Thursday, 7 August 2014

Killer Arguments Against LVT, Not (333)

From, interspersed with some drivel about people in rural areas being taxed out of existence:

Taxing only land would increase the cost of owning land, discouraging those with low incomes from purchasing land. Thus fewer people would be landowners...

Wealthy people and corporations tend to hold their wealth in assets other than land nowadays. Shifting the tax burden to land would only dissuade them more from holding land, thus the tax would not be progressive, but simply tax those that needed a lot of land to operate their business, such as farms.

Dude WTF? Both 'poor' and 'wealthy' people would own less land? Do these people even think about what they write?

All of this ably rebutted by Derek:

Sounds good in theory but in practice you will find that places with higher land taxes tend to have higher percentages of landowners because land taxes tend to lower the purchase price of land. Thus people don't need such large mortgages to buy it. They also find that the increased taxes are balanced by lower interest payments on those mortgages. So the ongoing cost is no different. Cheaper land encourages those with lower incomes to purchase. Thus more people would be landowners...

And if the rich are dissuaded from owning land that means that there is more for the poor to buy. After all someone must own it.

As it happens the value of the land that a person [occupies] is pretty closely related to how rich they are, so the Land Value Tax is more progressive than many people think. However it is also a voluntary tax in that nobody forces anyone to buy land. People can always rent land instead and pay no taxes. But they still choose to buy.

Why? Because ownership of land is a status symbol. Just as a billionaire buys a Bentley to show off when a Toyota would meet their travel needs more cost effectively, so they will buy expensive houses with huge estates and pay the taxes even though they could save a fortune by moving into an apartment in Nowheresville. It's a matter of prestige. They can afford to and you can't.

Clearly, Derek's point about conspicuous consumption is correct.

But the point is that really rich people don't own land because they are rich; they are rich because they own land/collect rents.

It is easily explained and easily observable that if land is heavily subsidised and lightly taxed, ownership will tend to become more and more concentrated in fewer and fewer hands over time.

Whoever starts with the most land (measured by rental value), even if that is only slightly more than what everybody else has got, can get richer and the expense of those who have less or no land (i.e. tenants). So it is then easier for him to buy more land than it is for tenants, who have little in the way of savings as they are paying it all in rent. That's the whole point of the game of Monopoly (invented by a Georgist to illustrate the point).

So reducing the subsidies and increasing the taxes on land leads to wider and more equal ownership. Nobody wants to own/occupy more than he actually needs (and the need to show off is a real human need), just like any other consumer good.

(LVT is not the only way of having a wider spread of ownership. Between 1945 and the 1980s, rent controls and savage taxation meant it was barely worthwhile being a private landlord any more so most of them sold up; mortgage restrictions meant they didn't get much of a windfall gain when they sold up.

This is what led to the rapid fall in landlord-owned homes/rise in owner-occupation levels during that period. Scrapping the controls and restrictions has led to an equally rapid increase in landlord-owned homes/decline in owner-occupation levels over the past 15 years.)


Lola said...

It was right to scrap the rent controls and other restrictions and 'savage' taxation (not sure what that means). But wrong not to compete the job on the other side of the equation and introduce LVT.

Mark Wadsworth said...

L, savage as in the rates were higher for rental income than employment, or at least that's what I once read, this might not have applied throughout the whole 40 year period. But rent caps and taxes on rent are similar things.

And of course LVT would have done a better job, but rent caps/mortgage restrictions were doing a pretty good job at encouraging a huge rise in owner-occupation rates and keeping prices down.