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].