Wednesday 23 November 2011

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.

27 comments:

shineymart said...

Mark

So I'm clear when arguing about relative the merits of LVT with others, what is your definition of 'core functions of the state'?

Cheers

Shiney

Mark Wadsworth said...

SM, it's a short list:
* Police, law and order, prisons, court system.
* Refuse collection.
* Public health in the old sense (preventing spread of epidemics).
* Immigration control.
* Mending roads, street lighting.
* Bare minimum defence force, having a few embassies and consulates.
* Fire brigade, maybe air traffic control and light houses as well.

Of course some people might exclude some of those items, other people would add more items, that's just my middle-of-the-road sort of list.

shineymart said...

Mark

Wow that is quite a long list! And all of that costs how much? ...or should I say how little?

Shiney

Mark Wadsworth said...

Annual cost as at today's date, as far as I can make out from official figures:

* Police etc £20 bn
* Refuse collection £3 bn
* Public health in the old sense (preventing spread of epidemics) £1 bn (immunising kids).
* Immigration control £1 bn.
* Mending roads, street lighting £10 bn
* Bare minimum defence force, having a few embassies and consulates, call it £20 bn?
* Fire brigade, maybe air traffic control and light houses as well, call it £1 bn?

Maybe £56 bn all in, I'm sure there's stuff I've overlooked, so let's call it 5% of GDP (about £70 bn) to be on the safe side (we still have debt and interest repayments). Total planned UK govt spending is of course ten times that, over £700 bn a year.

shineymart said...

Mark

Lets hope Nick Robinson highlights this on the beeb tonight

http://www.bbc.co.uk/news/uk-politics-15843746

I bet he doesn't though.

Shiney

Anonymous said...

I can't see where the govt did anything to earn the money off the four.

Government does however create property(Location monopolies), and it should charge a market rate for it or the landlord/bank will and we'll be no better off.

AC1

Mark Wadsworth said...

SM, he won't.

AC1: "I can't see where the govt did anything to earn the money off the four"

The four what? Have I made some dreadful typo or something?

Derek said...

Another major difference between the two scenarios would be the unemployment rate. If income tax causes unemployment by ensuring that an employer has to pay more than an employee is willing to accept then a poll tax does the same. However since it has a much bigger effect on a low wage earner than a high wage earner, the poll tax causes more unemployment among the lower-paid and most amongst the lowest paid. The Citizen's Dividend has the opposite effect on unemployment but again has a much bigger effect on the lower-paid than on the higher paid.

And as I recall when Maggie replaced the rates with the poll tax that's exactly what began to happen: unemployment started to rise.

By the way I'd quibble a bit about the rates being exactly like LVT. The biggest difference is that the rates "punished" people who improved their house, even in such minor ways as tiling the bathroom whereas LVT doesn't. That was actually the initial benefit that attracted me to LVT in the late 1970s.

Having said that, I agree that the rates and schedule A combo would still be much better than the Council tax even if it wouldn't be quite as good as LVT.

PS. no typo. I think AC1 means the four Working Adults mentioned in Mr G's post.

Anonymous said...

Anectdotal evidence from chatting with old folks I know, has led me to believe that having a post-office on every corner would pretty much win the geriatric vote even when adding there wouldn't be a welfare-state, so I'd add those as a special favour for them.
What's your rationale for public refuse-collection vs privatised btw?

-Kj

Mark Wadsworth said...

D, I don't think that a Poll Tax causes unemployment in itself (whatever my moral or practical objections). What happened was that Poll Tax/Council Tax raised a lot less than Dom Rates so they increased other bad taxes (VAT, NIC and so on).

And of course Dom Rates weren't LVT, neither was Schedule A, but taken together they were a lot more like LVT than Council Tax (they raised a heck of a lot more, for a start). Just like Business Rates is very close to LVT but not as good.

The penny has dropped re "four", ta.

Kj, the point about refuse collection is that you are not just paying for your rubbish to be taken away, but that you are also paying for your neighbour's rubbish to be taken away (and he yours). If we made it voluntary and privately arranged and paid for, there'd be a risk that some of your neighbours decide to just pile it up in their front gardens or throw it in the street. What's your come back then?

So the fact that his rubbish gets taken away benefits you and vice versa. And It's a public health issue, in the narrow sense.

So if we agree that everybody in the area benefits by everybody's rubbish being taken away, we might as well get economies of scale and all use the same refuse collection company.

And at a cost of £100 per household per year, it is money well spent, the value it adds is almost unmeasurable.

Bayard said...

I'm not sure that it's worth taking much notice of anyone who thinks the Poll Tax is a good idea. It's a tax that appeals only to the miserly rich and the terminally envious. If you are not in either of these groups it has no redeeming features whatsoever.

Mark Wadsworth said...

B, but the Poll Tax idea keeps cropping up again. This post was a simple compare and contrast to highlight the differences, but if we do reductio ad absurdum, the futility of a Poll Tax becomes all the clearer.

Mark Wadsworth said...

Kj, my more detailed thoughts on post offices are here. That was three years ago and I haven't changed my mind since.

Anonymous said...

Poll-tax is as far as the textbooks are concerned supposed to be without no dead-weight loss, but invoking it as an actual tax-alternative is for me a true badge of being a faux-lib or just a bastard.

Yeah I think that's a good rationale on the refuse-collection. Household-waste is dirt cheap, but the really expensive bulk waste streams such as construction, chemicals, etc. that's another thing.

Anonymous said...

Personally I prefer the idea of
1/ Crown raises LVT
2/ Pays out 99.99% of LVT as CD
3/ Government take EQUAL cost out of each citizen's LVT.

This ensures that there are pressures from every citizen for a "right-size" state.

AC1

Mark Wadsworth said...

AC1, yes, interestingly enough, if you collect LVT, spend what needs to be spent and dish out the rest, mathematically, that second layer of taxation (the 'not giving back' bit) is the same as a poll tax. But the first layer of taxation (the LVT) is not a poll tax, so fair enough.

Fraggle said...

Poll-tax is as far as the textbooks are concerned supposed to be without no dead-weight loss, but invoking it as an actual tax-alternative is for me a true badge of being a faux-lib or just a bastard.

That which you tax, you get less of. Poll Tax is a tax on existence, so is it a far cry to suggest that the Poll Tax leads to a decreased population?

Mark Wadsworth said...

F, yes, at the margin some poorer people will avoid having babies and some pensioners will starve or freeze, others might emigrate. There are some who might see those as a good thing, but I think it's going a bit far.

Anonymous said...

MW: I read the post-office piece. The same method could also be applied transport (ferries, buses), libraries, and I guess most of the things local government do.
A more complicated version of the steps mentioned by AC1 could be:
1. Crown raises LVT
2. Local council takes a 20% cut, spends it all or gives some back.
3. Central government takes 20% of all proceeds, spends it or gives some back.
4. 60% goes into the CI, but each layer of government can propose to take more than their cut but subject to referendum.

-Kj

Mark Wadsworth said...

Kj, 20% + 20% seems a bit high to me, I'd prefer something like 15% + 5%, but hey.

Anonymous said...

Depends on who mends the roads and pays the cops I guess. Say that the services who are most relevant to land values are placed on the local level (refuse, police, roads and fire-brigade), that makes your list around half and half for local/central.

-Kj

Mark Wadsworth said...

Kj, fair point. I vote for 10%/10% in that case, with 80% dished out again as CD.

Anonymous said...

The advantage of a little extra room on the local budget would be that some of the richer areas could give out higher CIs, and some localities could need a larger cut to function. 10%/30%!

-Kj

Derek said...

Got to be careful there, Kj. Any council that hands out more CI than its neighbours is giving people an incentive to move into its area, so as to receive the higher payout, unless there's some sort of residency qualification. Under certain circumstances a council might want to do that but generally speaking it wouldn't.

Better to leave CI as a national payment to avoid that type of issue.

Mark Wadsworth said...

Kj, as D says, having a local CI is a recipe for disaster.

It's simple enough (or tricky enough) deciding on who is legally in the country and who is resident (if a family goes on a two-week holiday abroad, clearly they are still resident, but what about a six month absence?) but having a local CI top up leads to all sorts of fraud with people registering at somebody else's address (as happens with houses in the catchment area of a 'good state school') and higher CI just pushes up local rents so goes straight back as higher LVT anyway.

Having an optimal 'tax area' or 'welfare area' is the same as having an optimal 'paper currency area' there has to be some redistribution from richer to poorer areas to keep things in balance.

So best to keep govt or council cash allocation to a bare minimum, if the council wants more, it will have to have an LVT precept or just charge more for services (like £1 for a library book or whatever).

Anonymous said...

Got to be careful there, Kj. Any council that hands out more CI than its neighbours is giving people an incentive to move into its area, so as to receive the higher payout

It'd net off with the higher LVT in the area, but yeah the incentive to move in would be higher in that there is a lower treshold to move in regardless of income. May not be such a bad thing, but I see the unintended consequences.

So best to keep govt or council cash allocation to a bare minimum, if the council wants more, it will have to have an LVT precept or just charge more for services (like £1 for a library book or whatever).

On the margins those precepts could be quite substantial if we use the average LVT proceeds for the whole country to calculate what percentage the local areas should get, but then there should also be very healthy pressure to be stingy on expenses.
The important thing is that there is some competition between political units, even under a much better tax-regime such as LVT, and that local land value gains should also to some degree benefit local coffers. If a council makes a substantial investment, and their only gain would be 10% of any increase in land values, well, it discourages risky investments that's for sure :)

-Kj

Derek said...

Changing the subject slightly here's another proposal for an LVT campaign. If enough people vote for it...