Friday, 9 August 2013

Killer Arguments Against LVT, Not (306)

From RollOnFriday:

Lord Halifax [responding to Wellington]: "With land value tax, someone is always paying."

That'll be because land yields an income....?(1) And, over time, you end up paying more in tax than the asset itself is worth?(2) That's fair?(3)

And you pay tax on assets which lose value? (4) Interesting.

And you have to revalue every single year, because things change in value? Should be a piece of cake on compliance and policing.(5) And some assets can change in value many times in a year. So on what date are my gold bars valued?(6)


1) Land has a cash rental value. You can turn it into cash by renting it out or selling it, you can consume that rental value by occupying the land, or indeed you can pay rent to somebody else for the right to occupy it. The value is the same and that value is constantly being generated and consumed, minute by minute, day by day, year by year.

The fact that land does not spew out pound notes is neither here nor, neither does a car factory or a hairdresser's. The factory produces cars, which the manufacturer turns into cash by selling them. The scissors do not produce cash, the hairdresser uses them to produce hair cuts which people are prepared to pay for.

2) So what?

You can apply that argument to taxes on earnings and output. Many, in fact probably most, people will pay/suffer far more in tax in their lives than whatever the value of their "assets" is when they die. Under current rules, they pay £x in income taxes each year and receive benefits (in cash or in kind) to the value of £y. There is no particular correlation between £x and £y and no guarantee that you will end up richer at the end of the year - you achieve that by consuming less than you earn as you go along.

Further, the tax is on the annual rental value and the "value" (by which I assume he means "selling price") of "the asset" is irrelevant. You might choose to occupy the nicest plot with the nicest view and make do with a static caravan or a tent. Or you might have a five-bed mansion built. The rental value of the plot is the same and the tax would be the same.

3) Yes it is.

4) As stated in (3), the value of the "asset" measured by selling prices is irrelevant. And we pay tax on our cars and petrol, which lose value or get used up quite quickly. We have to pay VAT on cinema tickets or hair cuts, which have no second hand value at all.

5) The tax is on the annual rental value of each plot and we have to accept that no particular valuation method is hyper-scientifically accurate. No tax system is. Why is additional rate income tax 45%? Why not 40% or 48.37% or 33.33333%? It's just a fairly arbitrary percentage multiplied by a fairly arbitrary definition of wealth. Why are biscuits liable to VAT but not cakes? Why is the personal allowance £9,440? Why not £nil, or £10,000, or £10,326.57?

It's easy to establish relative values and pitch the tax at anything less than (say) eighty per cent of that to give a margin of safety. That is a damn' sight less arbitrary than just about anything else in the tax system. And at least with LVT there is some moral and economic justification for it, unlike taxes on income.

6) For a start, LVT does not apply to gold bars.

Secondly, it's a tax on the annual value, so yearly revaluations seems appropriate. Once the system is up and running, updating last year's figures in the light of this year's rental value and selling prices is a doddle, it would cost about 10p per plot to do the whole country. We managed Domestic Rates for nearly four hundred years and Business Rates are (is?) still going strong.

Finally, whatever the tax liability on a plot is, even if it is somehow subjectively "incorrect", it will be reflected in selling prices of land and buildings on the open market. So for a given tax liability, the selling price of land and buildings is always "correct" in open market terms. Therefore, that same tax bill must also be "correct" relative to the open market value of the land and buildings.

12 comments:

Bayard said...

Lord Halifax? The Duke of Wellington? Are we in the C19th?

Ben Jamin' said...

2) the "asset" is the benefit he gets as measured by the market ie the rental value. You are paying absolutely 100% the correct amount under LVT

Which is a darn sight fairer than paying Income Tax, for benefits you may or may not get. By force!

@MW, your point about on going consumption of rental values ie commonly created wealth, is the crucial one.

It's the one when home owners hear it, shuts down all further debate ie hits home the hardest.

As soon as this reality is pointed out to them, things immediately get personal and vitriolic. I wonder why? ;)

Lola said...

What I like is the discipline on landlords. They want to increase their rents, which increases their proerty values, so they pay more tax. They cannot both have artificially high rentals and low property values, or vickie verkie. And it is an IN YER FACE tax, which also disciplines tax gatherers. What's not to like?

thethoughtgang said...

@ Lola

If the rental value for LVT is the same irrespective of what's on the land (a caravan or a mansion.. as per the example given) then surely there's no reason why a landlord who increases the price he charges to let out the land would pay more LVT as a result.

Although, I presume, if the market bears a higher rent then that's an indication that the LVT value might also have increased.

Mark Wadsworth said...

B, I assume it's pseudonym, but then again, you aren't the famous Bayard from the history books either.

BJ, the Homeys deny it strenuously that occupying land is "consumption". "But nothing changes!" they scream. "It is not like food which I consume by eating and it's gone!"

They are not thinking four dimensionally, as Doc Brown would say. They have consumed land multiplied by time.

L, nothing is not to like, and there will be plenty left over for landlords - the price of L&B will adjust to whatever level still makes it a good investment.

TTG, the landlord can only influence the rent by keeping the house in good nick, building the biggest he is allowed, etc. None of that influence the LVT bill.

Lola said...

MW. Eggsaktly. I spend s large part of my life working out how to invest tax efficiently. Clients are so focused on not getting stiffed by the gummint that they forget about the quality and utility of the investment. LVT is not that sort of tax. It will not affect any investment calculations at all. In fact it'd make them far far easier.

Bayard said...

"As soon as this reality is pointed out to them, things immediately get personal and vitriolic. I wonder why?"

Me, too. People whom I'd always thought were intelligent and rational suddenly turn into shouting bigots when land tax is mentioned. You'd think that there'd been some great public propaganda campaign, but even in today's PC school curriculum, this sort of thing is not mentioned.

Mark Wadsworth said...

L, "tax free" savings are the worst. The banks just pay lower rates on ISA accounts, so who benefits from the tax cut?

B, there has been a careful propaganda campaign for the last thousand years.

People who own land are called "Lord" or "sir" and you have to bow when you address them. They are allowed to rule over us (well until Blair's HoL reforms).

In olden times, anybody who stepped on their land without permission to take a rabbit would be killed etc. So anybody who didn't like the system was removed from the gene pool.

And to finish off, the economists stopped referring to "land" as separate from "capital". Either they say land is capital, they say it is not important or they ignore it altogether.

There's your propaganda. LVT goes contra to this worldview.

Pablo said...

Bayard said...

"As soon as this reality is pointed out to them, things immediately get personal and vitriolic. I wonder why?"

MW replied:
Me, too. People whom I'd always thought were intelligent and rational suddenly turn into shouting bigots when land tax is mentioned. You'd think that there'd been some great public propaganda campaign, but even in today's PC school curriculum, this sort of thing is not mentioned.

This goes to support Robin's thesis, does it not?

Bayard said...

"B, there has been a careful propaganda campaign for the last thousand years."

I would agree that we always have been and probably always will be ruled over by the landowners or their placemen, but the fact that land tax was the staple tax for the UK until the end of the C19th rather goes against the theory of a thousand year conspiracy against it.

Mark Wadsworth said...

P, Robin Smith or Robin Grey? Or some other Robin?

B, yes, because we started off with Land Tax, that was just normal, that pre-dates land "ownership" and the landowners have been trying to wheedle their way out of it since Magna Carta, there's only so fast they can go at fucking over the little guys and re-writing history.

Physiocrat said...

The rental value of my flat in Hove has stayed at around £900 a month for the past ten years. Not much rapid change there. Shop rents rose and then fell back, probably because of over-optmistic tenants willing to pay over the odds and then regretting it especially if they went bust. Starbucks is a case in point. Central London is of course an exception.