Killer Arguments Against LVT, Not (179)

Physiocrat invited me to join the fray over at The Guardian yesterday (the actual article is by landowner and Socialist Richard Murphy who is obsessed with collect more and more taxes from people's earned income, so can be cheerfully ignored) after he donated the LVT bomb yet again.

Here's some of the rubbish we find in the rubble:
-------------------------------
Bricktopguy The problem is Tax havens. While even one exists, it is impossible to stop tax evasion.

Physiocrat: Not true. Tax due from the Business Rate is not evaded through the use of tax havens. The solution is to collect more money from property taxes, preferably on land value. The tax havens would never get a look in.
-------------------------------
Existenzangst: If our friend [Sir Philip] Green [owner of lots of high street clothes shops] owned no land in the UK and earned £6 million in the UK, he would pay no tax. Both sorts of taxes are needed.

Green is infamous for having paid a large dividend out of post-tax profits to his wife, who is not UK domiciled for tax purposes and hence had to pay no higher rate income tax, which allegedly saved him/her £285 million in tax. That's tax law as it stands, and good luck to them, say I.

But his businesses need to occupy land on UK high streets in order to earn money in the UK, whether as tenants or as owners. From today's Soaraway Sun: And then there is business rates. These are expected to rise by another five per cent in April next year. Sir Philip said: "On Oxford Street I pay £6million a year in rates — yes, £6million! — and now they want to charge people to park on weekends!"

The chances are that the total VAT, PAYE and corporation tax that his companies/employees pay are ten or twenty times as much as the Business Rates he pays. Business Rates (similar to LVT) is the one tax that he has to pay and cannot avoid; in the absence of those other taxes, his companies could be charged, and would be willing to pay, ten or twenty times as much in Business Rates (or LVT) as they do now and it wouldn't matter whether or not he owned land in the UK or whether or not he or his wife live in the UK.
-------------------------------
UncleHarrie: I don't know what this LVT is, but if it effects ordinary little landlords like me then forget it, there is enough of us to make a big difference to the amount of seats any government can win. if it affects us we won't vote for it.

Jolly good. He doesn't know what it is but argues against it anyway. Fair enough, shifting from income tax to LVT would, by and large, benefit tenants at the expense of landlords. But his electoral maths is shit. By definition there are three or four times as many tenants as there are 'ordinary little landlords'. I suppose this is why the hardcore Home-Owner-Ists would like to see a return to the old days when only landowners had the vote.
-------------------------------
Brouillard: Oh, and I half agree with Physiocrat on taxes... I don't agree with LVT though. It over taxes useful activities and makes knowledge economies far more lucrative than they should be. It penalises industry over services.

*Sigh*.

Land ownership is not an activity, useful nor otherwise. There are a lot of politicians who say (rightly or wrongly) that we should encourage 'knowledge economies' so how come that's A Bad Thing all of a sudden? As per usual, he fails to see that there will always be a balance between different types of industry. For sure, we need cutting edge computer programmers but they are merely a means to an end - better stock control, better telecoms, more accurate medical diagnoses, online banking, whatever. But there is a natural upper limit on the number of programmers we need, all the stock control in the world is no good if there's nobody on a farm or in a factory making stuff, for example.

Neither does LVT penalise 'industry' (I assume he means manufacturing), it's the tax system and all this carbon pricing that does that. Modern factories need a lot of space, but these can be, and usually are sited at the edges of towns and cities where land is plentiful and hence cheap. 'Services' on the other hand are usually provided from much smaller units in the middle of towns and cities, but where land values are much higher. It all evens out in the end; Honda would not wish to use retail units in the middle of Swindon to make cars, and hairdresser in the middle of Swindon would not shut up his shop and rent a cheap industrial unit on the edge of town instead.

*/sigh*
--------------------------------
Nick Greeny: So where does the [LVT] come from? Many people who currently pay tax would not, and you cannot assume that the value of land in Regent Street would remain as it is. If the tax paid was more than now, then the owner would go bust or move to a field in Norfolk. Where are your tax revenues then?

Oh dear oh dear. If you think that Apple or Hamlyns or Austin Reed are all going to shut up shop in a prime shopping area and open up in a field in Norfolk with only a few tractors and sheep passing by every day, you are very much mistaken.

Further, as a matter of fact, most of Regent St actually belongs to Crown Estates and most shops on there are rented. So whether a tenant pays rent to Crown Estates (part of the government, nothing to do with the Queen), pays Business Rates to Westminster Council (part of the government), and pays a shed load of VAT, PAYE, corporation tax to HM Revenue & Customs (part of the government) or just pays a single tax LVT (i.e. ground rent) to the government makes ABSOLUTELY NO DIFFERENCE.

If, as Physicocrat and I keep suggesting, we got rid of VAT, income tax, corp tax, NIC etc, then the rental value of shops on Regent Street would increase by an amount similar to the tax cut, so overall revenues would not change much.

I suppose it is possible that every single shop in London and every person living in London would move to the same fields in Norfolk, build a new Tube network etc, in which case, the rental value of that field would rise to whatever the rental value of central London is now and the rental value of London would fall. But this is a) unlikely to happen and b) irrelevant and c) illustrates that land rents will always arise, they merely shift from area to area.
--------------------------------
Nick Greeny couldn't think of a come back to that, so he hit back with something completely left field, incorrect and irrelevant:

So after 10 years our 'free' green and haphazardly pleasant land would look like Azerbaijan with strip mining, fracking plants and land fill up and down the country. Hurrah for LVT!

FFS.

We were trying to discuss reforming the tax system, and did not in any way suggest abandoning all planning laws or environmental protection laws. As we well know, the amount of land needed for landfill is amazingly small, but if LVT applied to landfill sites, they would be used more efficiently and more waste would be recycled or used as fuel.
--------------------------------
... and then this:

And on a bad year when the farmer or other business makes no money? Instant bankruptcy. Well done... Also, what if you're a hedge or investment fund operating from a 800sqft office. You're making millions and paying the same tax as the pound shop across the road.

Severe lack of imagination, let alone any knowledge of the real world.

Can you envisage a country in which farmers and farm workers are exempt from income tax and NIC? Yes. Would there be farmland? Yes. Would some farmers wish to buy land, possibly with a mortgage? Yes. So such a farmer has committed himself to regular monthly payments for the foreseeable future. If he knows that the bank will foreclose for a single missed payment, the farmer would put a bit of money aside in the good years to the extent it can't be invested in improving his capital and machinery, and so in the bad years he has something to fall back on. Are there idiot farmers who would over-mortgage themselves and have the farm foreclosed? Yes. Can you legislate against stupidity? No. What happens to the foreclosed land? The bank sells it or rents it to another farmer, so what is the impact on agricultural output? None. If most farmers can cope with a future regular stream of interest payments, why would they not be able to cope with a regular stream of future LVT payments instead, knowing that if there is a long term depression in food prices, that their LVT payments will be reduced or even waived? No reason.

As to the hedge fund and the pound shop, we know that most hedge funds in the UK rent swanky offices in the most expensive part of London and pound shops run from yer average high street. If the hedge funds wanted to reduce their rental expense, they could easily do so, but they don't, presumably for status reasons. Neither can we assume that pound shops would rent incredibly expensive office space in central London.

So there's no reason to assume that a pound shop and a hedge fund would ever be competing for the same retail space, and even if they did, so what? There are rich people who like giving their spare cash to hedge funds and there are poor people who like spending their money in pound shops and so we will always have some mix of the two, there will always be demand for stuff that costs a pound and there will always be people who would rather run a pound shop than run a hedge fund.

These Home-Owner-Ists just don't know anything about real life, let alone economics.