Sunday, 1 April 2018

Killer Arguments FOR LVT, Not

On a post on the Facebook LVT group, one Simon McKenna made the following comment:

"..the private collection of rent is not only economically imprudent because it periodically destroys the economy, it is wrong!"

Leaving aside the periodic destruction of the economy, I don't think that it is a valid argument for LVT that it will be an instrument of social justice. This idea has quite some traction, especially amongst the ranks of the class warriors and ties into the populist landlord-bashing cause of enduring appeal.

However, there are flaws:

1. Ricardo's Law of Rent indicates that the raising of tenants' incomes caused by the lifting of other taxes on economic activity will enable landlords to raise rents to compensate for the LVT they have to pay, also, as mentioned in previous posts, the increase in economic activity caused by the removal of these taxes will have a similar effect. Although rents will be stripped of their location value, given 100% LVT, the non-location value part of the rent will increase, across the board.

2. This means that, although in places where location value is very high, e.g. in London, the fall in rent receipts will be such a high percentage that it couldn't possibly be matched by a rise in income, given current levels of overall taxation, in areas of very low location value, e.g. Neath, then the fall in rent receipts due to LVT would be almost zero, whereas almost everyone would be saving at least 20% VAT, even if they have no income worth taxing, so landlords would be better off.

3. Since farmland has been deprived of all location value by the Town and Country Planning Acts, it will not be taxed and so farm rents will be unaffected.

So, numerically, the majority of landlords would benefit from a transition to 100% LVT as the sole form of taxation, including some of the richest and most aristocratic. That doesn't look like much of a victory in the class war.

9 comments:

Mark Wadsworth said...

This is a variation on the KLN "landlords will pass on the LVT to their tenants". If it were true, how come the landlord lobby hasn't sussed this and been campaigning for it for centuries, instead of campaigning against it?

1. As long as tenants gain more than their landlords, that's still a win. And how can the 'non location value' increase that rapidly? it can't, it's fixed. Plus, the largest single group is working age owner-occupiers, who will win on both sides.

2. Fair point about London v Neath. But the landlords in Neath's gain will be far less than London landlords' loss.

3. Farmland has such low value that it is barely worth taxing, with or without planning restrictions. I've never said anything else. Any arguments for that are the Monbiot arguments about discouraging over farming of sub-marginal land. What is important here is to get rid of negative LVT, i.e. farm subsidies.

jack ketch said...

What is important here is to get rid of negative LVT, i.e. farm subsidies

Now that would be a Brexit worth the name. But I'm fairly sure yUK.gove has already promised our Great British farmers that they won't lose out ?

Ben Jamin' said...

On average, location makes up around 2/3rds of rent, so under a 100% LVT, 100% of the time, landlords gross incomes will always be 2/3rds less on average than now.

Yes they will save on not having to pay VAT, income tax etc, from their remaining 1/3, but that will be dwarfed by their loss.

Within the group "private landlord", as you say, a small minority in marginal locations, will like their tenants, come out net winners. But bearing in mind, somewhere like London has a far higher % by tenure of private tenants, these cases will be relatively rare.

Bayard said...

Mark, 1, I thought we were agreed that, on average, landlords would effectively be able to pass the LVT on to their tenants, viz your example in the KLN 437 post. Why haven't landlords sussed this out? Dunno, probably because they can only see the downside, are worried about having to pay LVT even when the property is empty and don't know about or don't believe Ricardo.

"And how can the 'non location value' increase that rapidly? it can't, it's fixed."

Well Ricardo says it's not fixed, it depends on the ability of the tenant to pay and with a step change in the ability of the tenant to pay caused by the removal of taxes on their income, there will be a corresponding step change in the potential rent that can be charged.

2. True, financially, but probably not true numerically, i.e by number of landlords gaining/losing out. It's just the same as the "three families own 90% of the land in Scotland" or whatever that statistic is. Yes, by area, but not at all by value, the important factor. People do care about this sort of thing, even though it is statistically misleading.

3. Agreed, too, but I raised the point because agricultural landlords tend to be rich aristos, just the sort of person the class warriors would hope to be losing out under LVT. On the subject of farm subsidies, it has occurred to me the the "Cheap food" policy, which the UK government has pursued since the war and which these subsidies are part, is, in reality, not designed to help the poor, its ostensible purpose, but to help landowners, as food comes ahead of rent in the queue for our resources and what can be saved on food is absorbed by rent.

This post wasn't supposed to be a KLN in disguise, it was supposed to be a warning against trying to justify the right thing with the wrong reasons, a bit like Brexit really.

BJ, Mark covered the "on average" argument in KLN 437. What I am pointing out is that the average is misleading.

Mike W said...

Bayard above,

'Leaving aside the periodic destruction of the economy'

Yes there does seem to be a move among some right wingers to say that 200/8 banking crash is just jolly banking jipes, that in the great scheme of 100 years, it amounts to very little.So don't worry your silly little serf heads about it.

'I don't think that it is a valid argument for LVT that it will be an instrument of social justice.'

Its not a valid tool, assuming you are not a liberal democrat who accepts, among other things, that markets are the mechanism by which wealth is bestowed. That the only point to a Political Economy like Georgism really is to halt the Demos being forced into (1)debt slavery or (2)rent subsistance (see previous discussions as that also amounts to a point BJ was making).

'This idea has quite some traction, especially amongst the ranks of the class warriors and ties into the populist landlord-bashing cause of enduring appeal'

The trouble is that even though we are proposing Henry George rather than Marx in the sense that Marx draws, 'ownership and non-ownership of the 'means of production' from Smith, Ricardo and Mill and creates a 'class war' (that does not end well for anybody). We nevertheless take from Smith and Ricardo and George a similar 'class' understanding (ownership and non ownship of the factor of the production, rent, and fight for an outcome that can be contained in our democtratic structures.

'landlord bashing' I didn't really understand what you meant the first time you invoked it.

If you mean, that some folks would support Georgism (even if it were totally unsound or problematic or ill understood)then I suspect you are correct. You have also, I should warn you, the foundation of a right wing, sociology of knowledge there too: you do not need to know the validity of LVT just the social class (loser, politics of envy,scummy renters etc) to know were its sole sociological appeal lies.

Mark Wadsworth said...

B, on point 1, I think you are misquoting me slightly.

For sure, if we assessed land at current rates, set LVT and reduced other taxes accordingly - without any further increases in assessments or rent controls - landlords would probably break even or not lose too much. But tenants and owner-occupiers who are in work would be significantly ahead, and that's the main thing.

In #437 I was considering the extreme case with LVT only after endless iterations of tax cuts, reassements, LVT increases and so on until it reaches its equilibrium. In that case, instead of getting 24% of a tenant's gross income (and paying a bit of income tax) landlords would get 60% of a tenant's income but pay on most of it in LVT.

Point 2, I agree that the "3% of families own 90% of Scotland" statistic is irrelevant. That only applies by area and not by value. i have never parotted this.

But I take your point about "right thing for wrong reasons". However, it is better to do the right thing for the wrong reasons than to do the wrong thing, for whatever reasons.

Roy Langston said...

Two of Bayard's comments are incorrect. He wrote:
> 1. Ricardo's Law of Rent indicates that the raising of tenants' incomes caused by the lifting of other taxes on economic activity will enable landlords to raise rents to compensate for the LVT they have to pay, also, as mentioned in previous posts, the increase in economic activity caused by the removal of these taxes will have a similar effect. Although rents will be stripped of their location value, given 100% LVT, the non-location value part of the rent will increase, across the board.

It is true that removing unjust taxes in pace with increased location subsidy repayment (LSR) will increase location rents, but the intention is to require repayment of that subsidy as well, so that the land user only pays for government once, and the landowner no longer gets to pocket the value of desirable public services and infrastructure in return for nothing. The improvement (non-location) value portion of the rent will not be affected, as it is based on depreciated construction cost, not location value. If anything, LSR will foster so much building on currently hoarded land that there will be an abundant supply of built space, and thus lower rental prices for it.

> 3. Since farmland has been deprived of all location value by the Town and Country Planning Acts, it will not be taxed and so farm rents will be unaffected.

Farmland has substantial location value despite the planning issue, as its value even quite far from cities shows. It is also owned in much larger amounts than city land. It will be taxed under LSR; but that will not affect its rent much because economic activity and incomes will be less affected than in urban areas.

Mark Wadsworth said...

RL, it took me a second to work out what "location subsidy repayment" means. Genius.

Bayard said...

"The improvement (non-location) value portion of the rent will not be affected, as it is based on depreciated construction cost, not location value."

An increase in income for a given population cannot affect the location of where that population lives, everything else being unchanged. If the location remains unchanged, how can the location value proportion of the rent change? If the location value proportion of the rent does not change and the improvement (non-location) value portion of the rent is, as you assert, unaffected, then a rise in incomes will not produce a rise in rents, contrary to Ricardo's Law.

"Farmland has substantial location value despite the planning issue, as its value even quite far from cities shows."

Au contraire, the value of good farmland in isolated places demonstrates that its value lies in its productive capacity, not in its location.