Friday 5 June 2015

Killer Arguments Against LVT, Not (361)

Two traditional KLNs can be dealt with in one fell swoop:

1. "If you tax something, you get less of it."

2. "Weak form LVT, i.e. rent/price controls, means that the quality and quantity of housing for rent or sale goes down."


1. This is clearly true if we are taxing things with elastic supply (labour, capital, enterprise) but clearly the amount of physical land is entirely unchanged by a tax on it, and whether you like it or not, the UK has more than enough physical surface area for its population.

LVT is of course primarily a tax on urban land, which makes up 10% of the surface area but 99% of the total value, where the value of land depends on the efforts of the whole community (private sector, public sector, everybody).

2. Yes, this is also true, but let's imagine the 'government' as a corporation in its own right, owned equally by all citizens, which is in the business of providing 'public goods' for the benefit of all its citizens.

Those public goods push up the value of land (or enable the private sector to do so), so if you cap the amount of money the government can collect from land values, this reduces the quality and quantity of 'public goods' available. Imagine the whole country as a hotel, the hotel owner makes a profit by making his place as nice as possible and charging room rates accordingly - so taxes on land values are the natural source of income for 'the government'. If the hotel owner is not allowed to charge more than £10 a night, what sort of quality accommodation are you going to get?

For sure, 'public goods' can be paid for out of taxes on earnings and capital, but this is a second best solution for obvious reasons (depresses overall wealth and ends up transferring wealth from providers of labour and capital to land owners).

So we can merge the two statements into one longer statement, which ends up being an argument for LVT and against taxation of earnings, capital etc.

10 comments:

mombers said...

"If you tax something, you get less of it."
So why exactly are we taxing labour, turnover and profits?????

Random said...

1. "If you tax something, you get less of it."
The land must have disappeared somewhere :o. In reality, land value tax due to its effects on vacant building will "increase" the amount of land (for use.)

Mark Wadsworth said...

M, exactly

R, good one!

Mark Wadsworth said...

M, exactly

R, good one!

Bayard said...

"If you tax something, you get less of it."

You have to remember that the Homeys make a distinction between "land", i.e agricultural land, and "building land", which is an artificial distinction caused by planning laws. So, since 99% of the tax would be borne by building land, you'd get less land being changed from agricultural to building. However, that isn't true anyway, given that LVT would not remove the windfall gain to be made by getting permission to build, only reduce it, so the incentive would still be there. Sure it would do away with landbanking, but who cares about that, apart for the speculators?

Mark Wadsworth said...

B LVT does not reduce the windfall gain by one penny, it merely affects the public-private split. So the council's incentive to grant change of use goes up by more than private incentive to apply for change goes down

James Higham said...

Well, we'd best get this LVT going quickly then.

Mark Wadsworth said...

JH, yes, but you know what we are up against.

Bayard said...

Mark, fair enough, I should have said windfall gain to the landowner.

Mark Wadsworth said...

B, don't worry, I was just being pedantic.

But there is a trade off - if councils have no incentive to grant planning then they won't, even though owners of undeveloped land will be crying out for it. The way to get the optimum amount of development (which might be 'lots' or it might be 'none') is to balance things between the two parties.

Silly analogy - if two people go into partnership and one is entitled to most of the profits and the other to very little, then the first partner will bust a gut but the second partner won't try very hard and profits fall by nearly half. If they share profits equally, then the two of them taken together put in much more effort.