Thursday, 10 January 2013

Killer Arguments Against LVT, Not (298)

As we drift towards the tricentennial instalment, let's just look at this nonsense idea that "Taxation of the rental value of land is state appropriation of private property! So landowners deserve compensation!".

There's a long list of reasons why this is nonsense, and here are the main ones:

1. If the government had to compensate people for the amount of tax they pay, then it would never raise a penny. If you pay £10,000 income tax a year, the government would have to send you a refund of £10,000, which seems pretty pointless. Why is the situation with taxes on the annual rental value of land any different? It would also make a mockery of the whole thing, it would be like compensating criminals for loss of immoral earnings while in prison.

2. All occupier of land are getting compensation because they are enjoying/consuming rental value of land worth at least as much as the tax. If they think that the tax is too high, that just means that somebody else is prepared to pay more than them and they can move elsewhere (just like tenants do). If your local library stops providing books for free and starts charging £1 for each book you take out, well either use the library and pay or don't. That's your choice.

3. LVT is in itself the compensation that a land owner has to pay "everybody else" for the state-protected right to exclude them and hence place a burden on them. A bit like the "polluter pays" principle.

4. Similarly, every land owner is also being excluded from all the bits of land he doesn't own, so is entitled to his share of the tax paid by all the other land owners. That's your compensation. Whether the LVT pot is spent on core functions of the state, "free" public services, earmarked vouchers, flat rate exemptions or a straight Citizen's Pension/Dividend in cash is a separate debate.

5. Proper LVT'ers are as united in their loathing of taxes on output, earnings and profits as they are united in favour of taxes on land (and other government protected monopolies or cartels). So another way in which people will be compensated is that for every £1 LVT they pay, their other taxes go down by £1.

6. For sure, older homeowners will see the unearned paper capital gains they have accumulated over the years disappear, but was that a real gain anyway? The good news is that their children's and grandchildren's gain (much smaller purchase mortgage) will more than make up for this; overall, the family is richer because their total mortgage interest bill will be a fraction of what it is now.

7. There are some freebies as well: with taxes on productive activity reduced or phased out, the economy can grow by at least ten percent. LVT encourages more efficient ways of doing things, adding another five per cent (dampens boom busts etc). Instead of that extra value going via higher rents/interest into landlords' and bankers' pockets, LVT will constantly recycle this extra wealth (as well as the five or ten per cent of GDP which already goes into landlords' and bankers' pockets) back into the economy (at its simplest, via the Citizen's Dividend), so even lower earners and pensioners will benefit.

8. In practical terms, all these old people who wail about having "bought their houses out of taxed income" effectively got their houses for free; they paid off a tuppence ha'penny mortgage donkey's years ago and have lived rent free for decades. Recent purchasers only paid small deposits, and it is only that small deposit which was paid out of taxed income; and these recent purchasers will be able to pay off their mortgages twice as quickly (even in the absence of a radical debt jubilee) because the LVT they pay in future will be only half what their current tax bill is (basic maths).

9. The only people deserving in any way of compensation are recent first time buyers who were tricked into taking out large mortgages in the last ten years. As it happens, those recent purchasers, with very low house price-to-income multiples will be paying at least £10,000 a year less tax in future, so it would not take them long to get back out of negative equity and only half as long to pay off the rest of the mortgage. But in crude political terms, it seems fair enough to write down their outstanding mortgages to the new, lower selling price of their homes, and the banks will just have to accept a ten or twenty per cent reduction in the value of their residential mortgage assets. The maths of this is tortuous, but take it from me, it can be done without the world coming to an end.

10. I'm sure there are plenty more items which belong on this list, I'll add to it as we go along.

41 comments:

Ben Jamin' said...

As the value of land is not created by the title holder can it really be said that they own it?

I don't like the use of the word tax in respect to land. It implies a levy on something that has been earned.

Property owners should be charged a fee for the use of something they don't own.

Once they get their heads around that, everything else becomes a little easier.

Lola said...

Pretty well all other taxes are taxes on production, that is wealth creation. Land price rises are not production. Such rises in price do not increase wealth in any way at all. Development of land is wealth creation, but that gain is entirely different from simple land price rises, driven largely by failed centrally planned money and consequential credit bubbles.

And as I have said before all taxes are rent for living somewhere, so why not be honest about it and simply charge rent directly?

Mark Wadsworth said...

BJ, yes of course an individual cannot "own" the rental value of land, it is just there and comes and goes depending on lots of external factors. But the Homey counter-argument is "I've paid for my land and it's mine, it is unfair to make me pay again."

BJ, L, yes, the term "LVT" was poorly chosen but we are stuck with it. It would probably be better to have called it "ground rent". Hence my slogan "ground rent for all!" everybody pays it, everybody gets a share of it.

The Cowboy Online said...

"If they think that the tax is too high, that just means that somebody else is prepared to pay more than them and they can move elsewhere (just like tenants do)" -- except, unlike a tenant, the costs attached to moving, and the time it can take to find an alternative property, make moving costlier and more difficult to do. Still, while you still suggest LVT is some kind of tax utopia - and are seemingly unable to see why other people don't share the same enthusiasm as you in making it easier for governments to increase the tax burden - it doesn't seem like it's going to happen any time soon.

Perhaps another tack is called for, Killer Arguments FOR LVT?

. said...

The transaction costs of moving home are almost all to do with tax and regulation. The actual finding a house, doing a survey to make sure it's falling down and the conveyancing should be a doddle.

With significantly less state interference, buying and selling homes would be as easy as, say, renting a home.

And with ridiculous housing bubbles causing people to have to speculate on the housing market more people might choose the flexibility of renting anyway.

BE

. said...

Oops Freudian slip there.

bob said...

I never really pay much attention to your LVT posts, but I find it funny that it's been a few years now? and it's just a roundabout of the same discussion.

I can't see past LVT as being any different than communism.

No, not the social aspect.

But the fact it's something that seems great on paper, but will fall down in the real world when we try it, because people will inevitable fuck it up on a massive scale.


Mark Wadsworth said...

TCO, OK, let's assume that people like to buy one house in early middle age and then stay there for the rest of their lives.

Then they'll just have to budget properly, save a bit more in the good times in case LVT goes up in the bad times (unlikely), it's no different to having a variable rate mortgage.

Or as BE says, they can rent.

The arguments FOR are blindingly obvious and rather tedious. if you invent an argument AGAINST (usually out of thin air) then on closer inspection it is usually another argument FOR.

BE, exactly.

Bob, LVT is so simple, it is difficult to foul it up. We have for example Business Rates in this country which is as close to LVT as makes no difference and it works just fine.

Council Tax is not a very good tax at all, but they did the valuations and banding for a tiny outlay in the space of two months or something. Even Fatty Pickles admits that a Council Tax rebanding exercise would cost less than £10 per house - LVT would be even cheaper than that.

Mark Wadsworth said...

TCO, for example, you make a vague stab at an argument against:

" other people don't share the same enthusiasm as you in making it easier for governments to increase the tax burden - it doesn't seem like it's going to happen any time soon."

Apart from the fact that the government is all on the house price bubble gravy train and in the pockets of bankers, having LVT makes it much HARDER for the government to increase taxes - or else they would have done it a long time ago, wouldn't they?

So you see, on closer inspection, that's an argument FOR LVT (if you like low taxes).

Lola said...

Bob, just how will people fuck it up on a massive scale? That's the beauty of LVT - it's an in yer face tax, so politicians and their bureaucratic satraps can't be stealthy and deceitful with it; and its bloody simple to understand; impossible to 'game', and hence evasion will be non-exsistent. Plus 80% of HMRC staff can be laid off to find more rewarding proper wealth creating work in private business.

Mark Wadsworth said...

Bob, as L says, you present an argument AGAINST as follows:

"[LVT] is something that seems great on paper, but will fall down in the real world when we try it, because people will inevitable fuck it up on a massive scale."

Do you not think that having income tax, NIC, VAT and corporation tax, with ten thousand pages of reliefs and anti-avoidance provisions is stark evidence of an existing fuck up on a massive scale? Just because we are used to it doesn't mean it's not fucked up.

Bayard said...

Lola, I refer you to the DWP and the fate of the "Universal Credit". There will need to be transitional arrangements and also things like exemptions/special arrangements for pensioners. HMRC will make damn sure that these are byzantinely complicated so as to ensure themselves continued employment. I agree with bob: theoretically, it's a good idea, practically it's a non starter: an alliance against it by the civil service and the people who really run this country will see to that.

Lola said...

Bayard. Oh I totally agree that there will be a massive rearguard action by all the failed and redundant bureaucrats - but that just make me more grimly detremined to succeed.

Mark Wadsworth said...

B: "There will need to be transitional arrangements"

Why?

Let's assume that the government announced that a full-on LVT system is to start in 24 months' time (for the time being, existing taxes will continue without any changes) and tells everybody what the LVT bill is going to be on each plot of land and what the Citizen's Income/Pension is going to be.

Does that not give people time to adjust? Is three years enough? Four?

As to pensioners, the bulk can be deducted from state pension and other pensions in payment (via PAYE), there's plenty of money in ISAs and so on, and the rest can be rolled up until death. Sure, that won't collect 100% of the rest, but certainly most of the rest.

L, that's the spirit. Good thing about being a Georgist is that every vested interest group hates you.

Bayard said...

"Recent purchasers only paid small deposits, and it is only that small deposit which was paid out of taxed income"

I thought MIRAS was phased out years ago? You appear to have dodged the point that the introduction of LVT will depress land prices, because you are no longer paying for the privilege of getting land rent-free, so every existing landowner will have paid over the odds for their land, seeing as the rent-free privilege would longer apply. The fact that they paid relatively little for it is irrelevant: firstly, money was worth less then and secondly, they only paid less than today in real terms if prices were lower compared to average earnings than they are today, which is certainly not true for every point in the past. The fact that they've paid their mortgage off is irrelevant, they have still paid for a privilege that is being denied them.

Bayard said...

"There will need to be transitional arrangements"

Mark, you said it, in many KLNs in the past. ISTR a comment starting with "Is it beyond the wit of man to devise transitional arrangements, exemptions..." but perhaps I misremember.

Lola said...

MW When every interest group is against you, you can be damn' sure you're right.

Lola said...

...possibly I am on a Georgist Jihad...

Mark Wadsworth said...

B, yes, it's dead easy inventing them, I've suggested dozens (some sensible, some appealing but adminstratively unworkable), today's offer is this: "The new system will start in 36 months time. Here are the numbers. Adjust or die."

Why would that not "work"?

L: "When every interest group is against you, you can be damn' sure you're right."

Correct.

Ben Jamin' said...

MW

You said "BJ, yes of course an individual cannot "own" the rental value of land, it is just there and comes and goes depending on lots of external factors. But the Homey counter-argument is "I've paid for my land and it's mine, it is unfair to make me pay again.""

But they haven't paid for anything.

What they have done is, as your piece on taxi drivers above illustrates, is buy a transferable permit.

The value of which, in the long term only ever goes up.

I don't think this is being pedantic. The use of language is very important because it frames the argument. Once you cut some slack by saying, "yes you bought your property" or " we are going to tax the rental value of your land"
it gives the Homeys and FLs the belief they have some moral justification.

Don't give the fuckers an inch I say!!

. said...

I like your idea of paying LVT via PAYE. You could pay your "dividend" the same way. Net them off before anyone ever sees it.

*That* could be your transitional arrangement.

BE

Mark Wadsworth said...

BJ, I completely agree, and you are not being pedantic. Land 'owners' have bought a transferable permit which gives the holder thereof special state-protected rights as against 'everybody else'.

But the Homeys will still argue that they paid the previous holder, and hence that the permit is still valid and binding on 'everybody else' and that for some obscure reason, the state still has to protect that right in future (despite the state didn't get much of the purchase price).

Where their logic (to the extent there is any) breaks down is exactly the same as with the new taxi driver: can he go to the parish council when they abolish the permit system and complain that it is "unfair" to take away the monopoly profits he thought he would get when he bought the permit?

To be honest, that is exactly what he will do. The cheeky git.

Bayard said...

"can he go to the parish council when they abolish the permit system and complain that it is "unfair" to take away the monopoly profits he thought he would get when he bought the permit?"

Let's get this straight - are you saying that it's fair to charge someone for a licence and then cancel that licence the following day and not refund the licence-holder their money? How does a licence to occupy land exclusively differ from a licence to broadcast on a certain radio wavelength or to operate a mobile 'phone network of to use a landing slot at an airport of to extract minerals from the ground? Is it fair (or even good sense) to extract money for these licenses one day and declare a free-for-all the next?

And I noticed you've dodged my point about LVT depressing land values again.

Mark Wadsworth said...

BE, the more things are netted off at source, the better. That applies to any tax and benefit system, however complicated the underlying calculations are. It's all just pluses and minuses.

I find it idiotic to have a "tax free personal allowance" and "child benefit" and "council tax" and "tv licence" and "winter fuel allowance" and "working tax credits" so on and so forth, all that is required is to adjust people's PAYE codes up for the pluses (benefits or tax breaks) and adjust it down for the minuses (council tax, TV licence), job done.

PAYE codes would make fascinating reading, they'd be long lists of lots of little items, at which stage somebody would notice "Hey, for most people, all these stupid pluses and minuses net off to pretty much nothing, let's scrap the lot."

Mark Wadsworth said...

B: "How does a licence to occupy land exclusively differ from a licence to broadcast on a certain radio wavelength or to operate a mobile 'phone network of to use a landing slot at an airport of to extract minerals from the ground?"

There is a massive difference!

If the council/government has asked somebody to pay money for a licence for a specified period, then there is a contractual relaionship between grantor/protector and the payer/beneficiary. And that has to be upheld.

If however, Mr A buys land off Mr B, or Mr C buys Mr D's taxi driver permit on the grey market, then that has bugger all to do with the council or the government, the government is not an active party to that contract, is it?

Mark Wadsworth said...

B: "LVT will depress land prices, because you are no longer paying for the privilege of getting land rent-free, so every existing landowner will have paid over the odds for their land, seeing as the rent-free privilege would longer apply."

Simply not true.

Let's assume under full-on LVT, house prices were to halve. In other words go back to prices of ten years ago, or fifteen years on an inflation-adjusted basis.

So anybody who bought more than fifteen years ago is still hugely better off for having bought at the time because they were paying far less in mortgage payments than they would have been paying in rent in the interim. They've been banking their winnings for decades, and they merely cease to bank winnings in future.

B: "The fact that they've paid their mortgage off is irrelevant, they have still paid for a privilege that is being denied them."

To the extent they paid anything at all, so what? They paid the wrong person, it's like buying stolen goods.

If they want their money back, they can go to their original vendor and say "I only bought this house on the understanding that the government would never tax the rental value of the land".

When I bought my last house, I don't remember the vendor vouching for any such thing, and I certainly don't remember obtaining a confirmation from the UK government that the tax system would never be changed ever again, and I certainly did not pay the UK government for such and undertaking.

I bought the house on my own risk and account. And even if that house fell by 2/3 in value from today's prices, it would still be worth more now than it was then.

. said...

When you think about the exclusive right to use your land/part of a building or more accurately what would happen if you did not have the exclusive right to use your land/part of a building you start to realise quite what a valuable service the government provides.

I'm watching The Walking Dead at the moment and they find it quite difficult to protect their own space for any more than a few hours at a time from [heroin addicts and squatters] zombies.

It really is the foundation of all other useful activity (what is the industrial output of the lion civilisation?!). Maybe LVT should be spun as protection money?

BE

Bayard said...

"or fifteen years on an inflation-adjusted basis."

Let's not go back fifteen years, let's go back twenty years, to just before the last crash. How much cheaper in real terms are houses now than then? Of course houses are going to be cheaper if you go back to just after the last crash. You cannot conflate bubble generated price changes with the price changes that would occur if LVT is introduced, nor can you deny that this price drop would occur:

"They paid the wrong person, it's like buying stolen goods."

Not so, because all land belongs to the state and originally, everyone paid rent (or provided soldiers in time of war or whatever). However, from time to time the state would, in lieu of paying people for services rendered in cash, pay them by letting them off the rent, with this benefit being able to be transferred to others. Thus was the privilege originally paid for. The fact that todays purchaser is buying that privilege off someone who has bought it off someone who has bought it of someone etc to to the nth degree right back to the C12th doesn't make it stolen goods.

"If they want their money back, they can go to their original vendor and say "I only bought this house on the understanding that the government would never tax the rental value of the land".

Bit of a problem if the original vendor died in the C12th, unless you know a reliable medium.

"To the extent they paid anything at all, so what?"

Of course they paid something. Take the case of two leasehold flats in the same street. Both are the same, except that they have different freeholders. The freeholder for flat A charges a peppercorn ground rent of £10 a year, whilst the freeholder for flat B charges a more substantial ground rent of £1,000 a year. Which lease is going to sell for more? Flat A, because the purchaser is paying for the privilege of not having to cough up just under a grand a year in rent.

Mark Wadsworth said...

B, nothing of what you says justifies landowners getting compensation for a tax shift.

I'm not "denying" that prices under LVT ought to be lower than otherwise, that's an advantage more than a disadvantage. It's only the Homeys who think that's a disadvantage.

If you like, we could work out how much income tax, NIC etc every homeowner had ever paid and also work out how much LVT they would have paid and then net off the two and send people a demand if LVT > income tax etc or a refund cheque if income tax > LVT accordingly.

That seems pointless to me.

Mark Wadsworth said...

BE, yes, but the Homeys will say "aha then, LVT is a protection racket", oblivious to the fact that they are currently the beneficiaries of the protection racket - they want the protection but they want somebody else to pay for it.

Of course, it is not just the "government" providing this protection. Most people are well behaved and don't want to burgle, state, steal etc, so it seems fair to me to reward them for their good behaviour by giving them a share of the LVT which 'everybody else' pays.

Bayard said...

"B, nothing of what you says justifies landowners getting compensation for a tax shift."

It wasn't intended to. I was just pointing out, that, contrary to your post, 1) there would be a real drop in the value of land, which would not be negligible, so that people who bought recently will have paid over the odds and that 2) that people who bought years ago didn't necessarily "get their houses for free".

I don't think there should be compensation, I just don't think it does the argument for LVT any good to try and brush these sort of issues under the carpet.

bob said...

"just how will people fuck it up on a massive scale?"

Seriously, you have to ask?

Setting rates unreasonable high, sure they will adjust them, but government always moves slowly and inefficiently, meanwhile people are bled dry.

You also assume everyone has a car or good public transport links to work. If I was priced out of my somewhat centrally located flat, and forced to move out from the centre, this would be a huge issue for me getting to work.

Mark Wadsworth said...

B: " 1) there would be a real drop in the value of land, which would not be negligible."

The purist say that the selling price of land would fall to plus minus nothing. But that is not a fall in the value of land, that is merely the end of the pyramid scheme; the vendor's loss is the next purchaser's gain. Landowners, taken as a collective and continuing class will lose nothing (and in fact will gain as against bankers).

Mark Wadsworth said...

Bob: "Setting rates unreasonable high, sure they will adjust them, but government always moves slowly and inefficiently..."

And how does this apply in real life? What about rents for govt owned buildings, like council houses, housing associations, Crown Estates? Are the rents for these "unreasonably high"?

If anything, people's narrow self-interests being what they are, any tax on land values will always be too low because it is an in-your-face payment.

Nobody said "introduce full-on LVT at some wild guesttimate of future rental values and abolish all other taxes overnight". Clearly, LVT would start low and be nudged upwards over a period of five years or so.

And nobody said "Introduce LVT and then abolish democracy", so no doubt all other parties (apart from YPP) will play the usual "Vote for us and we will reduce your LVT" analogous to "Vote for us and we will freeze your Council Tax".

"... meanwhile people are bled dry."

Jeez! Take a look around you! Taking VAT, NIC and income tax together, the average marginal rate on earned income is slightly over fifty per cent. It's taxes on income bleeding us dry, causing unemployment, encouraging leveraged land price speculation, pushing businesses offshore etc. How can LVT be worse?
-------------
"You also assume everyone has a car or good public transport links to work. If I was priced out of my somewhat centrally located flat, and forced to move out from the centre, this would be a huge issue for me getting to work."

I made no such assumption and you are proposing a big "if".

Fact is, there is a measurable and predictable trade-off between "Time and cost of getting to work" and "Rental value of a home", so everybody makes his own choice.

You can a) spend £ x hundred on annual travel cards and lose y hundred hours of commute time, or b) move closer to the centre, paying £ z hundreds extra in rent.

You'll find that z - x = y times [whatever you value your time at per hour].

So ultimately, by living in a central flat, you are placing a burden on people who thus have to live further out.

bob said...

I live centrally in town in a flat, all the surrounding housing is more expensive, if I want to move to a cheaper place, I have to move much further out of town, away from the transport links that go towards my work (I would have to bus into town, to then go back out in another direction), I currently cycle 8 miles, rather than spend an hour on the bus.

It is not an "if".


An LVT would inevitably be high for a centrally located flat, I would be forced into cheaper accommodation further from my work, where transport links would be worse, not better, cycling may not be an option for much longer.

I also have 70 years left on the lease of my flat, which adds a significant barrier to re-sale, if you think councils will consider subtleties like this when setting LVT rates, pull the other one, it's got bells on it.

If an LVT forced me financially to move, I'd be screwed.

Mark Wadsworth said...

Bob: "It is not an "if"."

It is a huge IF.

To make it easy for you, basic maths says, if your flat (current selling price) is less than nine times your gross income, you would be better off with a shift from taxing incomes to taxing rental value of land.

"if you think councils will consider subtleties like this when setting LVT rates"

Proper LVT is based on annual site-premium. It makes no difference whether you have 7 or 70 years left on the lease.

Of course, you get a deduction for ground rent paid upwards, because freeholder/superior leaseholder in turn is taxed on the ground rent he receives (at 100%, to be honest).

And maybe such a flat is "difficult to sell" (if you are too lazy to get the leasehold extended by 90 years), so what? You can still keep it and rent it out, can't you?

bob said...

"if you are too lazy to get the leasehold extended by 90 years)."

Well, scuse me for being too lazy to be sitting on the spare 10-15 grand, I'm sure being taxed more will help with that!

Jesus fuck.

"You can still keep it and rent it out, can't you?"

And live where?

Rents are not much different than my mortgage, so back to the same issues I posted above with location/work.

Well fuck me, I'll just have to move out of my house and get a different job nearer If I can't afford the LVT, oh, except where the jobs are housing will also be expensive and so will LVT.

What a load of shite.



Bayard said...

"But that is not a fall in the value of land, that is merely the end of the pyramid scheme; the vendor's loss is the next purchaser's gain."

But the losers, and there will be people who lose massively, just like there are in Ireland, now that that country's pyramid scheme has collapsed, will not be the same as the winners. Massive resentment will be stored up. Resentment lasts for years, gratitude dissipates in weeks. I still think this is a very strong political argument for not introducing LVT all in one go. OTOH, introducing it gradually give the Civil Service a chance to fuck it up. You can't win with politics.

Mark Wadsworth said...

Bob: "I'm sure being taxed more will help with that!"

Who said anything about you being taxed more?

For some reason, the Homeys have managed to perpetuate the belief that if we scrapped income tax and taxed rental value of land, that everybody would pay more.

I accept that Poor Widows In Mansions would pay more tax, but you are neither a Poor Widow nor do you live in A Mansion so you would pay less tax.

It's a bit pointless debating the merits of LVT with somebody who insists that EVERYBODY would pay more, especially if that person would probably pay less tax, probably only half as much.

B, yes, but those are political matters, not economics or logic.

bob said...

"Who said anything about you being taxed more? "

I live in a centrally located flat, but don't earn much.

Taxed less, I don't think so.

Mark Wadsworth said...

Bob, like I said, if your flat would sell for more than nine times your gross, then in the short term, you might pay more in tax.