Sunday, 4 December 2016

Killer Arguments Against LVT, Not (407)

I saw this one on Richard Murphy's blog a couple of months ago but forgot to save the link.

It goes something like this:

1. If you look at the total assets of the poorer half of the population (or possibly the bottom three-quarters), as like as not it is nearly all land. If people possibly can, they prefer to own that rent (it being cheaper in the long run and just nicer all round) and will devote most of their spare income to paying off the mortgage.

2. If you look at the total assets of the richer half of the population (or possible the top quarter), while they own a lot of land by value, they own a disproportionate share of other forms of wealth, primarily pensions, shares and cash (there isn't much else).

It would appear that these two facts are broadly correct. Maybe the bottom three-quarters own half of all land/housing by value, but only a quarter of all pensions, shares and cash.

3. His conclusion was therefore, if you impose LVT it will 'hurt' poorer households more than wealthier ones in relative terms. Therefore it is better to have a general wealth tax which catches pensions, shares and cash as well as land/housing.

The fundamental mistake here is confusing cause and effect. Wealthy people don't own lots of land because they are wealthy; they are (in most cases) wealthy because they own land, whether they had the good fortune to buy more than 15 years ago when housing was still sensibly priced, or inherited it or whatever. The picture is even clearer if you deduct mortgage debts; there are lots of higher earners who 'own' an expensive house but their net equity is relatively low.

To give a simple example: a landowner collects rent from all his tenants and lives in a magnificent castle full of paintings and golden artefacts, his tenants own no land whatsoever and precious little else. He owns the castle etc because he owned land to start with. If we were to redistribute his paintings and golden artefacts (via a wealth tax and citizen's dividend), he would simply bump up the rent to what his tenants can now afford to pay and the status quo ante is quickly re-established.

Conversely, if we predistribute the land (via a land value tax and a citizen's dividend), this leads to much greater equality and economic efficiency much more quickly. The landowner no longer has the surplus to spend on maintaining his castle and acquiring more paintings and golden artefacts. If he bumps up the rent to try and claw back the citizen's dividend then by definition, the rental value and hence his LVT bill increases and cancels it out.

Similarly, it is unfair to simply look at how much a household has in pensions, shares and cash, you have to look at how they acquired them. The largest chunk of these are accumulated out of the surplus income of higher earners, and a lot of higher earners have earned their money fair and square. There are also a lot of higher earners who have rigged the system (senior bureaucrats, quangocrats, executives at quoted companies and various rent seekers), but the problem here is allowing them to gouge that extra income in the first place, not what they do with it afterwards. So sort out the gouging first and if you are still worried about income disparity after that (which I am not) regardless of whether it is earned fair and square or gouged, you can fix that through income tax.

Finally, I ought to point out that land/housing/commercial premises - total about £7.5 trillion - dwarfs the value of other assets such as the entire market capitalisation of the FTSE100 and FTSE250; the total value of UK government bonds; or cash in UK banks, each of which is about £1.5 trillion.


Bayard said...

A similar argument to that of the SNP and the like about Scotland being full of "Britain's largest landowners", while conveniently ignoring the point that they are the largest by area, not by value, owning thousands of acres of practically worthless moorland.

Mark Wadsworth said...

B, yes, that one annoys me greatly. It's called land VALUE tax. One acre of Mayfair is worth as much as all the grouse moors in Scotland.

Ben Jamin' said...

A LVT is merely the way by which we equally share the value derived from scarce resources, supplied free by nature/god.

It is therefore a good thing in and of itself, from an egalitarian POV or an efficiency POV.

This is not contingent on raising or lowering other taxes. That we may want to do so is an entirely separate issue, and has nothing to do with the merits of the LVT.

Fake-Libertarians and fake-Egalitarians want to conflate LVT with other taxes in order to muddy the water.

"If you tax land, you might as well tax Rembrandts" or " If you only tax land, the wealthy will invest in different assets instead"

Well yes, so what? Neither of the above, even if true, has anything whatsoever to do with the morals or merits of a LVT.

Richard Murphy is a typical control freak, fake-Egalitarian. What he doesn't like about LVT is that it does reconcile fairness with efficiency, making redistribution of earned income/capital, by people like him, redundant.

He is also lazy. Without any other changes to our tax benefits system, the distributive effects of the LVT are easy to calculate and clearly benefit the poorest.

mombers said...

Also glosses over the fact that most people under 45 have no land whatsoever, and many of them probably have very little prospect of acquiring any in the future.
On a related note, is a home counted as owner occupied if say 2 adult children share it with their parents?

Steven_L said...

In other words the stats show that people who saved more in a pension have more assets than people who didn't?

Mark Wadsworth said...

BJ exactly

M I would say no. Living with parents does not make you an owner occupier

SL, you could say that :-)

Mike W said...

'Living with parents does not make you an owner occupier':

No it means you are able to 'Blackmail' your landlord into a very low rent if you are able to.

In my case at 17, my father jumped up and demanded 25% of my first job, net income for rent. Unforunately for me, none of the other 'lanlords' (relatives) fancied undercutting him!

It certainly made me shift my arse into gear, and get into university and enjoy greater disposable income.

Bayard said...

Mike W, luckily, my parents took a more reasonable view, which was that since they weren't going anywhere and weren't proposing to take in a lodger, my room would only stand empty if I wasn't occupying it, so all I had to pay was enough to cover the extra expense of having me in the house and feeding me.