Sunday 1 May 2016

Killer Arguments Against LVT, Not (393)

Spotted by Ben Jamin' at Doug Bamford's blog:

In a blog earlier this week I explained how changes to the tax regime can create windfalls or immediate costs to owners of the types of property affected by the change. For example, a tax on housing will hit the owners of housing at the time the tax is announced as their asset will immediately drop in value in line with the newly increased tax.

I’m sure those of you who have read my previous post explaining the LVT can all work out where I am going with this. If an LVT is introduced it will reduce the expected income on rented land; more of the rental income than expected will be lost to the tax. Similarly, for people who own and use land their cost for continuing to use the land will immediately rise.

Buyers will not be willing to pay as much as they will now expect to pay the tax in order to enjoy the use or investment income from the land. These future owners will not pay anything as the result of the introduction of the tax, nor will the past owners who sold up before the announcement.

Seems like a fair summary, whether existing landowners are "hit" or not all depends on which other taxes are reduced; with a sensible tax shift, most would be paying less tax overall.

But here comes yet another variation on The Poor Widow Bogey (Fred, in this example):

Anna, Bernie, Celine and Daryl all receive a significant inheritance (in an unjust society where inheritances are entirely untaxed), while Enid and Fred are diligent savers investing for their impending retirement. Anna and Bernie inherit a large amount of land while Celine and Daryl inherit money. Bernie sells his land to Fred and invests in other things, while Daryl decides to purchase land with his inheritance. Enid, meanwhile, invests in the stock market. Then the government suddenly announced an impure LVT.

Anna, Daryl and Fred face an immediate loss in the value of their investment. Meanwhile Bernie, Celine and Enid are entirely unaffected. This imposes a wealth tax on those who are unlucky enough to have chosen to invest in a particular kind of investment. Some of those taxed were economically fortunate, but Fred was not. Furthermore, some of the most fortunate people are unaffected, even if their good fortune arrived in the shape of gifted land. The introduction of the impure LVT is like a game of musical chairs, whereby those left holding the land at the time in question lose out.

So he is suggesting that we should perpetuate the iniquities of the tax system (taxing earnings and output instead of land values) merely for the benefit of our hypothetical Fred and at the expense of all future generations. In his highly artificial example, Fred's loss is Bernie's gain, therefore, he says, it would be better to impose a general wealth tax (gah!).


Bayard said...

"Assume a can opener"

Mark Wadsworth said...

B ?

Bayard said...

It's the punchline of the joke that begins "An engineer, a mathematician and an economist are shipwrecked on a desert island..."

Economists tend to try and prove their points by imagining very unlikely scenarios.

Mark Wadsworth said...

B, ah, thought so, just making sure.

benj said...

What Doug Bamford is trying to do is morally justify a tax on peoples income/capital. Geo-Libs say this is unnecessary and immoral. So what Dr Bamford must do in order to protect his belief system is come up with all sorts of strawman arguments he can beat up.

The Socialist position that Dr Bamford is defending is, that as Society creates value, it is morally entitled to a share of income/capital of the people who live in that society.

Sounds reasonable, and is something that 99.999% of people from across the political spectrum buy into. ie "Tax, who likes it, but's it's a necessary evil".

But this is bullshit. While Society does exist, and society does have value, to say that society "creates value" is as nonsensical as saying "the Sun creates value" or "iron ore under the ground creates value".

Land does not create value. It is the exploitation of natural resources by living things that creates things of value from it.

Humans, live in societies, so that we can better exploit agglomeration effects, just as do parts of cells, cell confederations, plants, fungi and other animals. We all do so because enlarging networks creates economies of scale that allows us to evolve into new niches.

In other words, it is agglomeration effects that gives us aggregate demand. When people tap into this demand producing income and capital, it is private property because that demand has been met by supplying human effort. But it is only "aggregate demand", for a scarce natural resource, that generates an income/selling price from it. Not anything supplied human effort.

Only the creation of value and its provenance confers property rights. Thus humans cannot claim sole rights to the value derived from natural resources, and "Society" cannot claim a share of private income or capital.

mombers said...

I wonder what this clown has to say about the reduction in value of businesses and careers due to increases in VAT, NI, income tax, business rates on buildings, etc? Although I suppose ATCOR means these also fall on landowners...

dougbamford said...

For the record I am fully in favour of taxing unearned income - I just count income from non-land sources in that (like pretty much every single economist or political thinker). And I think it is better to tax earned income at a lower rate, I just include economic rents earned on talents and holding economically powerful positions (such as the number 10 shirt for Manchester United) as unearned income.

Anyway, as I'm a political philosopher what we do is come up with hypothetical examples to test theories.

I'm happy for left-libertarians to bite that bullet and say that land is stolen and so it is fine to (effectively) take it from their owners without compensation on the basis that it is stolen goods.

It seems unethical to me to want to take the wealth held by the person who happens to hold the land at a particular point in time rather than want to take it from people who have had an unearned benefit from the land. Again, you can bite that bullet if you want.

However, I'm on perfectly reasonable ground in completely disagreeing that there is anything morally or economically special about land. That is a deeper disagreement than the argument I put forward in the blog in question.

My reason for not supporting an LVT (except where it is built into a wider tax scheme on unearned rental income) is that I'm not at all convinced by left-libertarianism.

Mark Wadsworth said...

DB ,we are only "left libertarian" in the sense that we are not mainstream "libertarians" who worship landowners and other monopolists.

Land is not "special", it is not a special category of wealth, it is something else completely. it is land. Like fresh air is not a capital good or wealth, it is fresh air.

it is fine to (effectively) take it from their owners without compensation on the basis that it is stolen goods.

But that is the whole point! There is compensation - taxes on earnings and output (bad taxes) should be reduced in equal measure. Most 'landowners' will end up paying less in tax.

"My reason for not supporting an LVT (except where it is built into a wider tax scheme on unearned rental income)"

Clearly, there are other examples of unearned rental income - monopoly positions, patent and IP rights, the Man U number 10 shirt, govt guarantees for banks, radio spectrum, taxi driver licences etc, and the same logic applies to them.

If a monopoly can't be busted by deregulating or capping one player's market share, then they can be dealt with by taxing, price caps or nationalisation, depending on the circumstances (i.e. the Manu No 10 player's salary is none of the government's business). It is just that of all such unearned rental income, land rents are about three-quarters so we focus on that one.