Friday 17 January 2020

Killer Arguments Against LVT, Not (478)

KLN: "Valuations and collection will be a very complicated."

Well, firstly, no they won't. We can get 90% of the way to Land Value Tax by tweaking Council Tax (and Business Rates) valuations to reflect relative values and use the existing collection mechanism, which will be easier because owners will be primarily liable, not occupants/tenants.

And complicated compared to what, exactly?

LVT would be a good replacement tax for Council TaxCapital Gains Tax, Stamp Duty Land Tax and Inheritance Tax, just to get the ball rolling.

If you want to see "complicated", click the above links to the relevant legislation. Council Tax (Local Government Finance Act 1992) is a model of clarity and brevity compared the other three acts.

Council Tax raises more revenue than the other three taxes combined with about one-tenth as much legislation and practically zero compliance costs. And it's not just legislation. Those three minor taxes require endless further guidance and an intrusive bureaucracy - and generate high fees for lawyers and accountants.

There are whole books written on these three taxes - how many books are there on Council Tax? Pretty much none. Your land and buildings are assessed and you just pay it. Don't want to pay so much? Then move somewhere cheaper.

And a proper Land Value Tax Act would be a about half the length of already brief Council Tax and Business Rates legislation put together. Instead of all the discounts and exemptions, there'd only be the roll-up option for pensioners. And I suppose a clause to say that local councils can introduce as many discounts and exemptions they like, provided they bear the full cost (either by spending less or imposing a precept on "everybody else").
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(Stamp Duty on share sales is another dreadful tax, but it would seem appropriate to make up the shortfall from scrapping it by increasing the corporation tax rate so that costs and benefits cancel out).

11 comments:

benj said...

100% of land's rental value collected 100% of the time is an ideal, not a practical possibility. But so is justice correctly administered 100% of the time. In both cases, for the same reasons, we should strive to get as close to that ideal as it practically possible.

For sure we'd catch a lot more criminals, and have a better judiciary if we threw a lot more money at the problem. Cost/benefits says no. Same with LVT. Close enough is good enough.

Mark Wadsworth said...

B, thanks.

Bayard said...

(Stamp Duty on share sales is another dreadful tax, but it would seem appropriate to make up the shortfall from scrapping it by increasing the corporation tax rate so that costs and benefits cancel out).

How does this work? Corp tax comes out of the company's profits. Stamp duty on share sales is nearly all paid by speculators, or am I missing something?

Mark Wadsworth said...

B, share prices are a multiple of post-tax profits, and share prices (or the returns to investors) are depressed by stamp duty. If stamp duty is scrapped and corporation tax rates go up accordingly, the two effects will cancel out. Investors will get slightly lower dividends but will save 0.5% when they buy and sell, so they won't care.

Stamp Duty is not "nearly all paid by speculators". The real speculators, the high frequency traders, don't pay Stamp Duty at all, they have the exemption for intermediaries. Their average profit margin per trade are tiny, far less than the 0.5 Stamp Duty.

Physiocrat said...

I suggest the following done together as a package
1) A quick fix for the Council Tax would be to

1a) Change the ratio between band A and top band, currently 1:3.
2b) Introduce one or two additional bands at the top end.
3c) Introduce a national component to equalise the differences between values in different local authority areas.

2) SLDT should be flat rate to reflect the costs to the Land Registry. Unregistered land should become registered on transfer of title.

3) IHT - scrap.

Mark Wadsworth said...

Ph, nope. On a local level, the banding system is fine, it is Band D tax that should be variable across the country.

http://kaalvtn.blogspot.com/p/valuations-and-potential-lvt-receipts.html#4

Physiocrat said...

Can you explain the arithmetic of that?

Lola said...

I do not agree with increasing CT (or IT for that matter). Why not remove CT and IT and increase LVT by a bit?

Mark Wadsworth said...

Ph. The arithmetic is simple.

1.A homes banded by size into bands a to h, instead of being banded by 1991 value.

2. At present, band d tax varies from area to area depending on council's other finding sources.

In future, band d tax will vary from area to area depending on site premium of a band d home in each area.

Physiocrat said...

OK, what is the relationship between payments in each band in each area? What about the difference between values in Westminster and West Hartlepool? Where does WH get its money from, given that so much of council expenses is relatively independent of where they are?

Mark Wadsworth said...

Ph, read my explanation. I have thought about and addressed all this!

Q: "what is the relationship between payments in each band in each area? What about the difference between values in Westminster and West Hartlepool?"

A: "in the very cheapest areas, Band D tax (typical three-bed semi) will be £900 a year; Band A tax (studio flat) £450; and Band H tax for very large detached homes/plots £1,800.
- in median areas, Band D will be £6,000; Band A tax £3,000; Band H tax £12,000.
- in top decile areas (mainly London), Band D tax will be £14,000; Band A tax £7,000; and Band H tax £28,000."

(Westminster is in the two or three most valuable of all, so the tax would be even more than that)

Q: "Where does WH get its money from, given that so much of council expenses is relatively independent of where they are?"

A: "This amount [LVT collected nationally] will be pooled and redistributed to local councils on a per capita basis (plus/minus a myriad of adjustments for other economic and political factors of no relevance here)."