Killer Arguments Against LVT, Not (168)

Sobers worked himself up into a frenzy here:

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 (1), they can get through a rough patch until they find new employment.

Now I know that the riposte 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 [not true either - see (3)], 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 [de] suite. (2)

Everyone will therefore be in a position of having no safety cushion.(3) 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 (4) and have to try (at the same time as having no job) to sell their home in order to not incur massive LVT bills (5) 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. (6)

OK, before we go through the numbered points, what is an ideal sort of tax/welfare system?

The answer is none at all, no taxes on income or accumulated income (aka 'wealth creation'), no welfare system, not even old age pensions. Nobody pays for anybody, everybody just does their best etc. The problem is that in such a system, as long as you have private land 'ownership' without taxation of the rental value, there would still be 'privately collected taxes', in other words rents. Those who happen to 'own' more land than they need to live on on the day that all taxes and welfare are scrapped would have their own welfare system, because they can collect rent from people who are 'creating wealth' (i.e. going out to work for a living), and everybody who does not 'own' land would have to pay tax forever more (or pay a large capital sum to become one of the favoured group).

That's one of the many advantages of collecting ground rents from everybody, spending a little on the core functions of the state (which need cost no more than 5% of GDP, if truth be told) and dishing out the rest as a Citizen's Income, by and large, most people would not pay any tax at all (i.e. their household's CI would be equal to or greater than their LVT bill), and neither would there be a favoured class of private tax collectors. The top third of households would be net taxpayers (their LVT bill is more than their CI) but that's their choice to live in a particularly nice house; in the same way as you have to pay more if you go on nice holidays, drive a nice car, send your kids to private school, or indeed earn more than you need to spend, which enables you to defer consumption to the future. That's the whole point of earning a lot, isn't it?

Righty-ho, let's crack on:

1) Just to remind you, if you have any significant savings, you are denied most welfare payments until you have spent it all. So even the welfare system subsidises housing; if you have a £100,000 house and £100,000 in savings (cash, shares) you get nothing at all, but if you have a £200,000 house and no savings, you qualify for full welfare from Day One. And that's before we look at extra subsidies for 'home owners' like support for mortgage interest.

2) Well, what use is a tax system without some sort of enforcement, pray tell? And who mentioned 'bailiffs'? Politically, this is a bit of a non-starter, but all we have to do is flip the current system on its head. Under current rules, most taxes are collected fairly directly from people's earned income. If you manage to evade income tax and they catch up with you, then, assuming you've squirrelled away the cash money somewhere abroad, they can put a charge on your house, and possibly force a sale. With a full-on LVT system, they would just collect as much as they can from your earned income (however defined) and place a charge for the shortfall on your house. For sure, there'll be some who dig their heels in, be prepared to live off little or no net income for years and run up such huge arrears that their net interest in the house is £nil or £negative, so what, there are few people mad enough to want to live like that?

3) That's a very glib use of the word 'everyone', methinks. For about two-thirds of households, the CI they get would be greater than or equal to their LVT bill*. That is the safety cushion; if these two are netted off at source and only the balance paid out, then to all intents and purposes, these people are living in a tax-free and welfare-free world. So all they have to do is put enough aside in the good years to see them through any possible bad ones. It's up to each individual to take a guess at what his income is going to be for the foreseeable future and budget accordingly, by and large, people are far better at doing these forecasts for themselves that the likes of Sobers give them credit.

4) In the absence of taxes on the productive economy, with land brought into its most productive use and with land price/credit bubbles more or less abolished, very few people would ever lose their jobs, and if they did, they'd very quickly find new ones. And if you are a worrier, well take out some sort of unemployment insurance (even though you'll find that self-insuring is a far better way of doing things).

5) Aha, Sobers hints that everybody's LVT bill will be "massive", which is quite simply not true. 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 £20,000 a year. And the average net bill of those who actually have a net bill would work out at something like £7,000 a year, big deal.

6) Replacing most taxes with LVT is the un-nationalisation of most property (earned income and just about any accumulated income). It'd be helpful if people would learn to distinguish between this on the one hand; and land or other government-protected monopolies on the other.

In any event, land already is nationalised, there is one national set of rules and one national register to say who owns which bit; local councils (on behalf of NIMBYs) enforce strict rules on who can build what and where; land values are subsidised by countless government schemes etc etc. It's just that the profits are channelled, by the government, from the productive economy into the hand of land 'owners' (obviously, most people have a foot in both camps - but for reasons which escape me, are happy to be robbed blind on the earned income side as long as this money is used to subsidise the land they 'own').

I'm no big fan of planning restrictions anyway, but LVT works with or without them, and LVT in itself does not affect ownership of land any more than fuel duty affects ownership of your car: LVT does not impinge on the fundamental rights of land 'owners' which are, for example, the right to do what you like in your own house or on your own land, the right to exclusive possession, the right to have squatters evicted or burglars convicted, the right to rent out or sell it, and so on. If anything, these rights would be strengthened, because that increases the potential rental value of land and hence boosts receipts.

* In theory, everybody could live in an average value home, in which case every household's net tax bill would be much the same, i.e. a few thousand quid each a year to cover the cost of the core functions of the state. But that would be rather a drab world, methinks.