Tuesday, 18 November 2014

Killer Arguments Against LVT, Not (349)

From Conservative Home.

First the author agrees with this from a pro-LVT article in The Economist:

All that changes is the price, which falls until it exactly offsets the discounted cost of paying the tax forever.

Correct, LVT is a one-off thing and does not affect people in the future. It's the opposite of deficit spending.

Then we get this:

However... a fundamental objection still remains. A land value tax, however modified, applies to the whole value of the land not just the capital gain – and therefore amounts to the gradual confiscation of an asset purchased out of taxed income.

(On the facts, most land was not "bought out of taxed income" anyway; anybody who bought more than fifteen or twenty years ago effectively got the land for free. And if anything, that is an argument against income tax, not against LVT)

But he's now completely contradicated his first correct statement: the LVT is borne entirely by current owners in terms of lower future selling prices. (And most of those owners would benefit from an equal and opposite reduction in other taxes. The sooner we do the tax shift the more people will benefit i.e. if they move to LVT when you are 20 years old you benefit much more than if the move to LVT when you are 40. So why bugger about for another 20 years?.)

To keep it simple, let us assume 100% LVT, so land would be bought and sold for plus/minus nothing (i.e. land and buildings would be sold for the value of the buildings).

If land has no value then that value cannot be confiscated. The future LVT payments do not affect the future purchaser; instead of handing over the capitalised value of the future rent in one big chunk to the vendor, he pays much smaller amounts every year to the government.


DBC Reed said...

Actually the Land Value Appreciation (better Inflation)Tax is a perfectly reasonable idea and is what JS Mill and his dad were proposing all those years ago (and Martin Wolf is proposing now). Georgists who want to make present landowners repay all the land value inflation since the beginning of time ,although they have paid for this inflation up front when buying the place, are barking up the wrong tree here and actually impeding the progress towards LVT (as well as perpetuating the economic nightmare).

Ben Jamin' said...


Slave owners said exactly the same thing. Legal property "paid" for out of earned income etc, etc.

They may have bought their slaves, but they didn't "pay" their slaves just compensation.

Freeholders buy the right to a perpetual freelunch. They haven't "paid" just compensation for anything.

We are not asking they to repay anything. We are only asking them to start paying just compensation.

Just like we asked slave owners to do.

Mark Wadsworth said...

DBC, your idea is far better than nothing, of course, but you are making the Homey assumption that selling prices are what counts, i.e. the tax should be future selling prices minus current selling prices.

Nope, proper LVT is on rental values.

Now, these PWIMs who bought their home for £10,000 decades ago and it's now worth £2,000,000-plus.

Clearly, they have paid £10,000 towards the current value (plus inflation = £40,000?).

But how much of today's rental value did they pay for decades ago?

DBC Reed said...

Not so much current price minus original purchase price but how much the price has increased over the tax year (and the government has chucked cheap money at the economy having followed Martin Wolf's injunction to "Strip banks of the power to create money" and regained the right to create money itself).In these circumstances a Land Value Inflation Tax would appear unremarkable and prudent back-up.
I always reach for my water pistol
when the Georgist war cries "proper LVT " and "rental values" are sounded.
The idea with the Land Value Inflation Tax is that it should be self-assessed (so people will "prudently" estimate their property value hasn't gone up at all bringing stasis).You are never going to make people understand the rental value of freehold property: they don't understand that ramping up property values is a bad thing. Look at the Rochester bye-election: bringing down property values is the worst thing a political party can do.When what Stacy Herbert has taken to calling the numpties keep voting for anything that cuts their incomes (wages and benefits)as long as house prices go up, they are going to smell a rat and fight against any self-assessment of rental values.House prices they understand and think of nothing else.

Mark Wadsworth said...

DBC, yes, point taken that people understand selling prices but not rental values.

So under your plan, the tax is only payable if prices go up? What if prices stay flat? What if prices go down?