Killer Arguments Against LVT, Not (178)

Mr G, over at HousePriceCrash:

Out of interest, are you saying that the domestic rate system was a land value tax? [Yes I was] If so, I'm afraid that puts me off LVT even more.

Under the rating system you had situations where say, the rateable value of a house was £200, 4 working adults living in this house would still only pay the £200 that 2 working adults would pay.*

Ah, I hear you say, but there are 4 people in the house instead of 2. Under a fairer tax system which I believe we both would like to see, shouldn't each individual pay the same amount if they are working or have the means to pay?

Perhaps the poll tax was fairer than it was perceived to be?

I gave the stock answers over there, but we can look at the respective merits of LVT and Poll Tax by contrasting two diametrically opposed possibilities.

As a matter of fact, the cash cost of the core functions of the state is negligible, five per cent of GDP or so, which we could easily pay for with duties on fuel, booze, fags and gambling. All other tax revenues are either redistributed (in particular old age pensions) or wasted/stolen. There is a big overlap; health and education are a mix of redistribution, waste and theft.

So let's imagine our minimal state, with no taxation at all (apart from the duties mentioned above), no redistribution (so no old age pensions) and no waste/theft - there'd still be massive privatised tax collection by landowners who rely on the government to protect their interests, but hey - and consider two options, both involving the collection of £60 billion with the sole aim of redistribution and decide which one we prefer:

Possibility One

We introduce a Land Value Tax (which would be about 1.2% of current values) and give everybody a Citizen's Dividend (which is like negative Poll Tax) of £1,000 a year. Administratively it would be a doddle.

This would dampen house prices slightly, dampen credit bubbles, make houses a tad more affordable for future generations, encourage more efficient use of land and housing, alleviate absolute poverty at the lower end, and the average household in the average house would end up a few hundred pounds a year better off.

Possibility Two

We introduce a Poll Tax of £1,000 per person (which is like a negative Citizen's Dividend) and pay it out as an annual Land Value Subsidy, so if you own a house, you'd receive 1.2% of its current value. Valuing the houses is not difficult, but collecting a Poll Tax is, as we well know.

This would push up house prices slightly, fuel credit bubbles, make houses less affordable for future generations, encourage inefficient use of land and housing, worsen absolute poverty at the lower end, and the average household in the average house would end up a few hundred pounds worse off.

* This is all arrant nonsense of course. When we had Domestic Rates, there was still income tax and so on, so the four working adults were paying £40,200 a year in income tax and Domestic Rates; and the two working adults were paying £20,200.