Tuesday, 18 February 2020

Killer Arguments Against LVT, Not (479)

From the Evening Standard, the usual Homey bleatings re the mooted Mansion Tax:

Former Westminster council leader Nickie Aiken, now a London MP, summed up the mood in a tweet saying it would “hammer families and elderly people who’ve worked hard for years to pay their mortgages”.

The Vulcan, who somehow sees people who are sitting on massive, taxpayer-funded land price gains in the same light as proper risk-taking businessmen (and their long suffering employees), who generate the tax revenues to subsidise those Homeys, weighs in:

Former Cabinet minister John Redwood said that instead of tax rises the Government should be drawing up a list of targeted tax cuts, including stamp duty, to stimulate growth.

Why the emphasis on stamp duty? I've never heard a client moan about it affecting their business, because it quite simply doesn't, it's a minor irritant at worst.

He said: “You cannot tax people into prosperity.."

This is a tried and tested right wing mantra, and as a matter of fact, it is bollocks.

Governments, or organised societies, are there to provide "public goods", which I shall neatly restrict to the sub-set of "stuff that governments do where the benefits (to individual citizens, or the economy, or society as a whole) outweigh the cost".

So the police, education, the road network are public goods. Things like HS2 or Help To Buy Sell are just a massive slush fund for ailing corporates who donate to whichever party is in government, and these are not public goods. Don't get me started on Third World Aid payments or Tobacco Control Officers.

The spending comes first, that's what helps a nation to prosperity (up to a point and bearing in mind diminishing returns to scale). Those things have to be paid for out of taxes (unless you are happy to risk currency collapse).

Taxes don't help a nation to prosperity (to any great extent), none but the most hardened Marxist would argue that. It's the spending that helps the nation to prosperity. Taxes are just the flip side of spending. The key is to collect as much as possible from taxes which don't damage the economy (fuel duty; Land Value Tax; income tax on high incomes, which is a tax on "rent") and as little as possible from those taxes which damage the economy most (VAT; NIC; basic rate income tax; probably SDLT).

The UK, like most Western nations, collects most of its taxes in the worst possible way, so we are running to stand still. Spending on public goods, as defined, above boosts the economy, but it is financed with taxes which hold the economy back and create inequality.

Starting where we are now, with spending on public goods giving diminishing returns, increasing the bad taxes to pay for more of the same is a hiding to nowhere (agreed on that point).

But what if you keep spending constant and shift from bad taxes to good taxes; and the nation prospers as a result?

What if you start with a clean sheet? The government does just the bare bones (defence, law and order and protecting land titles)?

As Hong Kong or Singapore so ably illustrate, if you can collect the surplus that would otherwise go into higher land prices and rents and recycle that into public goods, the economy can boot strap itself from nothing to developed world status within a few decades.

It's a virtuous circle. Spending on/providing the right kind of public goods (that private landowners would never have paid for, having no incentive to do so), increases land values, meaning more tax revenues to spend on more public goods, increasing land values [etc].


Lola said...

Trouble is there is currently no incentive amongst the extractive class to reform. And at the same time they use what they extract is spent on massive amounts of propaganda (which is why the state must never 'provide' 'education'.)

Lola said...

..and there's also this punk Keynesian claptrappery...

Mark Wadsworth said...

L yes, and spending for the sake of spending is madness, or lending for the sake of lending, as the Vulcan seems to be recommending, I mean the bread and butter government stuff.

Lola said...

MW As you have previously pointed out the best form of business financing is from reserved profits. Trouble is (No2) business is so highly taxed this is v difficult. Therefore we borrow. Or to look at it the other way about this borrowing is off balance sheet government borrowing so that we can pay taxes with it.

L fairfax said...

Getting rid of stamp duty and funding it via increased council tax would be good.
After all owning property is what should be taxed - not moving from one place to another.
Sadly I don't think that is what he wants.

benj said...

@MW Nickie Aiken is mine I'm afraid and looks to be picking up where Mark Field left regarding property taxes.

Kind of thinking leave CT as is alone as the local tax. Have a national LVT run in parallel along the lines of you Scottish Submission. That way, bandings, valuations can both be done at the same time.

Sure, in theory, we don't need local taxation. But if we are going to have one along side LVT/UBI, Poll Tax optimal, therefore CT a good second best.

Mark Wadsworth said...

L, agreed. But whatever the tax system, businesses will borrow to expand into new oportunities.

LF, thanks.

BJ, agreed, although one tax is better than two, even if the effect is the same.