There's a veritable feast of Home-Owner-Ist squealing and contradictions concerned the Mansion Tax in CityWire Money, betraying as usual nil understanding of economics and is more or less a logic-free zone. But let's home in on this bit:
... but what, today, does it mean to be rich? Is it fairer to tax income or another measure of wealth?
Taxing income is a bad idea, taxing wealth is a ridiculous idea (it's either double taxation or easily avoidable), but land rental values aren't wealth in any way, shape or form. They are a state-sponsored entitlement, which only has value because of scarcity i.e. because others can be prevented from having a similar entitlement, and because money (or valuable benefits) is transferred to the lucky owner from 'everybody else'.
Think about it: if a welfare claimant is entitled to £10,000 a year in various benefits, without him having to do anything for it, that's their income, but we know that this £10,000 comes out of the taxes we pay; it's a mere transfer payment and that £10,000 does not add to GDP. And it would be unusual indeed to capitalise that £10,000 and say that the claimant has £200,000 in welfare 'assets' (even though we do this exercise when it comes to public sector pensions liabilities).
Similarly, if a landlord is collecting £15,000 rent, of which £10,000 relates to the location value, that £10,000 is his income, without him having to do anything for it, but it's the tenant's expense. It is a transfer payment which does not add to GDP. We are used to capitalising that £10,000 and saying that the land under the house is worth £200,000, but why not capitalise the expense and say that there is a £200,000 liability on the tenants?
And the same goes for owner-occupiers. They are receiving non-cash benefits of £10,000 a year, purely and simply because others are excluded; if there were no natural, economic or artificial shortage of land, then it would not have any value and nobody would ever pay rent.
So welfare payments aren't wealth and land values aren't wealth. They are transfer payments to a favoured group from 'everybody else'.
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As a further thought experiment, imagine that the local council privatises the road and pavement in front of your house. The new owner, Road & Pavement Company plc ('RPCo') will charge 'what the market will bear'. If the rental value of your house is £15,000 a year, then RPCo knows it can charge you (say) £10,000 a year for a permit to use the pavement and roads. It is pure ransom value, no value is being added at all and GDP or national wealth is not being increased.
The rental value of your house would plummet to (say) £5,000, because if you advertised for a tenant, he'd know about the £10,000 road and pavement charge, which comes out of his budget of £15,000 and so he'll only offer you £5,000 rent for the house itself.
So the entitlement shifts from you to RPCo; total wealth of the nation is unaffected (it's the same house and the same road and the same pavement). You will be understandably miffed and say that RPCo has effectively robbed you of £200,000 in assets, but you only had that asset because you in turn were depriving somebody else of it (however indirectly).
So RPCo is laughing, it collects £10,000 from everybody on your street. But your road leads into another road (let's assume you live in a cul-de-sac); the council can sell that one off to a different company, and then RPCo and that other company have to share the £10,000 between them, somehow. Boo-hoo, their income stream has just been halved. And so on in a never-ending chain without a single penny of value or wealth ever being created... because the wealth was never there in the first place.
Thursday, 15 September 2011
"Like a horror film villain"
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29 comments:
Mark what is the ratio of accomadation expences to living expenses pre LVT
And what is the ratio accomadation exenses to living expenses with the LVT system and citizens income
I apologize for the long quote from the article, but it's rather amusing:
Have you ever asked three different estate agents to value your property during a slow market? Its value is dependent on your need to sell it. It’s chronically illiquid (a house that’s been owned by a single pensioner half his or her life and is now worth enough to warrant a punitive tax doesn’t actually provide the cash with which to pay the bill… unless he/she sells, or somehow manages to remortgage, and I can’t see Vince Cable arguing that poorer people should be forced out of larger homes).
Setting aside the variant of the poor widow bogey (seriously, do any of the LVT opponents read past arguments and rebuttals before trotting out the same tired objection?), the fact is that an LVT would make the housing market more liquid. Not only is the price of bricks and mortar more stable than land value, the lump-sum selling price with an LVT would be smaller, because the amount tied up by locational value would be smaller. You are just making the argument for us if you complain about chronic illiquidity of the housing market, because an LVT would make it at least a little better in that respect.
This is not a thought experiment. They are talking about road pricing and have indeed implemented it already in London and elsewhere.
They say it is to tackle congestion, but of course the real reason is to grab more tax.
Snarf, I like the bit about "poor people being forced out of larger homes".
If they are poor, then they are not wealthy, are they? Which is another way of proving that land wealth is not wealth, and a tax on land is not a tax on wealth. If we had a wealth tax (like income tax) then at least there is no problem with 'ability to pay'.
AC, I'm no big fan of the C Charge, in practice, although it is fine in principle. It's just rent for roads.
So,repetition is a bad thing, according to your good self. unless of course your good self is the one doing doing all the repeating, Yawn.
So, I repeat - there is no wealth nor value in a HOME.
Identifier, as requested.
Fukov.
Anon, you've just confirmed my suspicion that you are indeed a Soviet style Socialist because you chose a Russian-sounding name like "Fukov".
As has been pointed out to you before, here in the West we have a capitalist system, where people only pay money for things if they value them, and don't like being forced to pay for things which they don't want.
You have told us again and again that your home has no value to you and does not represent wealth, so in that case you won't need to pay for it, you can just give it to somebody else who will.
At least you agree with me that a tax on land is not a tax on wealth, because you yourself agree that there is no wealth in a home, so a tax on it can't be a tax on wealth, can it? Any more than tobacco duty is a tax on petrol?
"tax on land", what tax on land?
As I've tried to tell you time and time again, My HOME has no value, wealth nor is it a source of income.
Someone else decides that my HOME has a value, I have no control over and even less interest in, that process.
You can liken my HOME to a cave, it provides shelter and nothing else.
Yours
Fuckov.
The problem, Fuckov, is that I'm assuming your HOME is a large house with a leafy garden and nice neighbours yet accessible from the city.
If that is the case, your HOME is a source of income because if you don't own it, then you would have to pay rent to someone else. That's a very simple point that Mark has been making over and over again.
Some people's HOMEs are sleeping bags on the streets, or a cave, or some crappy council block that nobody really wants to live in. If this is true for you, and your HOME is so undesirable that noone else wants to live there, then you won't have any LVT to pay anyway (because all the desirable HOMEs will come down in price and more will be built and people will move away).
On the other hand, if your HOME is as I described, then many people want to live there, but your occupation of that land is preventing them from doing so. As you rightly say, everyone else has decided that it has a value and you cannot control that.
However, what you are failing to realise is that other people's desire to occupy your HOME is only prevented by the state. Without the land registry or the state's protection (at least in theory - squatters notwithstanding), you would soon become VERY interested in how others value your HOME. In fact, unless you hired a lot of guns, you would soon be shot and your body dumped in the nearest sewer. So much for your HOME then.
The government provides value to me by protecting my HOME. However, the government does not protect my WORK; rather it provides disincentives to me and to my employer. So why should I contribute a proportion of my WORK to pay for your HOME? I obviously would prefer a situation in which not all of the available land is occupied by a large state, but that hasn't been true for hundreds of years. The compromise is to contribute a proportion of my HOME to enforce the existence of the state in which it is located.
"Taxing income is a bad idea, taxing wealth is a ridiculous idea (it's either double taxation or easily avoidable), but land rental values aren't wealth in any way, shape or form. They are a state-sponsored entitlement, which only has value because of scarcity ..."
What, then, do you say is wealth?
Let's assume the current property price bubble burst so that someone with £100,000 who paid £100,000 for a house (on a plot of land)got something with a true open market value of £100,000. He has translated his cash into an asset. He could have bought a painting or shares in Madame Fifi's Sauna and Hanky-Panky Parlour PLC, but he chose to invest it in a plot of land with a little house on it. Are the painting or shares "wealth"? If not, why not? Is the land any less "wealth" than the painting or shares? If so, why? All three items represent his £100,000 turned into something other than a deposit in a bank. Was that deposit "wealth"?
Surely your argument is not that LVT is not a tax on wealth but that it is a tax on an unearned aspect of wealth.
Mr Mous at 01:19 makes an interesting point when he asserts that: "The government provides value to me by protecting my HOME. However, the government does not protect my WORK".
I'm not going to be picky by saying it is the law (enforced by the institutions of the State) rather than the government that protects peoples' homes, let's treat State and government as interchangeable.
Does the State really not protect his work? What gives him a right to receive payment from his employer and a means of enforcing that right if his employer says he won't cough-up? What recognises the payment he receives as having a value that can be exchanged through pieces of paper or plastic or clicks of a mouse into food, clothes and extras from Chantelle at Madame Fifi's Sauna and Hanky-Panky Parlour?
By all means seek to argue that the protection given to land ownership is different from the protection given by the law to all other lawful activities. Some of us will need persuading, but at least you would have a point with a tiny touch of sense behind it.
Assuming there was no legal protection for buyers, sellers or workers, buying, selling and working would still happen. The only difference is that we would only work for trusted employers or buy and sell from trusted sellers/buyers.
That doesn't quite work for land ownership since we cannot choose who we deal with. Our trustworthy fellow citizens may well respect our ownership claims but the others won't. So without legal protection, we need guns. And the more valuable the territory, the more we would need to spend on defending it. Kind of like Land Value Tax really.
And that isn't just theoretical. For a practical example, take a look at the illegal drug trade. There is no legal protection for the workers, the traders, the transactions or for the territories. Yet it all "works".
But note that whereas the buying/selling/working side of the drug trade isn't too different from the way things work in a industry with legal protection, the "landownership" side of things is handled very differently. Basically it's warfare, or at best an armed truce.
That's why the protection given to land ownership is different from the protection given by the law to other lawful activities. We need the protection for a (relatively) peaceful society.
TFB:
Are the painting or shares "wealth"? If not, why not?"
Yes they certainly are, the painting directly and the shares being his share in underlying wealth, teh assets of the company.
"Is the land any less "wealth" than the painting or shares? If so, why?"
Land is not wealth. It does not have to be created, it has no intrinsic value (it's just muck and stones), it only has value because of WHERE it is and because the state/society protects/respects your 'ownership' of it. In other words, it is a claim to wealth or value created by others, it is like a welfare entitlement.
And land 'wealth' is like financial 'wealth', there can only be an asset if there is a liability on somebody else and it all nets of to £nil.
"All three items represent his £100,000 turned into something other than a deposit in a bank. Was that deposit "wealth"?"
The deposit is a bit trickier as it can only exist to the extent that somebody else has a liability, but assuming our hero earned his money fair and square, for the purposes of this discussion we can consider it to be 'wealth' and not the sort of thing that should be taxed.
D, thanks for dealing with TFB's point. I don't know why he keeps bringing this up because he is a real life barrister and knows perfectly well that most contracts and trades never go anywhere near the state, every now and then somebody is taken to court for non-payment of a debt, but that's about it.
OTOH, the state is absolutely central in the land market, it registers titles, evicts squatters, decides on planning permission and provides a lot of the services which give land value (roads, schools, hospitals, protecting the environment etc).
TFB knows all this he's just goading us.
"I don't know why he keeps bringing this up because he is a real life barrister"
I think you've just answered your own question, Mark. Isn't what he's doing what barristers do all the time? - He doesn't believe in the arguments, he just wants to see your reaction to them. Anyway, this time he elicited a very neat (and useful) argument from Derek as to to why state protection of property is different from other protections.
a bit like how the discussion with IanB yesterday crystallised a few of my thoughts on the process of LVT introduction. Sometimes wrong arguments have their uses. :)
TFB, for sure, there is such a thing as an industrial tribunal, which benefits mainly employees but also employers (in an indirect sort of fashion).
But let's imagine that each employee had a choice;
a) pay over 40% of salary in PAYE/NIC and be given the right to sue the employer for wrongful dismissal, non-payment etc, OR
b) Be paid tax free under a legally-unenforceable contract ('binding in honour only', the Pools cases).
I suspect that nearly everybody would go for (b). The value of that legal protection is not worth 40% of your salary, it is worth maybe 1% or something.
It is quite different with land. However high or low a land tax is, if the land 'owner' has a choice between:
c) Paying the tax and have full legal protection from trespassers, the right to use local schools'n'hospitals, the right to register protests at planning meeting, the right to compensation if a new road is built nearby (noise pollution) and the right to payment if there is a compulsory purchase order etc, OR
d) No payment of tax is due, but absolutely none of the privileges outlined above, so you can't ring the police if you get burgled etc.
I suspect that most people would choose option (c), as long as the tax were perceived to be rather less than the value to the 'owner' of that long list of benefits.
B, F, I am very grateful for people like TFB, Sobers, IanB, Fukov etc for dropping in and telling me that LVT is shit, because it forces me (us) to hone our explanations pointing out why they are wrong (and gives me raw material for the 'Killer Arguments' series).
Hitler "confiscated" property, Stalin "confiscated" property and now Mark Wadsworth wants to "confiscate" property.
I'll tell you this, you'll have a job on your hands.
Yors,
Fuckov.
Comrade Fukov (spelling?):
Do you or do you not agree that income tax, VAT and so on is confiscation of property? It is socialisation or nationalisation of private wealth. It is legalised theft.
Do you or do you not believe in the mantra 'Location, location, location', in other words, that land/location values only arise because of the efforts of 'the community' (however defined)? Therefore this is the privatisation of public wealth. It is also legalised theft.
"Make the punishment fit the crime", is my motto, if we have to have private land ownership and if we have to have taxation, then let's tax private land ownership and not incomes!
It is quite a separate issue whether we have small or big government, or how we spend the receipts etc.
"Hitler "confiscated" property, Stalin "confiscated" property"
and the British government confiscated property. Ask any erstwhile inhabitant of Tyneham. Your point is?
They are a state-sponsored entitlement, which only has value because of scarcity i.e. because others can be prevented from having a similar entitlement, and because money (or valuable benefits) is transferred to the lucky owner from 'everybody else'.
Can we now take it Mark that next time I discuss what may be wrong with this philosophy, you won't be saying, "I'm just interested in the best tax from a utilitarian perspective and I'm not interested in the underlying philosophy Ian"? Yes?
IanB, I have stated the practicalities of the matter. This is not a philosphy. It's no more radical than saying "People who get welfare or pension payments can only do so provided somebody else is paying in the tax first".
If you are the sort of person who would choose Option (d) above (see my reply to TFB) then fine.
Did you email the Adam Smith Institute to tell them he was a complete idiot? And did you tell your estate agent that his mantra "Location, location, location" is complete bollocks?
Mark, Smith wrote an early, rather flawed economics textbook over 200 years ago. It has been largely superceded. If some people like to name themselves after him, that is their problem, but you can't quote outdated theory as authority, if that is what you are implying. Lots of people still revere Newton, even though his theory too has been superceded.
The quotation of yours above contains a very strong philosophical assumption, several in fact, regarding the legitimacy of property. I'm not going to take it apart again, because I've done that numerous times and you just do the "I don't care about that" thing.
But the point I was making was that by declaring strong philosophical assumptions as you have above, you can't use the argument that you did in a previous thread that you are being purely utilitarian, because you quite clearly are not. You are using the very mental model I have said you are using, and which, when it suits you, you deny using, which is broadly Ricardian and Georgist, particularly the boneheaded bit about land scarcity.
Look Mark, the whole economy is about allocation of scarce resources. Anything that isn't scarce ends up being free because supply is infinite. This whole "land is scarce but other products aren't so land is different" thing is inept reasoning, and if you are honest you have to use the same reasoning to conclude that anyone owning a scarce resource-which is just about everything from cheese to chalk- is a "monopolist" making unjust profits.
Anyway. As I said, you're not simply being utilitarian, so I sincerely hope you'll at least be honest about that from now on.
IanB, you are the one who appears to know what I am thinking, first you tell me I'm utilitarian, now you tell me that I have ulterior motives.
The fact is, I know far better about what I think than you do and as I have said half a dozen times, I am interested in what other people think, including you or Fukov, but I couldn't give a toss about what you think other people think.
"This whole "land is scarce but other products aren't so land is different" thing is inept reasoning, and if you are honest you have to use the same reasoning to conclude that anyone owning a scarce resource-which is just about everything from cheese to chalk- is a "monopolist" making unjust profits."
We've done this one to death, but just for everybody else's benefit:
The value of cheese or chalk does not change depending on where it is. A piece of cheese in Newcastle is worth the same as piece in Mayfair. Cheese producers and suppliers are fairly competitive and do not make super-profits. The value of a piece of cheese does not depend on other people being excluded from having a similar piece of cheese. The supply of cheese rises to meet demand. The value of a piece of cheese does not depend on state protection. There is no 'community' input into the value of a piece of cheese - the cheese is made by a small group of individuals (farmer, factory, supermarket). To make money from cheese, you can't just make one piece and then sit back and collect rent for the rest of your life, you have to make and sell more cheese every day. Even if cheese were illegal, there would still be a market for it and people would still buy and sell it. There are no NIMBY restrictions on how much cheese can be produced. Cheese can be taken abroad or imported. A piece of cheese deteriorates and goes off, it does not slowly increase in value. It needs to be stored and looked after. If one man owns a piece of cheese he places no burden on others who don't own cheese or who would like to own cheese.
So cheese is different to land in just about every respect. As a cars, paintings, chalk, knitting needles, iPods etc. Need I go on?
To maintain that land is wealth or an asset like any other form of wealth or asset (cheese, chalk, painting, car or actual buildings) is just simply not true, it's Home-Owner-ist propaganda and you know it.
first you tell me I'm utilitarian,
No, you said that, in the last thread. You shouted rather clearly at me that you were only interested in the best outcome and not the principles, the shorthand for which is "utilitarianism".
Regarding the rest of your argument, you're simply listing the differences between things which are on the market. Both cheese and land are both scarce goods; I cannot own a particular piece of cheese if soembody else owns it, and I can't get my hands on any cheese if the resources required are owned by somebody else. That's how the market works; somebody else has something, so I don't, so I have to pay them to get it off them.
It comes back to the fun Erotic Capital example. There's a limited supply of pussy, that makes the owners of it a monopoly, I can't manufacture any more of it, it's only owned because the State enforces ownership (rape laws are the equivalent of trespass laws etc), it only has value because the rest of the community thinks it has, and accords it that value by demanding it (an argument which turns all values into "externalities" btw) and thus its price is an unjust rent, some of it is worth a lot more than others entirely independently of any effort by its owner, therefore we can apply a tax to compensate those in the community who haven't got any, yada yada yada.
IanB, if you want to be taken seriously as an economist, then you must have some vague clue about 'real life' and at least concede that land-location values behave very differently from most other things.
Here are a few more examples to illustrate that 'land is different' (we can muse on 'why' later on):
1. Do cheese prices increase when interest rates fall and vice versa? Does the price of cheese depend largely on credit conditions?
2. Do countries fight wars over cheese? Did the Normans invade us or did we invade North America to secure cheese supplies or did they/we just announce that the land belonged to them/us?
3. Does The Daily Mail celebrate when the price of cheese goes up?
4. If I want cheese then I am NOT depriving anybody of cheese, I pay the producer what I think it's worth (which is a smidge more than what it costs him to make). If I weren't prepared to pay for that bit of cheese, then it would not have been made in the first place. Supply can rise to meet demand.
5. In demanding cheese, I am creating employment opportunities for cheese makers. if demand for cheese goes up, then that does not push up the price, it creates even more jobs.
6. As the economy grows, the price of basics/manufactured items tends to fall relative to wages (because we are more efficient or more productive) but land rents tend to rise relative to wages.
7. This is mathematically true and verifiable - when the Mini was first made, it was sold for £500 and a house cost £2,000. Nowadays you can buy a small car that's far better than a Mini was then for £7,000. You cannot buy a house for £28,000 today (or only in the most depressed parts of the country).
8. A tax on cheese is shared between supplier and consumer, leads to a fall in cheese output/consumption, destroys businesses and jobs, makes us all poorer.
9. A tax on land-location values does not affect the amount of desirable locations. It is paid by the occupant and born by the owner but cannot be passed on in higher prices.
10. The only instance where cheese behaves a little bit like land is where the producer can exclude other suppliers from the market. The price of a cheese sandwich in the supermarket is £1.50, but on a train you are a captive audience, there are no competitors and they can charge you £3, take it or leave it (what I refer to as 'embedded rent').
11. Ownership of land tends to become concentrated in fewer and fewer hands over time - look at the USA, they started off with everybody owning a smallholding and where are they now? Land ownership is almost as concentrated as it is in the UK.
12. Obviously, we can do the same exercise and compare land with 'furniture' 'chalk' 'prostitutes' 'hair cuts' 'iPods' 'newspapers' and so on, but I think you get the gist.
I mean seriously, do you really deny that 'land is different'?
(This is of course a separate debate to whether we should tax land values or not, but it's you who keeps setting up these faintly ridicilous Killer Arguments Against - which now appears to be 'Yes, LVT works in practice but it doesn't work in theory').
I'd been waiting for IanB to raise "erotic capital" again so I had the chance to crow-bar in this link to a
headline that may top the drunken elk.
Let's take a closer look at WVT and see how it compares to LVT. Here are a couple of scenarios.
Scenario 1: it is ten years hence and the British Public, having been enlightened has seen fit to introduce a Land Value Tax. Our heroine, the penniless Miss X, has inherited a fine house with a large garden in central London. Fine it may be but Miss X cannot afford the tax bill and she does not like the idea of renting it out to some stranger in order to get the cash required. What's a girl to do? The government will ignore efforts to reduce its value by demolition. In the end she decides to sell it, invests the proceeds in a well-diversified portfolio and lives off the earnings happily ever after.
Scenario 2: it is ten years hence and the French Public, having been enlightened has seen fit to introduce a Whore Value Tax. Our heroine, the penniless Mlle X, has inherited a fine body with a pretty face in central Paris. Fine it may be but Mlle X cannot afford the tax bill and she does not like the idea of renting it out to some stranger in order to get the cash required. What's a girl to do? She can't get rid of it as she might a piece of land. And the government will ignore efforts to reduce its value by overeating, etc. when valuing it. Basically she has to pay the tax. Luckily she is a clever and well-qualified girl who wouldn't have any difficulty getting a high-paying job and so could afford to pay. Just as well really since otherwise she would have had no option but to go on the game. Nevertheless she realises that she would have less disposable income than other men and women in the same line of work. As a result she decides to move to London where they have Land Value Tax and lives happily ever after.
That's the big difference between LVT and WVT. You can downsize your land value or get rid of it entirely but you can't do the same for your whore value. If you want to avoid paying WVT your only option is to move to a jurisdiction which doesn't implement it. So WVT is not the same animal as LVT.
3. Does The Daily Mail celebrate when the price of cheese goes up?
It does sometimes, though generally you'd expect it to celebrate when inflation drops.
Furthermore, aren't there some EU rules promoting cheeses from their "traditional" manufacturing location?
IanB:
No, you said that, in the last thread. You shouted rather clearly at me that you were only interested in the best outcome and not the principles, the shorthand for which is "utilitarianism".
That's not correct. Mark's words can only be interpretd to show he is favour of "consequentialism". Utilitarianism is a subset of consequentialism which involves comparing outcomes based on the number of people who benefit or don't. Mark has not explicitly stated (up to the present discussion anyway) that he wants more people to benefit than lose out - only that the outcome is better. In any case, you have just been being disingenuous by ascribing labels to him. Clearly, as he has said, he doesn't care for how other people have classified various theories and ways of thinking.
QP, the story is a bit disappointing though.
D, what you don't realise is that IanB can read my mind or your mind and knows what we are thinking better than we do ourselves.
Anon, good work.
I would consider myself a consequentialist, going by your definition. The fact that many more would benefit that lose out is a secondary test of whether LVT-CI is a good idea.
Passing the secondary test would not in itself justify LVT. Reintroducing slavery for a third of the population would, superficially, benefit more people than it burdened, but that is just not an argument.
Interestingly, the Wiki definition of utilitarianism doesn't mention a simple head-count of winners and losers.
Adding to the list
13. Land prices go up and down in 18-year cycles, leading to the boom-bust-recession pattern. Cheese prices don't.
14. If there were some horrible situation, like pestilence, or war, or all our young people emigrating abroad, then cheese prices (in the UK) would rise and house prices would fall.
15. Cheese with planning permission is not worth a hundred times as much as cheese without planning permission.
I'll have to cobble that together into a full post, because I'm sick and tired of people saying "But if you have LVT for land then you could have the same tax on cars or paintings or lawnmowers"
Well duh, tobacco duty applies to tobacco, land value tax applies to land values. LVT does not apply to things that aren't land (or other govt protected monopoly rights).
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