Killer Arguments Against LVT, Not (210)

Physiocrat alerts me to the spoof website Illogical Conclusions which lampoons many of the arguments against untaxing incomes and collecting revenue from user charges on the rental value of land:

The value of the UK housing stock is approximately £3.75 trillion.(1) In order to raise last year's tax revenue of £550 billion (2) using a land tax alone, we would need to set a flat tax of 14.6% of land value per year.(3) Yes, that's not a typo, the cost of this tax on residential property would be absolutely eyewatering.(4)

So, let's consider the case of the private landlord. He owns ten houses, each of which is worth £100,000 a year. Eight of them are filled by tenants who were previously paying £1,000 a month rent (£12,000 x 8 = £96,000 rent).(5) Now, the private landlord has a new bill for £146,000 a year, so he has to increase the rent prices on those eight people from £12,000 a year to £30,250 a year in order to maintain his profit margin.(6)

Overnight, rent prices have been increased by 150% because of the new land value tax.(7)

But these renters were previously paying tax. Assuming they're medium earner families of two, earning £25,000 each, they would previously have been paying £5,638 each in income tax & national insurance, or a total of £11,276. They would, on top of this, likely pay around £2,000 in fuel tax & VAT, for a total of £13,638.(8) Under the land value tax, their total tax bill would be £18,250.(9) It would not be addressed to them, but their outgoings which end up with the exchequer would increase by around £4,800 a year.(9)

By contrast, the landlord's outgoings would not have increased at all. (11)

1) Not true. Other estimates say £5.5 trillion, to which we can add about £1.5 trillion for the value of commercial land and buildings and farmland, call it £7 trillion all-in (subject to a wide margin of error)...

[2) Home-Owner-Ists usually gloss over the fact that (say) half of government spending is transfer payments. If the government collects £100 in tax and gives £50 back as straight cash payments to the people paying tax, the real tax bill is only £50.]

3) ... which would get the single tax rate down to about 8%, as I've always said.

4) That's because the amount of tax which individuals and companies pay on their earned income is 'absolutely eye-watering'. That fact that LVT makes this more visible is A Good Thing.

5) The average rental yield is more like 5% or 6%, so the author makes the correct assumption that anti-LVT people don't have a clue what they are talking about and just pluck figures out of the air.

6) Again, the author correctly assumes that idiots don't have a clue about what sets the upper limit on rental values, namely the amount of income which tenants have left over after paying for basic non-land essentials. But concepts like 'Ricardo's Law of Rent', 'monopoly pricing' and 'relative elasticity of supply and demand' are way beyond these people.

7) Rents will probably increase because people's disposable incomes will be a lot higher when all other taxes are abolished, but no more than that.

8) Drivel. If total tax revenues are currently £550 billion and there are 26 million households, the average household pays tax of £21,154. It does not matter how the total revenues are raised, the average stays exactly the same.

9) See (8). We could also argue and bicker over how the tax bill is split up between 'households' and 'businesses' but this is not entirely necessary, as all businesses are ultimately owned by individuals, i.e. households.

10) At this stage it is hardly worth going back and reconciling all the differences to show what we'd guess instinctively - that the average household will be paying the same amount of tax.

11) Even using his flawed assumptions, this is not true, as landlords would no longer be paying income tax or capital gains tax, so they would end up better off. If it were true (which it isn't - see (6)) that landlords pass on every penny of tax they pay to their tenants, then current rent levels are increased by the amount of income tax which landlords pay, so scrapping income tax means that rents would go down by the same amount.

If it were true that landlords (and by extension banks and aristocrats) could make themselves considerably better off by shifting taxes from incomes to the rental value of land, wouldn't they all be campaigning for it rather than against it? The fact that they don't suggests that their maths and logic is slightly better than the average Home-Owner-Ist's.