing.
So as I pointed out in my previous comment, high-end rental values would be pushed up because income tax etc is scrapped; low end rental values would be pushed up because of the CI, and rental values in the UK generally would be pushed up because there's no income tax and hence more or less full employment.
There's no point you or me trying to predict the precise impact on rental values or selling prices because it's all rather circular and these can only be established in practice by phasing in LVT and phasing out other taxes gradually.
Look I'm not the one who's just changed the entire basis for calculating his new taxation system.
There is a world of difference as to who will be affected, and by how much, between a tax of X% on the value of your house, and a tax of X% on the imputed rental value of your house.
The former is somewhat of a wealth tax, because selling values of property are not totally dependent on income levels. As one moves up the house price ladder the greater the amount of the selling price that is represented by capital, not income (as is shown by the rental yields on expensive properties being lower than those on cheap ones). There are not enough people who earn enough to buy all the £1m+ houses, if they had to finance it solely from income. The only way houses that expensive can bought is if capital is added to the borrowings the income will sustain.
Whereas a tax on imputed rental values ignores those capital values entirely, and falls on the proportion of the house price that can be sustained by income. This necessarily means that to raise the same amount of revenue the rates must be set higher than under the X% of selling price system, and this will tip more people into being losers rather than winners or coming out level.
And we also know that the losers will not just be concentrated in the higher income levels, but distributed across all income levels. It is just as likely that Mr and Mrs Below Average Income in their 'Average house they inherited from his Mum' will be losers as Mr and Mrs Wealthy in their fancy mansion.
If you can't see that a tax system that can penalise relatively income poor people (not widows in mansions, just below average income people in above average houses) and reward income wealthy people (like me probably) is not going to be that well supported, you really need to go to Specsavers!
S: "I'm not the one who's just changed the entire basis for calculating his new taxation system."
I refer you to my previous answer: proper LVT is a percentage of land rental values not capital values. But one question which people ask is "How much would I pay under a full-on LVT system?" to which the most helpful answer I can give is "About 8% of the current value of the home you live in".
"a tax on imputed rental values ignores those capital values entirely, and falls on the proportion of the house price that can be sustained by income."
Correct. But add to that income the Citizen's Income.
"This necessarily means that to raise the same amount of revenue the rates must be set higher than under the X% of selling price system, and this will tip more people into being losers rather than winners or coming out level."
Nope. The idea is to raise approx. £300 billion in tax. Whether that is (say) 60% of rental value or (say) 8% of current selling values is a purely mathematical thing. It's the £300 billion that's important, not the 60% or the 8%. Don't forget, the UK government tells us that the basis rate of tax is 20%. Bollocks. Once you include NIC and VAT and means testing, it's more like 80%.
As to 'winners and losers'
a) I refer you to my previous comment: "about half of LVT receipts would be dished out as Child Benefit (as now) Citizen's Income or Citizen's Pension (as a quasi personal land allowance), people who live in the bottom half of houses would have a net tax minus CI bill of plus/minus nothing."
b) Broadly speaking, most people will be paying a similar amount in tax as they do now (suitably reduced for overall fall in tax levels), with the big difference that those who are willing and able to pay the most tax get to live in the nicest houses. Unlike current rules, paying tax will bring the payer a reward and not just be a penalty on hard work.
Wealthy people live in more expensive houses SHOCK!
Could you quite easily ignore extra-urban land from the LVT to keep Beckys happy? After all, the Scottish Highlands would probably not raise much, and taxing the value of the farmers' houses themselves would capture the "wealth" generated by the land in the same way that taxing my flat captures the arse-sitting work I do.
Thinking carefully about the consequences of abolishing taxation is a great struggle.
Because it ends protectionism of unearned incomes at the root. The thing we are all defending so fiercely right?
Obfuscation rules. Logic and reason disqualify you.
Is there a true free trader among us?
No one will be worse off with an LVT
LVT requires no exemptions nor compensation to benefit all people
Becky is simply going through a redemption process. She will get there in the end. Sobers too. Do not bribe them with more welfare.
Proof? See here:
The Effect on Individuals and Classes
Try to think about all people not just yourselves. That's the whole point of LVT.
BE, yes, we could simply exempt it and tax the houses, see footnote to the post. In which case we would of course retain income tax for rental income from agricultural land.
8) Could allow people to discount Rebuilding insurance from their LVT.
AC1
@Sobers.
"Thus the LVT payable on a 1m house will not be ten times the LVT on a 100K house. It will probably be 5-6 times the amount. So which ever way you crunch the numbers the 100K house ends up paying proportionately more. "
Those living in the 100K house would receive as Citizens Dividend.
Assuming 2 people in each house this would even out the tax difference as the C.D. acts as a negative tax.
AC1, there's no need to be that scientific. If we observe that houses in any area sell for less than rebuild cost, the tax is clearly too high and would be reduced, to nil or a token amount if necessary. And if houses in most areas are still selling for more than rebuild cost, clearly the tax is less than 100% of land rental value and no harm done.
Anon, ta for back up. It will all even itself out in the end.
It's a pity the New Statesman is likely to insist of Bureacrat direction of all the Land dividend, rather than rightly being an equal Citizens Dividend, with the cost of government equally deducted.
Anon, the spending side of the equation is a different topic.
The good news is that because LVT is an in-your-face tax people will be aware of how exactly much they are paying and the government will really have to justify every penny it spends.
AC1
No one loses with an LVT. So no need for compensation nor exemptions.
Unless you believe people should receive benefits for doing nothing?
Also a citizens income would not be needed. Wages and Interest would rise absolutely with Rent. Not fall in proportion as today. How much have we though about this consequence?
What this thread is exposing very clearly is a lack of thought about the consequences of an LVT. And a focus on LVT within the current model.
A bit daft.
"The idea is to raise approx. £300 billion in tax. Whether that is (say) 60% of rental value or (say) 8% of current selling values is a purely mathematical thing. It's the £300 billion that's important, not the 60% or the 8%."
Of course it matters!! Because as I have shown above the tax incidence falls more on the lower value houses under Imputed Rent Tax (IRT), and more on the higher value houses under Percentage of Selling Price Tax (PSPT). As there are lots more lower price houses than high price ones the tax on the broad mass of the population must therefore be higher under IRT than PSPT, whatever level of revenue you decide to raise. Given the level of CI is the same under both, if the tax on the average person/house combination rises under IRT, there will be more losers under IRT than PSPT. That is self evident.
On a side note, I would say it would make more sense to tax the value of houses only, and ignore bare land, because otherwise you get into a very complicated argument about which houses are farmhouses, what size of farm is big enough to justify a farmhouse etc etc. Far better as Blue Eyes said, tax the house - you'll probably end up with more tax anyway than if you taxed the land and exempted the house.
S: "the tax incidence falls more on the lower value houses under Imputed Rent Tax (IRT), and more on the higher value houses under Percentage of Selling Price Tax (PSPT). "
Maybe, maybe not. But the 8% figure I use applies to 2011 house prices, and prices will go up or down in future. This is just a starting point for illustration purposes.
Even if we went with 8% PSPT, then the selling prices of today's £1m homes would probably fall relative to the price of £100,000 homes, and we would end up with a position where today's £1m homes sell for £700,000 and pay £56,000 a year tax and today's £100,000 homes increase in value to £110,000 and pay £8,800 tax (thus re-instating your 6-to-1 ratio)..
This is all just fluff and details. For sure, half of all tax receipts will be raised from "ordinary people in ordinary houses" but so what, they benefit from state spending as well, don't they?
LVT has nothing to do with upwards or downwards redistribution, it's about preventing concentration of unearned wealth.
On farms, yes, tax the house as normal, the rental value of ag land is just not very important, the main thing is to get rid of income tax on farmers and get rid of agricultural land subsidies.
'This is all just fluff and details.'
Not really if you want the system to be popular and not get voted out at the first opportunity. If you sell the scheme to people on the basis they will be paying 8% of selling price and prices move as you suggest (expensive houses drop by a third, cheap ones rise by 10%) then suddenly the people at the bottom are paying more tax than they thought. That's not popular.
Plus its hardly going to help young people get on the property ladder if cheap houses will rise in price as a result of the new system. I thought one of your stated aims was to make housing more affordable for young people? AFAICS LVT makes cheap houses more expensive and rents rise too.
S, neither of us now how rents and prices will change, there will be forces pushing rental values up and forces pushing selling prices down, by and large, they will cancel out.
"suddenly the people at the bottom are paying more tax than they thought. That's not popular."
That's not the point is it? The point is that people at the bottom of housing ladder or on low incomes will be paying a lot less tax than they do under current rules. Whether they end up £3,000 a year better off or 'only' £2,000 is neither here nor.
"it's hardly going to help young people get on the property ladder if cheap houses will rise in price as a result of the new system."
Oh yes it will help. As you pointed out yourself, "a tax on imputed rental values ignores those capital values entirely, and falls on the proportion of the house price that can be sustained by income" so by and large, the size or value of the houses that people live in will be proportional to their income. Young people have got plenty of income, that's not the problem, it's that older people on the same income own all the houses. So it will level the playing field at least.
Or look at it this way - there are lots of Baby Boomers etc who wouldn't be able to afford to rent or buy their own homes, but they are expecting young people to rent or buy them.
"Young people have got plenty of income, that's not the problem"
Really??
Robin, a Citizens' Income is required for reasons of economic balance. If there is no Citizen's Income then there needs to be government spending of a roughly equal size to the LVT revenue. And if we are looking at anything approaching 100% of ground rent, that is a lot of government spending.
The reason is straghtforward: the LVT is paid in government tokens (aka money, coins, banknotes or bank balances). There is only a finite number of tokens in the hands of the general public, so if we tax without a CI or other Government Spending Program the number of tokens in general circulation will drop year by year until we eventually end up with all the coins in government vaults and the public literally penniless.
That is obviously not a desirable outcome, so it is necessary for the government to issue as much money as it taxes. Those LVTers who want a small state need to do it by issuing money as a citizen's income whereas those who are happier with a larger state can do it by government spending or by some combination of government spending and CI.
However either way, some method of issuing money must be put in place to balance that withdrawn from circulation by LVT. Implementing any form of monetary taxation without a balancing expenditure to put the money back in the hands of the general public will lead to Big Trouble, so it's not an optional extra.
S: "Young people have got plenty of income, that's not the problem - Really??"
Yes. Admittedly, they are unduly affected by unemployment at the moment, largely (but not solely) because of the tax system, but once we've scrapped income tax, NIC, VAT, corp tax, there'll be plenty more jobs which by and large go to young people (older people already have jobs).
Derek, you're touching on MMT again. We know from experience that governments can run continuous deficits, as long as the growth in govt debt is less than growth in GDP, it doesn't seem to matter too much. So far so good.
With a large accumulated debt as a starting point, the UK govt could run a 3% budget surplus for twenty years before it has repaid all that debt.
Thinking on, the government could still run perpetual surpluses without having anything 'in the safe'. (IMHO, if the government owns a huge great pile of money then this is a bad thing - they'd end up spending it on a load of rubbish.)
But MMT appears to indicate that provided the surplus is no more than growth in GDP, and the tokens it takes out of circulation are simply un-printed again, what happens is that the tokens still in circulation increase in value - real wealth being entirely unaffected - we then get permanent price deflation, thus saving the bother of having to pay interest.
Yes, Mark, I do think in MMT terms as far as money is concerned. And I agree with your analysis. As far as I am concerned a 3% surplus (or deficit) is the sort of small imbalance I was talking about when I said "of roughly equal size" in my earlier comment.
But I was describing something more like a 99% surplus in my reply to Robin, just to make it clear that a large proportion of that LVT has to be re-circulated by CI or otherwise, if the monetary system is to work as it should.
Interesting thought that a small perpetual government surplus should make the value of money and debt slowly rise even without interest. I hadn't considered that previously.
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