Sunday 27 May 2012

Killer Arguments Against LVT, Not (218)

While I broadly agree with the idea of simplifying taxes on earned income (as a preliminary to phasing them out altogether), the full 417 page 2020 Tax Commissionn Final Report kontains a veritable kornucopia of KLN krap (pages 323 onwards - as evidence they include a letter from The Times from 1959 bleating how unfair Schedule A taxation is), to which I might return if I run out of KLN's.

Luckily they've condensed their Biggest Fattest Lies down to a few sentences in their summary:

[Pg. 323] The fundamental challenge with wealth taxes is that taxes on assets which are easy to move or sell are avoided, either by shifting to different assets or moving the assets abroad (1). But taxes on assets which are hard to move or sell (2) are retrospective (3) and unfair.(4)

People are taxed on decisions they have already made (5) and it can be very hard for them to pay.(6) In Europe they have led to extensive capital flight(7) and deeply unfair results,(8) and are therefore being reversed.(9)


1) Agreed. So don't tax private wealth, be that current income or accumulated and unspent income (also known as 'capital').

2) He is of course referring to taxes on the rental value of land/location. Land/location is not "hard to move or sell", it is impossible to move and easy to sell (or rent out). So that's not two arguments against, it is in fact two Big Fat Lies and two arguments in favour of LVT:.

The location value arises precisely because locations are impossible to move, and once you have your dibs on land at any particular location nobody else can enjoy the benefits of that particular location unless they pay you accordingly. So it's not so much that the owner can't move his land; the point is that nobody else can move the current owner's land either, that's what gives land its [ever increasing] value and makes it an ideal subject for taxation on a moral level as well as on a purely practical level.

3) How is shifting from taxing incomes to taxing the rental value of land "retrospective"? It's not. You haven't earned your next year's salary yet and you haven't collected or enjoyed your future rental income either. If we shifted the tax burden from earned income to the rental value of land (and other monopolies) then people can adjust what job they do, how much they try to earn and where they want to live accordingly.

4) Meaningless word.

5) Big Fat Lie, see (3).

6) They couldn't resist chucking in the Poor Widow Bogey, could they?

7) Firstly, that's another Big Fat Lie and secondly that completely contradicts his point about land being "hard to move or sell". Either land will somehow be rolled up into a briefcase and taken abroad or it won't. And it won't, which is why owners of business premises stump up £25 billion in Business Rates every year, because they can still earn as much by owning buildings in the UK as they can elsewhere - the Business Rates merely depresses the price they have to pay for land, so every £1 extra they are paying in Business Rates saves them slightly more than £1 in bank interest in order to buy the land on which the buildings stand.

8) Repeating an unsubstantiated Big Fat Lie doth not make it true.

9) It is probably true that "wealth taxes" in the narrow sense (i.e. an annual tax at a small percentage of the total value of assets you own) are being phased out for the reasons mentioned in (1), and rightly so. It is probably also true that most European governments find it easier to increase stealth taxes on income than to increase in-your-face taxes on the rental value of land, but so what? Just because Home-Owner-Ism and all its variants are widespread does not mean we should slavishly follow them.

4 comments:

mombers said...

An interesting part of the manifesto is that they want local government to raise 50% of their revenue themselves. I'm not sure how they can justify having Westminster/Kensington and Chelsea/etc getting a penny from general taxpayer funds to pave their streets, man their police force, etc. Of course the argument is that the landowners pay so much tax (except for the ones who don't live there or who avoid all or most of their income tax...) so it's only fair to get something back. But that is of course a perfect argument for reducing taxes on privately generated income so that the circle jerk doesn't have to happen in the first place.

Mark Wadsworth said...

M, yup, they'd keep VAT and they'd have local income tax and local sales tax as well, thus few people will benefit from their much vaunted 30% tax rate.

Sarton Bander said...

Variations in Local Income taxes would tend to concentrate higher earners in areas, which would then be ripe for rent-seeking via landlords.

Mark Wadsworth said...

SB, it would clearly be an utter spiral of disaster, as the rate would be between 1% and 50%, depending purely on local average incomes.