Wednesday, 20 February 2013

Killer Arguments Against LVT, Not (302)

I've been compiling these on my other blog for the time being. This week's mutterings from The Two Eds has really flushed out the idiots but we've heard it all before:

1. Boris Johnson in The Telegraph:

What about someone who owns several houses, all of them worth £1.9 million: why should he or she pay nothing, while someone who owns just one pricey home gets totally clobbered?

What about someone who lives in a home worth a million, but happens to have a load of Van Goghs and Cézannes on his kitchen wall, or gold bars under his bed? Why should he get away with paying nothing, while the taxman pulverises the little old lady still living in the former family home next door?

This is what we refer to as The Diagonal Comparison.

2. Allister Heath, who never read Adam Smith, also in The Telegraph (via CK):

Yet regardless of its intellectual origins, a tax on people’s assets is ethically wrong, economically destructive and would damage growth and job creation, with the poor and middle classes suffering intense collateral damage.

A tax on productive assets or the income therefrom, or a tax on the free exchange of output is indeed enormously destructive. Which is why our economy is in such a mess: most of our taxes are raised from output, employment, income, profits. For the economy to grow, people need to specialise and this means that there have to be ever more exchanges between ever larger groups of ever more specialised people who each do what they do that tiny little bit better than anybody else.

But land is not a productive asset, it is merely a government protected license for the unproductive sector to collect money from the productive sector ("rents" or "mortgage interest"). So a tax on those rents has no negative impact on the productive sector. Heath's argument is so fucking incredibly stupid that I didn't even bother to cover it on the KLN blog, so you'll have to make do with this rebuttal.

3. Dominic Lawson in The Independent (via BE):

The point of principle here is that tax is generally paid on property when income from it is available – for example, on rent accruing; and the reason why stamp duty works is that in the great majority of cases a person has cash available from the sale of an existing property, when buying a new one.

Therefore, if there were to be an additional property tax, it would be much fairer to decide that capital gains tax should also be charged on the primary residence, when it is sold, rather than levy a tax simply on the fact that someone – whether or not a little old lady – happens to be living in a home above a certain value. Such a change, however, would affect all home owners making a profit on sale and would, therefore, not meet the politicians’ objective of seeming to be nasty only to rich bankers.

This is basically the twisted argument that my land doesn't generate income, which is nonsense - or else we could say that all fines and penalties imposed are void because "Breaking the speed limit doesn't generate income". With just a sprinkling of Poor Widows In Mansions.

He rounds off with this:

if it’s windfalls you’re after taxing, Ed, Nick, Vince, here is a helpful suggestion: there is a group of 3,000 millionaires who, over the past 20 years or so, have had a total windfall of £8.5bn – that’s an average of £2.8m each. None of them did a stroke of work for that sum and yet, when it landed in their laps, entirely at random, they were not obliged to pay a penny in either income or capital gains tax on it. I am referring, of course, to Britain’s Lottery Jackpot winners.

LVT is not a tax on wealth, of course, so I am surprised to see a second generation hereditary Tory propose such a tax, but he misses the point. Lottery winners pay their tax when they buy the ticket; buying a ticket is an entirely voluntary transaction and the deal is that most lose a small amount and a few win a big amount. That is quite different to the land ownership system where everybody has to buy a ticket, whether they like it or not, and the same people at the top are always the winners.

4. But a special place in Hell must be reserved for a Blue Socialist troll called Newsbot9 in the comments to an article in the New Statesman, variously:

Ah yes, another attack by Lucas on the poor... Higher rents and lower net incomes. People "downsizing" to homeless. Your plan... As magic doesn't exist, [Land Value Tax is] passed on. There is a hard minimum income to rent, thus, and we have a massive housing shortage... How are you going to handle the fact that it, as a council tax replacement, will be passed on to poor tenants who might formerly have claimed council tax benefit..? And you have no problem with closing over over a million flats, many in multiple occupancy, then. Rents will soar further. Your version of a LVT is indeed targeted, against the poor - rents will rise sharply under it. It will simply help control land ownership under your model, where there are no safeguards. And I see, your answer is social cleansing. Purge the poor. Got it. Tory. And I understand why you support it now, it's a way for you to deprive millions of shelter.

I referred him to the article and embedded spreadsheet here showing that private tenants would be a lot better off, even if the LVT were passed on in full, but he dismissed these as "magic" numbers.

So to sum up his shite:

- LVT will be passed on
- rents will rise
- tenants will be unable afford the rent and will become homeless

- greedy landlords will snap up all the land and buildings, demand rents which nobody can afford and then happily pay the LVT for all the vacant homes they own, while out on the streets the masses huddle? Where will these greedy landlords get the money from to pay the LVT with no tenants?

He also overlooks the point that a proper comprehensive package of taxes on the poor include would include things like:
- reducing benefits
- increasing means-tested benefits withdrawal
- reducing the personal allowance
- introducing a Poll Tax
- increasing regressive taxes like National Insurance, VAT or taxes on booze, fags and petrol.

(The Coalition have been guilty of some of these and quite good on others, overall bad but no worse than Labour)

This is pretty much the opposite of the LVT package:
- flat rate non-means tested Citizen's Income/personal allowance, which is a negative Poll Tax
- reducing taxes on earned income, especially regressive ones like National Insurance or VAT (flat rate income tax is OK).
- more social housing (and hence lower rents)

Or have I missed something?


. said...

I might have missed something, but you seem to say that land is an unproductive asset and it generates income.


Lola said...

I had a go at A Heath - pointless really, but there you go.

I am continually amazed by these people. I have a theory that they are either deluded, dense or deceitful. AH etc fall into the deceitful category.

Anonymous said...

BE, isn't that right? If I hold a gun to your head and ask for your wallet, I haven't done anything productive, but I've certainly generated an income for myself.

A K Haart said...

"a government protected license for the unproductive sector to collect money from the unproductive sector"

Typo in point 2.

Mark Wadsworth said...

BE, I refer you to RA's comment.

Do roads and pavements generate income for anybody in particular? No. Are they very useful in getting from A to B? Yes. So do they help "production"? Yes.

Now imagine I buy all the roads and pavements round where you live. How much can I charge people for using them? A heck of a lot, because if you don't pay me for access, your home is worthless and all the shops are worthless.

So I can charge you personally £5,000 a year for permission to step out of your house; I can charge each shopkeeper £50,000 a year for permission for their customers to use the pavement in front of his shop etc.

L, definitely deceitful, but he is so corrupted that he is not aware that he contradicts himself all the time.

RA, nice one.

AKH, well spotted, I have amended.

Logan Boettcher said...

Contra Newsbot, LVT cannot be passed on unless you also believe that a mortgage can be passed on or a tenant can sublet a shop or apartment for more than its market value. IOW, you cannot win a property use auction by outbidding all other potential landowners/renters and then turn around and expect the losers to pay more than the winning bid. If they were willing to pay more than the winning bid, they'd have bid it already!

Basic capitalization rules would already lead him to a correct answer. A higher interest rate lowers the capitalized price of an asset because more money would have to be pledged to the bank, leaving less for the owner of the asset to claim as a sale price. Likewise, if the government levies a high tax rate on an asset, the value of said asset will go down. Assets other than land-like assets (buildings, machinery, etc.) will rise in price because the supply curve will shift to the left as producers will drop out of making the supply. But with land, the supply curve cannot be shifted because the supply is fixed. If the supply curve cannot be moved, then no price increase can happen; only the price received by the holder of the asset can accommodate the tax.

Newsbot attempts to claim that the supply curve can be moved by saying that land can be subdivided. But this is like saying I can increase the supply of donuts I have by taking the 24 I have in a big box and putting 12 in two boxes, and decrease the supply by doing the reverse.

He claims that we are engaging in magic by saying that LVT will be borne by the landowner and cannot be passed on to the tenant. It is actually he that is engaging in magic, because he is claiming that he can move the supply curve for land. This is something that cannot be done, therefore he is the one engaging in magical thinking.

He also suffers from a cognitive fantasy that producers can pass off costs that will result in higher prices. While on its face it sounds plausible, the mechanism that translates rising costs into higher prices is done through the movement of the supply curve. For example, if fuel costs go up, this will squeeze out producers who consume more fuel in getting their wares to the market. When they leave the market, supply drops, the curve moves left, and the price rises for the consumer. If a producer willingly overpays for labor, materials, or his own compensation, he cannot pass off this cost to the consumer by raising prices. He will go out of business unless he pays lower amounts for his labor, materials, or personal compensation. If he goes out of business, then a temporary supply curve shift will happen, but a more economically rational producer will soon step in and shift the supply curve back to the right.

So, when someone speaks about a tax or a cost input being "passed on" to the consumer, it literally means that a supply curve shift to the left has happened. And once again, it is impossible to shift the supply curve for land, no matter how many times it is subdivided. This means it is impossible to pass on the tax to the user of the land.

Bayard said...

The Mansion Tax is the new AV.
1. Take an idea that you don't like (like LVT or PR). 2. Think of the most absurd version of it and pretend to push it.
3. Wait until the absurd version is shot down in flames.
4. Claim that the idea you don't like has been proved not to work.

Mark Wadsworth said...

LB, nice of you to drop in again. You are of course completely correct but Home-Owner-Ists like Newsbot will dismiss it as idle theory. He dismissed my actual hard numbers as "magic".

I outlined to him what a proper anti-poor tax/welfare package would look like and he told me nonsense, LVT would be far worse.

B, yes, that's a good analogy.

Anonymous said...

As Arthur C Clarke said: "Any sufficiently advanced technology is indistinguishable from magic."

Logan Boettcher said...

I've submitted my post on the New Statesman article and wait patiently for his response. He did make numerous posts shortly after I made mine, but they consist of more magic references and calling people Tories.

It is interesting though, because I thought that Tories were almost uniformly against LVT, so calling a pro-LVT poster a Tory seems weird. Or is an LVT-supporter just Tory-like to him, meaning that we want to destroy the poor just like the Tories, albeit in a different way? It's all very confusing :-).

Mark Wadsworth said...

F, that's amazing!

LB, read up on the KAALVTN blog.

The Home-Owner-Ists and Faux Libertarians are quite capable of claiming
- LVT is an attack on the wealthy, and
- LVT is an attack on the poor
in the same breath. They don't do "logic" and they certainly don't do "facts".