Killer Arguments Against LVT, Not (232)

Tim Montgomerie of Conservative Home wrote an article yesterday explaining why Tories should support more property taxes if proceeds are used to cut other, more harmful taxes.

He's hardly a hard-core land value taxer - he says in favour of e.g. more council tax bands and he's happy with higher SDLT or even CGT on main residences - and he's not specific about which taxes he would cut (income tax?) but nonetheless, he gets the usual shit storm in the comments. Most of the objectors play the Poor Widow Bogey; there's a "landlords will pass on the tax"; a few "attacks on wealth"; a "double taxation" or two and a smattering of "Tories should be cutting taxes not increasing them".
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Nothing new here, all easily dealt with, in fact, we can do all of these in one fell swoop...

... let's not bother collecting Land Value Tax at all. Let's just replace all taxes with a single, flat income/corporation tax at the revenue maximising rate of about 60% (this is hardly more than the current average tax rate on income of about 52% - there are lots of people with a much higher tax rate than that who still go out to work or run a business), no deductions and no tax breaks except the one outlined below. In theory, that would raise about £600 billion a year, much more than the government needs (before we factor in the 'cost' of the tax break).

Poor Widows In Mansions don't have much income so wouldn't pay much tax; landlords can't pass on tax paid by their tenants (and nobody has advanced the thesis that landlords pass on their own income tax, unless they are idiots); it's not an "attack on wealth" in these people's eyes because - apparently - your earning capacity and your earned income is not wealth; and even though in practice taxing incomes is double taxation (and LVT is not), these people don't appear to consider it as such.
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That leaves us with the objection that the government should be cutting taxes on work and enterprise (and rightly so), which requires one simple tax break....

... we cap each business' corporation tax liability at whatever its liability under full-on LVT would be (i.e. double what they currently pay in Business Rates), so three-quarters of businesses would pay nowhere near 60% tax, it would be more like 20%.

... we cap each household's total tax liability at whatever its tax liability would be if we had full-on LVT and an equal and opposite Citizen's Dividend/personal allowance. About three-quarters of households would benefit from the cap* and most of those will end up paying a lot less than all the taxes they currently pay, directly or indirectly.

This would reduce the overall tax take, net of Citizen's Dividend to roughly the right level (£200 billion a year? This is a thought experiment not a maths lesson), and if we have to cut spending to match, then I'm sure all those Poor Widows In Mansions will be only too happy to do without old age care, free NHS treatment, bank bail outs and so on, as long as they can keep their cherished memories etc.

* Let's take a home at the bottom of the top decile by value, which is currently worth about £280,000. The LVT on that at (say) 7% of its current value = £20,000 from which we deduct an 'average' working age household's Citizen's Dividends. 1.9 adults @ £3,500 + 0.7 children @ £1,750 = £7,525, giving this household a net tax bill of £12,500. A household which can afford to buy a house for £280,000 with a mortgage must be earning about £56,000; to be in the top decile by income, a household has to earn something like £80,000. Such households are currently paying massively more than £12,500 in publicly collected taxes (and a shedload more in privately collected taxes, if they bought their house in the last seven or eight years), so they're happy.

If a household in such a home only has taxable income (however defined) of £10,000, then they pay £6,000 tax, of course. The break-even point for being better off under the new improved system is where a household's income is about one-tenth of the current value of the house they live in; so a household earning £28,000 or more in a top decile house will be better off under these rules.

The tax bill for an 'average' working age household in a median home currently worth £150,000 would be capped at about £3,000, which equates to an average tax rate of about ten per cent of their earned income, scarcely worth worrying about.