Friday, 7 August 2015

Killer Arguments Against LVT, Not (366)

From The Scotsman:

That the council tax system badly needs to be overhauled or even replaced is not in doubt... The most progressive option is probably land value tax, where the rate is based on the market value of the land alone.

Along comes a Home-Owner-Ist in the comments with a tried and tested variant of the Poor Widow Bogey:

Rubbish - how on earth is it "progressive" to residents on the legacy value of land. What's progressive about taxing the poor as a punishment for living on a high value inner city site that they can't cash in?

1. They can cash it in. They can sell up. An unearned, windfall gain is an unearned, windfall gain, whether it accrues to a pauper or a millionaire.

2. LVT is a tax on consumption, a user charge, a charge for services rendered by society. You might as well argue that taxes on fags or booze are regressive because poor drinkers and smokers pay more as a percentage of their income than wealthy drinkers and smokers. Which is quite true, they do, but those taxes are - in political terms - sin taxes and so acceptable.

So if 'poor' people want to occupy valuable land, then why shouldn't they pay the same as people who can afford it, the same as poor smokers paying the same duty on their booze as wealthy drinkers?

3. Most 'poor' people don't own valuable land. The richest ten per cent own about half of all land (in Scotland at least) and the bottom fifty per cent own no land whatsoever (i.e. tenants and people whose mortgage debts exceed the selling value of the land under their homes). Most valuable land is owned by people who could easily afford the LVT. That there will be some collateral damage is inevitable.

4. It is difficult arguing with this people who insist that LVT would be regressive. They never say quite what they mean by that. Regressive to incomes? To house prices? To what? And even if LVT in itself were slightly regressive, it wouldn't be as regressive as a Poll Tax (which many Homeys think is a splendid tax) or Council Tax; and the top ten per cent would end up paying close to half of it.

5. Ignoring changes in behaviour, just about ALL taxes apart from Poll Taxes and sin taxes reduce overall inequality by levelling people at the top downwards; and if the money is spent equitably, this levels people at the bottom up. Bugger the clever maths and statistics bit (which is completely above the Homeys heads anyway), less inequality must be "progressive" in the political sense.

6. However, because of changes in behaviour i.e. Laffer effects, some taxes increase inequality. Clearly, the unemployed and low earners don't pay much in VAT and National Insurance but many of them are ONLY unemployed because of those two taxes choking the economy and reducing employment.

7. Land ownership is very concentrated, much more so than incomes. So taxing land reduces inequality much more than taxing incomes, and unlike taxes on income/output (like VAT and NIC), LVT doesn't then choke off the economy and create unemployment.

8. LVT is not a standalone thing. The receipts could be used to fund higher welfare payments (i.e. levelling everybody up with a Citizen's Income) or to reduce regressive/damaging taxes - both of which reduce inequality even further.

Therefore, taxing land values is "progressive" in the political sense and "progressive" in the sense that it leads to "economic progress".

How the fuck anybody can object to LVT on the basis it is "regressive" is a mystery to me.


Kj said...

A tax is regressive, per tax incidence theory, if it affects prices more for a low income person than it does a high income person. Since LVT does not affect rents, it's neither regressive or progressive, it's strictly not a tax at all in this perspective, whether poor households pay more as a percentage of their income in land rents than a rich person or not (it might happen).

But let's not pretend that the Homey cares about tax incidence, point this out and they will immediately jump on to killer argument #xxx.

Kj said...

Now, a true Homey does not care about the arguments anyway. But it might be that a true leftie is concerned by this argument. The traditional view among the inequality obsessed is that rich people should pay as much of their income as possible, and LVT will not fit the bill unless you look at the underlying tendency of rents to create inequality in the first place.

Lola said...

KJ Nice points

Mark Wadsworth said...

Kj, excellent points as usual.

"The traditional view among the inequality obsessed is that rich people should pay as much of their income as possible, and LVT will not fit the bill unless you look at the underlying tendency of rents to create inequality in the first place."


The point is that there are two kinds of "rich people" those who earn their money fair and square and the vast majority of "rich people" who just collect rent.

Obviously landlords and bankers are top of the list of rent collectors, but then there are senior civil servants (and BBC people and so on) who can decide their own salaries and a lot of people (me included and one day you!) who only earn a good living because of barriers to entry and regulations and complexity. And that includes successful drug dealers and stock brokers.

I'm not sure who is still on the short list of "rich people who earn their money fair and square" but there must be some who are not on the naughty list.

Mark Wadsworth said...

Kj, but in all fairness, if we ignore how the income was earned in the first place, the really rich people probably do spend a smaller share of their total income on housing costs.

Point is that most of the income of really rich people is other people's housing costs.

But in a perfect Georgist world, it doesn't matter that the LVT relative to earned income is regressive because

1. The Citizen's Dividend/personal allowance cancels it out.

2. The top One Per Cent would earn a lot less than now and

3. The bottom fifty per cent would earn a lot more than now.

So more wealth overall and more equality. What's not to like?

Bayard said...

"They can cash it in. They can sell up."

Cue much wailing about "having to leave the family home" etc ad nauseam. However, I am sure there are lots of companies that would be quite happy to buy you valuable inner-city home and lease it back to you, enabling you to cash in without moving, or having to pay any LVT.

Mark Wadsworth said...

B, no need for that, you just need to "defer and roll up until sale" option. Or, as Kj suggested, hand it over to the council for £nil in return for a lifetime right to occupy for £nil.

Kj said...

MW: yes, VAT and all the (other) assorted taxes on income, stops the people who might be "fair" candidates for getting richer, rent privatisation makes sure mostly the lucky ones get rich, and old money stays rich. Lefties are haplessly trying to make sure existing rich people pay through the nose, but they are not particulary concerned about how this wealth occurs, whether some of it is unjust or not, because they see "unfair" accumulation of wealth as an inevitable outcome of capitalism anyway.
Let's pretend I had the energy to take on another job on weekends for a couple of years to pay down debts and get "richer". I would be severely punished, I'd jump into a tax bracket which would not make the job that I previously found was decent paying worth it, I'd loose interest deductions, which would worsen that situation, and for every NOK in reduction in debt, I move closer to the treshold for our wealth tax. If I'd be as stupid as to invest in something productive, I'm told by wealth tax laws that I'm doing society such a disfavour that I deserve a higher assessment than if I would just invest in "real estate" like normal people. Just about the only way to get ahead is debt fuelled speculation, or hitting some pure luck jackpot, which is infuriating actually.

Bayard said...

Mark, I was thinking more about releasing cash, but otherwise, agreed.

Mark Wadsworth said...

Kj, it is all very depressing.

B, I know, it is called "equity release" and it is a way for wide boys to rob pensioners. Not good. Roll up and defer option much better at least it can be low interest rate.