In the context of nothing in particular (but it's my birthday and I'll post what I like), there is a very schizophrenic approach to taxes on income (i.e. income tax, NIC, VAT, corporation tax etc, which we can lump together as 'income tax').
When the Georgists say that income tax is a bad tax because it punishes effort, risk-taking, people making best use of the hand they are dealt etc, a lot of people will agree; but when we explain that we'd replace income tax with taxes on the rental value of land that people choose to occupy, they get all squiffy and say things like "At least if my income falls, my income tax bill goes down."
So what they really mean is that if they do well, it's down to hard work and shouldn't be punished with higher income tax; but if they do badly, that's down to external forces, bad luck, not their fault etc, and that they'd like society to compensate them for this bad luck with lower income tax.
Well, it's one or t'other, frankly. Claiming that when you are doing well it is because of your hard work and effort and when you are doing badly it is only because of bad luck is hypocritical to the point of being schizophrenic. The fact is that most people who do well have largely just been lucky (and I should know) and most people who fall on hard times are as hard working as the next man (or woman).
Under a Georgist system, where the main tax is LVT; we run a small government; and dish out most LVT revenues as a Citizen's Income, there's still a lot of luck involved - you'll always be better off for having been born in the UK in this century than in some ex-Communist, African or Islamic hell-hole (or in the UK in earlier centuries) - but that spreads the luck around a lot more evenly than the fact that 'you pay less income tax if you earn less'.
How much you have to pay in LVT is entirely down to you and not down to luck at all (you can choose where you want to live); and what you earn above and beyond that is yours to keep 100%.
What's not to like?
Tuesday 4 October 2011
Killer Arguments Against LVT, Not (165)
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23 comments:
"What's not to like?"
The lack of flexibility in having taxation based on the place where you live. With income tax, if your income goes down one year, your tax goes down, and if your income goes up the following year , it goes up, the only difference being a figure on your tax return. Try doing that with LVT and it would mean moving house twice in two years, with all the upheaval that represents and the hassle of changing your address with the many and various bodies that entails dealing with, let alone the time and effort involved in selling one property and buying another.
D'you know, that's the one thing that's always stunned me... why does nearly everyone operate on the basis of 'it's not (ever) my fault'? Is it the standard human condition, then if so why don't I (and MW evidently) think that way? Maybe it's a function of self employment, or having that type of mindset. But that can't be right, as I have met a number of very wealthy business owners to who nothing is ever their fault, ever. But I do agree with MW analysis about how people react to doing well and badly.
It's a conundrum.
Bollocks to the economic theory. Happy Birthday!
"So what they really mean is that if they do well, it's down to hard work and shouldn't be punished with higher income tax; but if they do badly, that's down to external forces, bad luck, not their fault etc, and that they'd like society to compensate them for this bad luck with lower income tax."
You are falling into the classic trap of the type of people saying 'the rich should pay higher amounts of tax' without realising that even with a flat rate tax it means that the rich DO pay more - exactly in proportion to how much they earn. What many (wealthy) people find unfair is the concept of making more money and having disproportionately more of their income taken from them (progressive taxation).
I don't think I have ever heard anyone argue against a flat rate of income tax. To me that is the very definition of fair. Earn twice the average, pay twice the tax. And vice versa.
B, what's wrong with the old fashioned virtues of thrift, self-reliance and so on? If you take out a 25 year mortgage, then you commit yourself to paying monthly for the next 25 years, don't you? If you aren't sure what you earned income will be, then just buy or rent the cheapest place you can find and save up a bit for a rainy day. With a bit of luck, you'll end up on a street of like minded people.
L, ta, but I think it's less than a conundrum that self-preserving hypocrisy.
VFTS, ta. But while I quietly celebrate my large number birthday, I can't help but think, if I'd been born in Africa, I'd never have lived this long; if I'd been born in England two centuries ago, I'd never have lived this long etc. It's largely down to luck.
S: "You are falling into the classic trap of the type of people saying 'the rich should pay higher amounts of tax' without realising that even with a flat rate tax it means that the rich DO pay more - exactly in proportion to how much they earn. "
Jesus wept.
I never say "should" and you miserably fail to define "rich". Do you mean "people who earn a lot" or "people who own lots of land"???
When I started in this game, I started off by saying that a flat tax in earned income was better than this whole progressive-regressive-means tested shite.
So far we are agreed.
After a couple of years, it struck me that a flat tax on land rental values is far better than a flat tax on earned income, the problem then is that the land rich-income poor (like you) start whining and moaning.
If you were truly wealthy (high personal earnings potential) then you'd welcome LVT over income tax, but if you are just a rent seeker, then land no longer = wealth, so "shouldn't" be taxed. But when people like me stick up for LVT all of a sudden it becomes a "tax on wealth".
Debating with you Homeys is like trying to trap air at one end of a balloon.
Answer me this: Is land or is it not "wealth"?
If it isn't, then it can be merrily be taxed and you Homeys can't decry it as a wealth tax. If it is wealth, then why should it be treated more favourably than real wealth, i.e. people's earnings potential?
I was just commenting on your assertion that there are people who complain about taxes on high incomes (which they assign to their own abilities/hard work) but demand low taxes if their income falls (which they say is out of their control). My point was that I have never heard any wealthy people complain about flat rate income taxes (ie everyone pays the same % of their income whatever that might be, so payments are in exact proportion to earnings). I have only heard such people complain about 'progressive' taxation.
Thus I was suggesting you set up a strawman to knock down. Nothing to do with LVT at all.
Many Happy Returns, Mr Wadsworth.
You have acknowledged on many occasions that the end result of your version of LVT would be that those who earn most live in more expensive houses and pay more tax whilst those who earn less would move to properties on which they can afford the LVT.
That being the case, the result is an Income Tax dressed up as a version of LVT. There might be some who stay put and roll-up their LVT liability to be paid out of their estate when they fall off the twig, but it is impossible to know how many would be prepared to do that.
As for
"Under a Georgist system, where the main tax is LVT; we run a small government"
well, you can do that under the current system but none of the parties want to be so sensible.
TFB wrote:
That being the case, the result is an Income Tax dressed up as a version of LVT.
That may well be one of the results, TFB, but it's not the most important one. You can look at it as an income tax if you want but it's an income tax without the unpleasant side-effects of our current income tax. It wouldn't cause unemployment for one thing. It can't be evaded for another.
So more jobs all round and we honest tax payers don't have to pay extra to make up for the free riders. Surely that's worth having even if LVT is just Income Tax in a pretty dress.
S: "I have never heard any wealthy people complain about flat rate income taxes... I have only heard such people complain about 'progressive' taxation."
Crikey, you really don't get out much. They complain that the more they earn, the more they pay, which applies just as much as under a flat tax as under 'progressive' income tax.
For eighty or ninety per cent of people who earn less than the higher rate threshold, the income tax system is effectively flat, they all pay exactly the same rate, for example. And still they complain (quite rightly)
TFB: "That being the case, the result is an Income Tax dressed up as a version of LVT."
Derek has rebutted that bit of nonsense, but what if I take it at face value?
Then you must apply the same to house prices and say that "house prices are a kind of income tax dressed up as house prices" (only rich people buy in expensive areas), which is the point that I have been making all along - land ownership is a form of privatised taxation, as soon as you have land ownership, there will be involuntary transfers of wealth from the economy to land owners, which is why we need LVT to balance it out.
D, ta for back up, as ever.
Agreed. But you forgot to mention the most important thing, that the earnings of labour and capital would increase more than the loss of land. This indicates a latent worry about how there will still be losers. A sort of scizophrenia too.
Racism alert: Muslim hell holes are no worse than US hell holes or UK hell holes. Objectivity will help our cause. Prejudice will only end up in ruin.
TFB.
You are deluding yourself. A small government is impossible without LVT. Private property in land tends towards tyranny as wealth production steadilly increases.
Tyrrany means corruption and an increase of staff skimming the rents.
This situation under democracy makes things yet worse still. Because it is all being done in the name of the people who dream they are all the hardest workers. What better mandate for tyrants?
The idea of small government without LVT is another form of schizophrenia.
TFB mentions 2 points that have often occurred to me.
I've always thought that LVT is income tax really, as at the end of the day, for most people who own their own house, all they can pay LVT with is their income from employment. LVT has to be paid in cash (not labour or in goods), and the only cash they have is income. Thus rather than the tax adjusting to their income automatically (income tax) they have to go through the rigmarole of moving house to reduce their tax to something they can afford. But the end result is that people will pay roughly the same amount of tax after the whole system eventually settles down as before. But you've had to have millions of people turn their lives upside down to achieve this.
And the other point is that LVT-ers seem to assume that the powers that be share their small government tendencies, and that if LVT is introduced in some small way, that is a toe in the door for a small government funded entirely by LVT eventually at some point.
What it actually will be is just another way of extracting more tax in total from the population in order to fund the ever growing maw of the State. LVT is not going to constrain the State. The State must be reduced in size first and then it can perhaps be funded by LVT. To think you can achieve it the other way around is pure folly. If anything the introduction of some basic form of LVT would prolong the existence of the State leviathan by giving it a new income source.
RS. Yes, quite. 'Democracy' gets captured by the 'moochers' and the 'looters' when it is funded by envy taxation on endeavour. Anyway democarcy is not the end game, it's just a process. The end game is liberty (and by unavoidable association, responsibility). Democracy is the least worst system yet that nearly gets us there. Except for its corruption by various elites and the power its mandarins have been given / usurped to tax the products of our endeavours. And just owning land is not an endeavour in any sense. Using land, e.g farming, or by building a factory is an endeavour. So better to caputure the unearned returns from rent. Hence if by law or by Constitution the State were not permitted to raise any other tax than LVT we'd all be a lot better off.
Sobers
I think I agree with you. LVT is a tax on income. Unearned income. Rent.
All tax comes out of rent in the end. So you are correct. But to collect the rent through indirect tax on wealth, earned incomes, is highly costly compared to doing it directly from the rent. Do you like working harder for less is the question?
The economic rent would be collected for the commons, not the government as you allude. Today the government collects it and gives it to mates. LVT would give it to the people who created its increase. So the commons would grow not the state or government. Would you prefer a smaller state or a bigger commons is the question you seem to be struggling with?
I fear you have been captured by the idea of the small state versus big state, that suggests that LVT is too simple and something more complex is needed to solve the problem. This is self contradiction in your own words. You are saying something more complex is needed to do something more simply.
S, RS and L have already said much the same as what I would have said, but allow me to pick up on this:
"the end result is that people will pay roughly the same amount of tax after the whole system eventually settles down as before. But you've had to have millions of people turn their lives upside down to achieve this"
Ooh! Big numbers! So what? In a normal market, one to two million UK households move home each year anyway, and the average UK person owns or jointly owns about three homes in his or her lifetime anyway. Moving home is no big deal, especially if you move to a different home in the same locality.
Maybe things will settle down so that people pay much the same in tax as they did before, but...
i. All LVT does is speed up the natural process whereby when a house in a posh area comes up for sale, a high earning person buys it. For every household who is 'forced to trade down' there will be another household who has the opportunity to trade up, and if a single-person household in a big house swaps places with a larger household in a smaller house, then winners outweigh losers purely on the numbers.
ii. The economy will be running much better without income tax, about a quarter more than now with half as much unemployment, fewer and milder recessions.
iii. people will be getting something in return for the taxes they pay. And instead of income tax discouraging people from earning more, LVT will encourage people to earn as much as they can. They have to earn a certain minimum to stay put, and anything above that is theirs to keep 100%.
iv. there will be equity as between young and old.
And the end result is a system that is seriously inflexible. At the moment you have system that allows many people, who have zero or low mortgages, to get by if they lost their jobs. Their outgoings are small and by pulling their horns in, using some savings, and taking what benefits are available, they can get through a rough patch until they find new employment.
Now I know that the repost to this is 'Well millions of people have mortgages, and if they don't pay them they will lose their houses too!'. That is indeed true. But it is no reason to put everyone else in the same situation. LVT would put everyone in the same position as someone with a large mortgage, and worse than that, a large mortgage with a company that brooks no missed payments. Don't pay your LVT for a few months and the bailiffs would be round tout suite.
Everyone will therefore be in a position of having no safety cushion. Even those who have no mortgage, and have income that covers their LVT nicely will have to live with the fear that at any moment they might lose their job and have to try (at the same time as having no job) to sell their home in order to not incur massive LVT bills which the only way they would have of paying would be the capital released from their homes if they managed to downsize. Thus at any point they risk losing both their home and the capital it represents, just because they lost their job.
And people have the nerve to say that LVT is not the nationalisation of property.
MW
Dont forget it would free up 100,000 tax spying wages slaves to go and start productive economic activity and finally have a life. whats that, another £50 billion made and saved?
Also a million unemployment trapped benefits slaves, would then be able to start work for themselves probably now rent was cheap relative to earned incomes. So that's what, a state £100 billion smaller.
And the rest. Great.
The problem we face and dont yet get is that opponents think the solution of LVT is so radical that it will not be considered if we believe less drastic measures might work. Yet it is so simple that its effectiveness will be discounted until more elaborate measures are evaluated.
We really need to get over this ourselves before there is any hope of convincing them. This means ceasing talk of compensations and exemptions.
Word verification was "nonsesse"!!!
Sobers: you are starting to sound desperate. At least you are discussing it. Which is the first stage of acceptance.
S, you're getting hysterical now.
For a start, with the economy running better, far fewer people will ever lose their jobs.
Further, let's agree (for sake of this argument) that somebody's total tax bill over a lifetime is much the same under LVT as under income tax.
So this will encourage a culture of savings and responsibility. In the good years, you'll pay a lot less LVT than you would have done in income tax, so you put that extra bit to one side, just in case, until you've built up enough money to buy an annuity to pay off the LVT for the rest of your life (which in economic terms is a bit cheaper than buying the freehold, obviously).
RS, more good points, thanks.
Could it not be arranged so that if someone becomes unemployed, the tax is deferred for them to pay later when they have a job or taken when they sell the property.
To stop perverse incentives to house sit unemployed, the property would be repossessed after a year or something and the tax collected.
For those who have paid off their mortgage, might the Citizen's Income not pay for much of the tax?
To begin with in a system transfer period, could not all my income tax be credited against the LVT?
"What it actually will be is just another way of extracting more tax in total from the population in order to fund the ever growing maw of the State. LVT is not going to constrain the State. The State must be reduced in size first and then it can perhaps be funded by LVT. To think you can achieve it the other way around is pure folly."
Agreed on the second point: any system that depends on a slimming down of the state to work wil never happen, unless the state is slimmed down first. So LVT has to work with a fat state. I disagree on the first point, however. What MArk is proposing and has always proposed is LVT as a replacement for other forms of taxation. Saying that it will be "just another way of extracting more tax in total from the population" is firstly irrelevant and secondly wrong, as it supposes that the chancellor currently doesn't know about LVT and if Mark goes on about it long enough, he'll get to hear of it and add it to the tax bill. Do you not think that if the Tories thought they could extract any more taxation from the British people, they would already be doing it?
"And the end result is a system that is seriously inflexible."
I agree, however, Sobers, I refer you to Mark's post "Georgism without Land Value Tax", which demonstrates how you can set up a safety net to protect those who fall on hard times under a taxation regime which is LVT in all but name.
"and worse than that, a large mortgage with a company that brooks no missed payments. Don't pay your LVT for a few months and the bailiffs would be round tout suite."
There is absolutely no reason why HMRC must behave like that. If a property-based tax was introduced, deferment and exemption provisions could easily be included, indeed it would be unworkable without them.
OTOH, thanks for that measured response.
i. Of course there'd be some deferment system for temporary periods of unemployment (for those too stupid to actually build up a cash cushion in the good years as explained above).
ii. By and large, the CI would cover the LVT bills of the bottom half of households anyway, it's only the net bill you need to worry about.
iii. You'd have to get into the top ten per cent of houses for the household's net tax minus CI bill to be more than twenty thousand a year. And the average net bill of those who actually have a net bill would work out at something like £7,000, big deal, say I, I really don't know why Sobers gets so hysterical about "massive LVT bills".
iv. As a transitional arrangement (or at least a thought experiment), we could credit LVT against income tax or vice versa, or have a mix and match (i.e. you pay the higher of [a low % of your earned income] and [a high % of the rental value of your land], or cap the net bill (LVT minus CI) at a certain % of earned income, anything you like really.
B, exactly. Under current rules, if you evade income tax and buy a house, they can take your house - where's the big difference?
In any event, there's no need for any repossessing at all, it's quite sufficient for them to take as much LVT as they can out of your income, and if somebody is happy to stay in his house, racking up huge LVT arrears, with not a single penny of net income (or very few) then good luck to him.
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