Thursday, 20 December 2012

Killer Arguments Against LVT, Not (293)

Over at ConHome, an anonymous author couldn't even be bothered to think up some new and original KLN's, so he goes for a couple of "tried and testeds":

First of all taxation should always be related to the ability to pay. Just because someone owns land it does not mean they are making money from it. They could, of course, sell some or all of it to pay the tax – which could encourage more productive use of the asset; but when it comes to people’s homes, it is surely deeply immoral to apply such an argument.

That's the Poor Widow Bogey again. Is it really beyond the wit of mankind to think up some transitional system of exemptions, deferments etc? And why is it "deeply immoral" to make people pay market value for where they live? All tenants and first time buyers have to do it, don't they? The whole landowner-banking pyramid is based on the fact that they can and do.

Secondly, where property is rented, the cost of the tax would most likely be passed on to the tenants. In effect, the burden of the land value tax would fall upon the shoulders of the landless. Some irony.

"Most likely"?? Answer is, it wouldn't be. Simple common sense tells us this*; supply and demand curves tell us this; all the available evidence and statistics tell us this; the fact that the "landed" spend all their time campaigning against LVT tells us this - because simple lack of LVT enables them to obtain more and more land, while the "landless" subsidise them (either directly via rent or indirectly via taxes on earned income).

Do these Homeys have any real life examples or actual hard facts at all to support their contention?

* The total rent a landlord can charge bears no relation to his actual cash costs, it is all down to location. The cash costs of actually providing and maintaining buildings are pretty much the same everywhere in the UK but rents and selling prices are wildly different. Those differences are entirely down to the location. If it were true that rents depend solely on the landlord's costs, then rents and selling prices would also be pretty much the same across the UK, but they aren't.

It's easiest to consider the position of new entrants under an LVT-only system:

A tenant is choosing between two physically similar homes, one in a nicer area costing £12,000 a year rent; and one in a less-nice area costing £8,000 a year rent. That differential is decided by the markets, so we can assume that all tenants, taken together are indifferent between the two. Market equilibrium is established.

An investor wants to invest in buildings to rent out. He can buy the home in the nicer area, rent it out for £12,000, pay £7,000 LVT and keep £5,000 to cover his costs and his own return on capital. Or he could buy the home in the less-nice area, rent it out for £8,000, pay £3,000 in LVT and keep £5,000 to cover his costs and his return on capital. So we can also assume that actual and potential landlords will be indifferent between the two - the cash cost of buying either house will be much the same (about £80,000) and the annual net return on capital will be much the same (£5,000 minus cash costs). Market equilibrium is established.

If you try applying Homey non-logic to this equilibrium, it would be impossible for a market equilibrium to be established. Why would our potential investor buy the home in the nicer area and then imagine that he can rent it out for £19,000?

I suppose the Homeys would argue: "Aha, you have just proved our point! When deciding his rent, the landlord takes his costs plus minimum return on capital, adds on the LVT and then makes the tenant pay it! So the tenant does bear the tax!".

False comparison!

The point is that tenants and first time buyers already pay LVT, it is just that it is collected privately. LVT is not a tax on tenants, it is a tax on landowners. If we had LVT for a couple of years, the new equilibrium would be established and everybody would be happy - but what if we then reduced LVT again or scrapped it? Would all the landlords drop their rents from £12,000 to £5,000, or from £8,000 to £5,000, to reflect their lower costs?

Of course they f-ing well wouldn't. They'd keep their rents the same. So reducing the LVT benefits solely the landowner.

23 comments:

mombers said...

Posted this there but will repeat for good measure:
"First of all taxation should always be related to the ability to pay"
So what about a business like Comet for example? It clearly cannot afford to pay its VAT and payroll taxes and as a result it has gone out of business and people have lost their jobs. Yet Coalition policy has been to increase VAT and NI, and reduce council tax in real terms.
If someone can't afford their council tax, they can move house or not buy it in the first place. A much more benign result than destroying businesses and jobs

Mark Wadsworth said...

M, good answer.

As a devout free-marketeer, I don't see what "ability to pay" has to do with stuff consumed privately (like land rents). Can I go and complain about the price of Ferraris on the grounds that most people don't have the "ability to pay" their prices? If you want to live in a nice area or drive a Ferrari then you'll have to pay the same price as everybody else who wants to do so.

Bayard said...

"The point is that tenants and first time buyers already pay LVT, it is just that it is collected privately"

Well, to take it a stage further, everyone pays LVT, it's just that all owner-occupiers are paying it to themselves.

A thought experiment: what about if you could pay all your LVT in one go, like buying a lease, and you do this when you buy the house? Any unused LVT exemption could be sold to the next buyer and would be a credit against his lump sum LVT payment, should he wish to make one, otherwise it would give him an LVT holiday. People are happy to buy leases, even though they know they are buying a diminishing asset. Hey presto, no more "ability to pay" crap.

Mark Wadsworth said...

B, that's a perfectly sensible thought experiment, but no government imposed system could ever be flexible enough.

Far better to allow that to be done privately, i.e. insurance companies can say "Give us annual payments of £x for 20 years" (like a mortgage) and we will pay the LVT for you for the rest of your life after the 20 years has expired.

There will be massive mis-selling scandals and so on, and in the end, people will say "Sod this, I'd rather just pay the tax as I go along".

Bayard said...

Or the reverse: you pay the insurance company a lump sum and they pay the LVT for the next 99 years or whatever, like buying an annuity.

DBC Reed said...

It would be saving the land taxer a lot of grief to opt for the original JS Mill system:not to tax present land value, only tax any future increases.This would totally negate the present cry:" I've spent years paying for this land ,now you want to make me pay for it all over again in tax".James Mill ,John Stuart's Dad laid down the old law in 1821"Where land has been converted into private property...where it has been bought and sold ...rents of land could not be taken to supply exclusively the wants of government without injustice."
Such a tax would be a tax on land price inflation only and could not really be argued with, inflation being the big old bogey.Also you have to accompany the tax with massive amounts of cheap money or even free money for all under the QEP schemes' arrangements.LVT+QEP = sentinel tax scenario.We cannot make the Henry George tax stick;we have to face up to it.

Robin Smith said...

The KLN Trinity:

1) The poor widow
2) It would be passed on to the tenant
3) There is not enough to fund government

All others are mere subsets of these.

So why did he forget to mention 3)? His argument fails there by elimination.

Twat.

Robin Smith said...

DBC Reed

Oh dear oh dear. You are asking for compensation. Which is just as bad as preserving the present system.

Are you a "perplexed philosopher" too?

See here if you have time to read it. I can assure you it will be worth it:

http://www.grundskyld.dk/23-Perplex3-Ch11.html

GeoPorcupine said...

The is not enough to fund government is always a good one. What people don't understand is that people are already paying rent (capitalized or not) AND wage + VAT taxes already. All taxes come out of rent. What would happen if VAT and wage taxes were removed? Land prices/rents would increase and thus the revenue from LVT would increase.

Basically LVT can already capture all that is paid in taxes NOW without making things worse.

TheFatBigot said...

In relation to this:

"First of all taxation should always be related to the ability to pay. Just because someone owns land it does not mean they are making money from it."

Your said:

"That's the Poor Widow Bogey again. Is it really beyond the wit of mankind to think up some transitional system of exemptions, deferments etc?"

Do you know see the contradiction in your argument?

When you started this absurd crusade against the private ownership of land you didn't suggest any exemptions or deferments. After some months of people pointing out how LVT would affect people on low incomes who happen to own a house or flat you conceded the need for exemptions or deferments to ensure such people are not penalised unfairly.

By doing so you acknowledged that what you call the "poor widow bogey" is a sound argument, yet still you insist it is without merit.

Why not drop the "poor widow bogey" tag? It really doesn't help your case.

Bayard said...

"When you started this absurd crusade against the private ownership of land"

Mr Bigot, what is your evidence for that accusation?

Mark Wadsworth said...

DBC: "We cannot make the Henry George tax stick;we have to face up to it."

True or not, that's not really much of an argument.

RS, he forgot the Army of Surveyors as well.

GP, correct.

TFB: "When you started this absurd crusade against the private ownership of land"

Idiot!

I'm all in favour of private land ownership! That's the whole point of LVT! We get the best of both worlds, private enterprise benefitting the people who do it and national wealth (land rents) being used for national purposes!

As to Poor Widows, I think exemptions are a terrible idea economically but a good idea politically, what can you do, eh? Poor Widows are a f-ing shit argument against LVT, it is a pathetic argument, because it can be so easily fixed.

B, TFB doesn't do "evidence" he just says stuff to suit himself, traditional Homey arguing tactics, plus he used to be a barrister so he lies and distorts by force of habit.

Jan van Vlimmeren said...

* The poor widow argument is truely a bogus argument agains LVT:

- The widow has the choice to sell or let the property and move (buy or rent)to something she can afford.

* It would be passed to the tenant:

What's wrong with that? The landlord passes his monopolistic use of the land and all the proceeds and advantages that come with to the tenant. On top of that the landlord keeps carries the risk (tenant doesn't pay, inability to rent it out fast enough) which offsets the "unearned" value increase of the land.

* There isn't enough to fund government. I don't know who came up with this argument but it is complete bulls**t. Have you actually done the math? I did it for my country and if I devide the space that is currently occupied for residency, commercial and industrial use by the government budget, I arrive at 21 euro/m² (and then agriculture isn't even being taxed). For my personal situation that would mean I pay only half the taxes I am paying today while seeing my usable income nearly double. So don't even try to use this argument as it is complete rubbish.

Unknown said...

Family members of mine have a BTL property. Its not a dump or tatty slave box or anything. Its a nice flat, suitable for two, say, 20-40 year old single professionals, or a couple.

Its costs are a bit higher than they expected. They have not been able to reflect this in the rental price at all.

There has been one single factor that has gone into deciding what to rent the flat for, and that is: What the agent has told them is achievable in the current market.

Mark Wadsworth said...

JVV, I completely agree.

Is the EUR 21/m2 for the Netherlands? I worked it out for the UK and the average was £30/sq yard, with a median of about £20/sq yard.

Unknown, thanks for anecdotal. Real life keeps illustrating the point, doesn't it?

Bayard said...

"B, TFB doesn't do "evidence" he just says stuff to suit himself,...plus he used to be a barrister"

In which case he should know that all land is owned by the state already (which is presumably why, regardless of how much land you have the freehold of, you can't set yourself up as the king of it).

DBC Reed said...

@MW
It may not be much of an argument in one sense,but from the test of bitter experience it is certainly significant.Back in the 70's & 80's I used to get articles published on Economic heresies:the only crackpot idea that has n't made any kind of showing since then is LVT.Resale Price Maintenance,which appeared dead and buried then,was relegalised in 2007 in the USA after an exhaustive case in the American Supreme CourtIt now looks to have caught on in China.Nationalising banks which appeared a joke ,happened in the UK during the Credit Crunch.And now Kaletsky,Keen and Skidelsky have proposed ponying up income supplements to punters out of QE.Social Credit and Gesell live! sort of.only lvt appears unrevivable.And no wonder because it was always thought impossible in a country where private property was entrenched, to tax land bought in good faith with no land tax liability.
It is no good introducing LVT with massive exemptions or CR pay backs because people will wonder why you are taking money with one hand then giving some of it back after a process of redistribution that may or may not stack up.One Canadian scheme proposes exempting couples the whole of the median LVT liability more absurdly thwe more children you have.Why bother with a tax when you are exempting so much ? It contains within its own terms the admission that LVT can be unjust.

Ben Jamin' said...

@DBC Reed

A 100% LVT dropped in overnight might well cause a bit of upset. A glide into it shouldn't. 15-20 years.

Once taxes on incomes are abolished, I'd imagine they would be even more difficult to reimpose than a LVT is to introduce.

Bayard said...

"to tax land bought in good faith with no land tax liability."

How many people actually thought about land tax when they bought their house? 0.1%? so you can't say that people bought property in the belief that land tax was not going to be introduced and they wouldn't have done so, had they known. Perhaps a few speculators and "investors" would be caught out and, of course, all the landbankers. Or are these the people to which you refer?

IMHO, it would be more accurate to say "it was always thought impossible in a country where private property was entrenched, to publicly collect the land tax that so many rich and influential people already collect privately".

DBC Reed said...

@B
Its not the few you have to watch out for:its the homownerist electionfodder who ask "Why do I have to a pay tax on the land under my house when I am paying/have paid through the nose for it with a mortgage?If its so just why are there all these exemptions/ CD paybacks?"
Charles Bradlaugh the Radical Liberal MP for Northampton who seems to have never heard of George,realised that his electors being houseowners (by reason of the property qualification for the vote) would not support Land Taxes that fell on them, so propounded a progressive version (by acreage) that really hit the large landed estates that ringed the town (still do).

Bayard said...

DBCR I'm no fan of Mark's LVT/CI combo argument. I think the CI is a good idea, but it sorts out a completely different problem to LVT. LVT has to be valid on its own, AFAICS. As BJ states, LVT would have to be phased in, which brings its own problems.
You have to ask yourself, though, why there is such opposition to what was the standard form of taxation in this country for hundreds of years and why people spout such obvious nonsense (KLNs 1-293 and counting) about it, much of which can be seen to be nonsense with the most cursory inspection. Someone has made all this crap up and fed it into the public consciousness. No-one who is unable to look into these facile arguments and see that they are obviously false is capable of making them up in the first place. A classic is the Poor Widow in a Mansion. Now you'd think that the PWM being such an important person in fiscal policy, the press would like to trot one out every now and again, like they do with families earning £700 a week on benefits, or families with seven children or whatever, but they never do, which leads me to suspect that there are no PWMs at all. Even Mark has never seen one in the press (apart from two in Greece). The obvious suspects behind this whispering campaign, without sounding too tinfoil helmet, are the very few influential people who would lose out hugely. or at least think they would lose out hugely, from the introduction of publicly collected LVT.

Mark Wadsworth said...

DBC "It is no good introducing LVT with massive exemptions or CR pay backs because people will wonder why you are taking money with one hand then giving some of it back "

Whether you call it homestead allowance, median couple allowance, citizen's dividend or personal allowance is neither here nor there. It is still better having LVT at a higher rate with universal exemptions than to have it at a lower rate with no exemptions.

BJ, the only practical issue is Poor Widows. We can give them discounts, exemptions etc and everybody else can move over to full on LVT within a year, within five years at most. Then we phase out the exemptions over 15-20 years f you so wish.

B: "LVT has to be valid on its own" It is valid on its own, on a practical level (better than existing taxes and govt spending has to be paid for somehow) and on a moral level (it is better to collect it than not to collect it).

The point is that total land rents would vastly exceed sensible govt spending and what do we do with the rest?

DBC Reed said...

@MW
As you know I'd gladly accept,welcome,celebrate the institution of any tax based on LVT principles.I back the JS Mill don't-tax-current-values-only-when- they-rise version (plus chucking free money around a la Sentinel Tax)only because its probably more sellable(heavily disguised)to the surly British public who have ben taught wage increases bad/house price increases good.Purely on merits,given a clear run at implementation, your version+CI would probably work best of the lot, if and when implemented .Also Tsingtao (must buy some for tomorrow!) although, being intro'd in a rapidly developing,from- scratch, port,it has some of the features of Mill LVT (he and his father appear to have had a huge influence on tax policy in colonies everywhere inc German).Many thanks for the tip on gluhwein: I have discovered a bottle in a cupboard.
@B re Poor Widows
I once tried to recruit MP's for an All Party Parliamentary Group on LVT- an education in itself.My local Conservative ,Brian Binley was very enthusiastic ,in fact he proposed setting up the APPG: the local so-called Socialist Sally Keeble hit me with the Poor Widow Bogey as applied to her own mother whom ,she said, was being menaced by local estate agents who were telling her that the Labour Party was about to intro a Land Value Tax i.e.curtains for old ladies in big houses so take the attractive offer while its there.I pointed out she (SK) should know if the Labour Party was going to LVT better than I did; that she was hitting me with the PWB which Winston Churchill invented as a satire on Conservative rhetoric in 1909.Not impressed.Not impressed with widows' exemptions.Not impressed with the Mill don't tax current values either. I did not regret her subsequent failure to get elected.
My experience with the prat element is that rather than tapping some tradition of PWB rhetoric ,they come up with this idea de nouveau out of their own silly heads and think that they are making a ground breaking discovery.
Still there's Christmas and re-birth and all .So Season's Greetings to all pissed-off land taxers everywhere!