Tuesday, 11 December 2012

Killer Arguments Against LVT, Not (287, 288)

Over at Liberal Conspiracy:

287. Celebrity super-twat Richard Carey digs out a tedious old quote "The notion that it is a simple matter to distinguish between the yield of natural agents and that of improvements is fanciful and confusing…. The objective classification of land and capital as natural and artificial agents is a task that always must transcend the human power of discrimination."

WTF is he talking about? If you take two physically similar buildings on similar sized plots but in different locations, any difference between the total rental value is purely down to the "location" element. It's as simple as that, all you need to do is find the cheapest such building in actual use to serve as the nil-tax baseline and all rental value above that is the basis for the LVT assessments. FFS.
A slightly more original one from a proper leftie this time, I've not seen this one in this specific form before:

288. lihfkydljhnl: The really interesting thing though is that, as the ONS showed just the other day, it is the lower 50% of the population whose assets are predominantly held as land and other immovable property – the top 50% hold their assets in pension funds and other paper investments. A land tax would therefore disproportionaly hit the poorer 50%.

That's deliberately distorting facts of course, but in quite a clever way at least (or possibly this person is just really stupid and actually believes it. I can't tell from this distance):

a. The poorest thirty per cent own no land whatsoever, in fact they own negative land because they have to pay rent. They would be entirely unaffected by LVT, whether it's a replacement tax or not.

b. The next twenty per cent might have the bulk of their assets in land and buildings and the top fifty per cent might have the bulk of their assets in other investments, but that is only in relative and not absolute terms. For example:

- poorer household owns land and buildings worth £100,000 and has cash savings £5,000.
- wealthier household owns land and buildings worth £1,000,000 and has cash savings and other investments worth £2,000,000.

Precisely who is going to be "hit" by LVT here?

c. The distribution of incomes is quite skewed, so for example, the top five per cent of earners earn as much as the bottom 50% of earners put together. But land ownership is far more skewed; the top one per cent own as much as the bottom 75% put together.

So on an "assets" basis, the bottom 50% would do well out of LVT; and the next 49% would do a lot better than The One Per Cent.

d. The far more important ratio is that between "earned income" and "value of land and buildings owned". For the bottom thirty per cent the figure is infinity; for a FTB couple it is about one (for example, annual income £40,000, net equity in house £40,000); the average working age household it is about a third or a fifth and for the landowners (and bankers) it is zero; they have no earned income at all but they own lots of land (directly or indirectly).

So a shift from taxing earned income to taxing the rental value of land/location (as defined above) would hugely benefit the bottom 50% overnight. Most of the next 49% will come out ahead as well, it is only the One Per Cent who stand to lose out.


Derek said...

Re KLN 288. Even those who own "other investments are quite likely to own investments which derive their income directly or indirectly from land ownership. It would be pretty difficult to create a portfolio which guaranteed no income from land even if you wanted such a thing. Thus even in the case where a wealthier household owns £1M real estate and £2M other investments, a good chunk of the income from those other investments would ultimately be sourced from land. So the household indirectly "owns" that land too.

Mark Wadsworth said...

D, possibly, possibly not. But the chances are that this hypothetical household will also end up better off; the increase in value of non-land investments will more than match fall in value of house; the tax saved on investment income will compensate for the LVT, and so on.

So what? The commenter was implying that the "bottom 50%" would end up worse off which is of course nonsense.

Derek said...

Of course. I was just pointing out that the ONS is underestimating the amount of land held by the top 50% because it appears to be ignoring anything held indirectly via "pension funds and paper investments".

Physiocrat said...

What are paper investments? What is actually owned by the holders of these paper investments?

Mark Wadsworth said...

D, how commercial land and buildings are owned is very tricky to work out, as they are owned by companies and REITS (so they belong to shareholders), by banks (via loans, so they belong to bankers and bank depositors), pension funds (so they belong to pension fund members). but commercial land and buildings are only 10% - 20% of the total value of all land and buildings.

P, ask him, I was just quoting him that's all.

Robin Smith said...

READ MY LIPS: No one would lose! Even the 1%. It depends on how you define losing. Happier life. Or more money.

Agreed with Derek totally. All debt(paper) is rooted in mortgages and property assets. That is where most 'profit' is. Why not, they rental stream ALWAYS rises tax free.

Yes the 1% own a lot of capital assets. But they depreciate and are taxed highly. So avoid if you have a brain.

Mark Wadsworth said...

RS, true.

But being happy doesn't make these people happy, only having loads of money (land) makes them happy. It's an addiction.

Likewise for Poor Widows - they need to live in mansions because it is humanly impossible for a Poor Widow to be happy in a smaller house or flat. You can ask a Poor Widow in a smaller house or flat what is the one thing which would make her life complete and nine times out of ten, the answer is "I wish I owned a large expensive house to live in by myself"

Graeme said...

the debate over at Lib Cpn is even more dispiriting than debates over there generally are. Bob B and his reiterated point about rates tribunals etc....were there really that many disputed domestic rates' disputes? How many income and corp tax disputes are going on currently? I am sure that the number swamps valuation disputes.

Mark Wadsworth said...

G, the question is answered quite simply by looking at Business Rates and Council Tax. How many "disputes" are there? Precious few.

I've only ever had one company client who disputed a rating assessment (which they won). How many hours have we wasted getting corp tax returns done and handling enquiries (let alone VAT and PAYE enquiries)..?

So with a bit of judicious banding and simplified rules, disputes can be kept to a minimum. It's like the dozens of car tax rates, the rates and bands are to some extent arbitrary, but rules is rules.