Monday, 10 June 2019

Killer Arguments Against LVT, Not (460)

Sobers trotted out the time honoured classic: "Many people wouldn't be able to afford to buy their own homes at today's prices". The conclusion is, they wouldn't be able to afford to pay an annual tax on the value thereof either.

The factual statement is quite true - and a sign that something is very, very wrong - but the conclusion does not follow from the fact, and both are completely and totally irrelevant to the topic in hand.

1. It's only since Georgism Lite was abandoned (although the Tories are reintroducing some minor elements of Georgism Lite, on the basis that more owner-occupiers = more potential Tory voters) that we've had this bizarre state of affairs, that people who bought more than X years ago wouldn't be able to buy today. Once LVT is in place and bedded in, most people will be able to afford to buy their own homes, by definition.

2. The argument is trotted out whether you propose full-on LVT and massive cuts in taxes on earnings and output, or just a really modest LVT that merely replaces Council Tax and SDLT. Numbers and maths are not the Homeys' strong points.

3. LVT is not based on selling prices, but on rental values. Even a full-on LVT, by definition, would be a certain proportion of the (full) rental value, anywhere between 0% in the really low value areas and about 80% in the poshest bits of super-expensive areas. For most people, that extra tax will be less than all the other taxes they will no longer be paying (again, by definition). For some it won't. Tough.

4. Mysteriously, tenants can afford to rent, but most could not afford to buy the home they are renting, or one similar to it (or else they would not be renting in most cases). So in the topsy-turvy Home-Owner-Ist non-logic, if you can't afford to buy the home you live in, you can't afford to rent it either, or even pay a fraction of the rent. But clearly tenants can. Hmmm.

5. The Homey view is that tenants can afford to rent, and are expected to pay a load of extra tax to subsidise owner-occupiers and landlords.

6. What does 'afford' even mean? As long as a household has enough left over for the basics, it can afford it. After paying rent/LVT, anybody with more than £10,000 or so a year to spend on everything else can survive at least. You want nicer stuff? Work longer hours or get a better job. Many tenants don't have much money left over after paying rent (partly because of the extra taxes they are paying) and get zero sympathies from the Homeys.
The KLN then segues nicely into another classic: "Low income people will be 'forced' to live in slums and high income people will get all the nice houses." How is that any different to the situation without LVT?

In any event, under LVT, there would be far fewer slums; whether something is a slum or not depends largely on how many people in the area are working and how much they earn. Fewer unemployed and higher wages => fewer slums.

Overall, it would still be a huge win for low income people (and high income people), because that big slice of GDP that disappears into land values (landlords, banks and down-sizers) for nothing in return stays in the pockets of aforementioned low and high income people.

Georgists do not take sides between low and high earners any more than between employees and employers, that's a largely false dichotomy invented by Communists and Homeys alike to distract from the real issues.


ThomasBHall said...

But I paid for my tax out of taxed income- and we all know the top of the property ladder is a land where your house earns more than you and you can sit back- go on the odd cruise, downsize your job etc. LVT completely tears up that key British social contract, and so is clearly immoral and would result in the end of any sort of personal liberty from the state.

Mark Wadsworth said...

TBH, such people are totally dependent on the state. The state supports their land values and life styles via public services paid for out of taxes on labour and enterprise.

benj said...

I thought LVT would lead all the wealth creators to either flee the country or move to not so nice locations in order to avoid the tax (aka the Mark Field MP doublethink)

Mark Wadsworth said...

B, there's a real life example of that. The Swiss lump sum tax is about 5% of what your house is worth. Pay that and you are exempt from income tax. That's why Michael Schumacher moved there.

Bayard said...

The other stupidity about this KLN is that the people who can't afford to buy their own house are generally not living in their first house. They paid for that house by selling their previous house, which they paid for by selling the house that they owned before that etc etc.

Blissex2 said...

«on the basis that more owner-occupiers = more potential Tory voters)»

That's a very common myth, but it is not being owner-occupier that turns people into tory (Conservative, New Labour) voters: it is the guarantee to double their money in 7-10 years, "forever". Very few people actually care about owning their home, as such, if the land value does not balloon. In places where land is relatively and constantly cheap compared to the cost of the building, many people don't care to own, because the building, like a car, is a depreciating asset.
What people want is big fast no-work no-tax capital gains, not ownership of the dwelling they occupy.

This is easily demonstrated by the story of the Right-To-Buy discount: Gordon Brown cut the maximum discount to "just" 10-20% and Right-to-Buy sales practically stopped, then in 2010 one of the first things that George Osborne did was to put it up to 70%, and Right-To-Buy sales boomed.

Mark Wadsworth said...

B, true, but too subtle.

B2, whether it is a myth or not is irrelevant. Firstly it is true, and secondly, even if false, the Tory party believes it and has acted accordingly.