On the road again

I'm doing a talk on LVT at a venue near Cardiff at 3.30 on Saturday afternoon:
If you'd like to attend, please send me an email (widget in the sidebar) and I will forward it to the organiser.

They own land! Give them money!

Exhibit One

From ALTER:

Squaring the circle is hard, but according to Stuart Roger UKIP wants to achieve something even harder. They are determined to ditch Europe but equally determined to hang on to its biggest gravy train: the Common Agricultural Policy. Money from CAP goes to some of their most enthusiastic supporters: rural landowners and farmers…

At present the EU ladles out between £60 & £90 per acre to these and other lucky landowners. UKIP's agriculture spokesman Stuart Agnew is guaranteeing that rural landowners will still receive £80 per acre from the UK taxpayer if we quit Europe, and will have to comply with fewer irritating Brussels rules to get their mitts on our dosh. Courtesy of UKIP we will continue to subsidise the wealthy but will get even less for our money.

From the UKIP leaflet:

£80 per acre on lowland, pro-rata decrease on marginal and hill land, capped at £120,000.

Having a cap is a good idea, although it is still far too high and can easily be fiddled by splitting up a farm. I assume that Stuart Agnew's farm is just a shade underneath the £120,000 limit, that's not a random figure.

But what is nonsense (and existing EU rules are the same) is having higher subsidies for more productive land; the subsidy is supposed to "help struggling farmers" or some such bullshit, in which case the subsidies ought to be higher for marginal land.

Exhibit Two

Via LVT Campaign, from the FT:

The government has spent £63m buying up 106 homes blighted by the proposed HS2 high speed rail link. Estate agents say tens of thousands of homes along the route have lost up to a quarter of their value.

Although the future of the £50bn north-south rail link is still uncertain, more than 500 homeowners have applied to have their property bought under the government’s exceptional hardship scheme.

Of these, 340 claims have been rejected, but 106 homes have been purchased at an average price of just under £600,000, highlighting fears of how soaring property prices could inflate the final compensation bill.

The government is spending £1.1bn in this parliament on consultants, preparatory work, compensation and other expenditure. The majority of the properties it has bought have since been rented out.

They said it, not me.

The effluent has hit the affluent

Getting into practice for Saturday...

There's the usual rag bag of KLN's in the comments at Tim Worstall's:

sam // May 8, 2013 at 4:23 pm.
I don’t know anything about LVT. Does this mean that farmers would be hugely hugely taxed but you could own a penthouse flat in kensington worth eleventy squillion quid and be exempt? Cos that seems a bit silly.

Sam doesn't even know about land rental values, let alone about tax. The rental value of a single Kensington penthouse is one or two hundred times as much as the rental value of an entire typical UK farm, so the LVT on the penthouse would be one or two hundred times as much as the tax on the farm (to the extent that we even bother collected LVT from farmland).
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Jim // May 8, 2013 at 5:47 pm
Its quite simple – under income taxation your labour belongs to the State (or rather a proportion of it, the proportion to be decided by people like RM). Under LVT your property belongs to the State and you may live there as long as you pay the rent (which is what LVT effectively is), the rent again to be decided by people like RM. Don’t pay the rent, get chucked out by the Landlord.

Personally I find the former less of an imposition as one can at least stop working so hard if income taxes rise. It's considerably harder (and more inconvenient) to move house every time the LVT goes up. And the idea that you can no longer own property free and clear of State interference for me is the worst part of it of all.

Arsehole.

Your earned income is derived from your genuine personal property (i.e. yourself, a wasting asset) and you can, for example, take it abroad with you if you wish. Land rents are not and can never be your personal property as they are derived from the existence of a stable and law-abiding society, which in turn requires "State interference" or the threat thereof to protect the value of those rents and have a legal system for deciding who owns what and for "chucking out" people who don't pay the rent to their landlord. Try buying, selling or renting land in Haiti, Somalia or Afghanistan.

And why is somehow better for people to pack in working in response to an actual or perceived tax increase rather than for them to trade down to a cheaper home, freeing up their old home for somebody who is working and is prepared to pay for it, i.e. is putting their personal property to best use and making optimum use of land?
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SadButMadLad // May 8, 2013 at 6:47 pm
“The value of land for taxation purposes should be based upon its optimum permitted use, so farmers would not be badly hit, while landowners sitting on developable land could build it out or cough up.” So all land will be taxed as if it was fully developed with tower blocks on it then? Because all land can be developed. The only thing holding it back is planning...

Like Sam, he doesn't have the first clue about land values either or even about planning. Very few people actually want to live in tower blocks (they'd rather have a house with their own front door and own garden) but they will put up with living in a tower block if it is in a very favourable location, i.e. in a city centre. That's why cities look like they do.

People are not be interested in living in a tower block in the middle of nowhere. In the absence of any tax or planning system whatsoever, nobody is going to build a tower block in the middle of nowhere, he'd end up losing money (simply hooking up the site for mains utilities would probably bankrupt him).

The only place where building tower blocks is commercially viable is in city centres, and even a lot of those lose money for the developer and his initial financiers. In economic terms, the optimum permitted use of 99% of farmland is, er, as farmland. So the extra potential rental value of farmland in the middle of nowhere which happens to have planning permission for a tower block is exactly £nil, and if every field in the whole country had planning for a tower block, it would be even less than that.

And nobody said that having LVT means you abolish all planning laws. LVT works perfectly well with or without planning restrictions.
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john77 // May 8, 2013 at 10:08 pm
@ Lotus 51 We are not discussing the classic LVT which is based on the actual (realisable) value of ALL land (to which kaalvtn’s comments relate as a parody of the ill-founded criticisms, while pretending the well-founded ones do not exist) but the vote-grabbing variant proposed by CLASS. See my previous comments. If you cannot be bothered to read the thread, don’t post on it

Another arsehole. If he really has an "well-founded criticisms" he's free to post them over at kaalvtn in the comments. Only he hasn't done, so we can safely assume he has none (and his previous comments were drivel as well).

Killer Arguments Against LVT, Not (295)

David E. Cooper, himself an LVT supporter, in the comments to an article at ConHome slagging off an article which he wrote recently:

Your points [i.e. those from Team LVT] are welcome, but please don't overstate the advantages of LVT. There is no evidence it eliminates property booms - look at the recent news from Taiwan, where LVT is used, and there is an ongoing property price boom.

Indeed one possible consequence of of LVT is that the government, finding that its revenues rely on property prices, takes active steps that encourage ever higher property prices. Something like this occurs in Hong Kong, where most revenue comes from the sale of long term land usage rights, and as a consequence the government is very keen to spend money on infrastructure which enhances their sale value.

Booms and busts will always happen.

Taiwan and HK are separate topics, let's look at the UK.

Commercial land and buildings are liable to Business Rates (pretty close to LVT, the implied rate on site values alone is around fifty per cent) while residential land and buildings are only liable to Council Tax (about as far from LVT as an annual land tax can get; it's more of a Poll Tax plus premiums for larger homes minus reductions for low-income households, making it a bit like Local Income Tax), and which is only about a fifth as high as Business Rates would be on a similar building used commercially.

Apart from that, these two types of land (or land use) face exactly the same other influences (state of the economy, interest rates, planning restrictions etc). So, if the claim (that LVT dampens bubbles) is true, then the bubble in commercial prices would have been a lot smaller than the one in residential, yes?

Oh, it was...*
Call me jaundiced or something, but it seems fair to say that:
- Commercial prices rose fifty percent over four years, reverted to the old level within two years and have since undershot their old level.
- Residential prices rose one hundred and fifty per cent over eight years and are still nowhere near their old level (admittedly, the UK government has been throwing everything it can at preventing them falling back below 2004-05 price levels).

Common sense also tells us that you can make a windfall gain by buying commercial land and buildings (the price of which is depressed by Business Rates, i.e. quasi-LVT) and obtaining permission to change them to residential use (which are only liable to Council Tax, which reduces the annual tax bill by 80% or something). This is pretty much common knowledge among property developers.

* Chart from the Bank of England's Feb 2010 Inflation Report (click to download Powerpoint slides, via the ever reliable Tutor2U

Killer Arguments Against LVT, Not (125)

David Cooper of ALTER did a fairly plain vanilla article in yesterday's Guardian, making it quite clear why Land Value Tax could and should replaced all taxes, he mentioned specifically income tax, which is easiest to understand, but really he means all other taxes.

He reaped the usual rich harvest of crap, the Poor Widow Bogey was played another couple of dozen times by people who didn't realise that we've heard this about a zillion times before and that this 'problem' can be fixed with exemptions, deferments, discounts, higher State Pensions or market solutions, such as trading down or simply asking your heirs to pay the tax if they really want to inherit the house (and if they don't want to inherit it, what's the point in trying to hang on to it?).

And most anti's merrily ignored the fact the LVT would be perfectly affordable for most people because there'd be correspondingly less income tax!

I can't be bothered to link to each individual Killer Argument, and two of these are paraphrased:
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This tax may have some effect on the very wealthy, although it can be avoided by offshore companies, complex lease arrangements and all sorts of other measures.

Nope. Let's look at, er, real life, shall we?

We have something called 'Business Rates' on non-residential buildings in the UK, which is quite similar to Land Value Tax, and a lot of commercial buildings are owned by offshore companies, a lot of them even have mortgages from UK banks secured on them, and a lot of houses are owned by such offshore companies as well. Collection rates for Business Rates or Council Tax are about 98%, far, far higher than any other kind of tax.

Sure, these taxes are legally payable by the occupier, not the owner, but it comes to the same thing. There is also a scheme that if an non-resident landlord does not keep up to date with his income tax returns, the tenant or managing agent has to deduct a flat 20% income tax from the rental payments and pay that to the tax office.

Exactly the same rules would apply under LVT:

If the tax due on any land falls into arrears, the tax office then asks the tenant to pay it and to deduct it from any rent they pay. If the occupants are not the legal owners and aren't paying rent, then they are either squatters (and so get booted out) or they are in fact the true owners of the building (and would rather pay than be booted out and have the land and buildings auctioned off).

Where the land and buildings are unoccupied, the tax is in arrears and the owner is untraceable, then clearly he's lost interest and the land and buildings can be auctioned off and the balance of the sale proceeds kept to one side for twelve years in case the owner claims it.
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And don't try to lecture me about 'complex lease arrangements', this is what I do for a living.

Sure, some people will be scammed if they pay rent in advance for a long period and the freeholder takes the money and does a bunk, but most of the time, the people who claim the right to possession on the basis of a long lease will be party to the attempt to avoid tax, so the existence of the lease can be ignored.

In any event, it all balances out. Somebody who has paid a large premium for a 99-year lease has a significant interest in the land, and the freeholder's interest is worth correspondingly less, so as and when the freehold is auctioned off for non-payment, the leaseholder will be able to enfranchise for a market price, hey presto, the former leaseholder is now the freeholder, he's an owner-occupier and he will pay the LVT in future.

Simples!
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But I bought my house out of taxed income? What gives the government the right to tax it again?"

a) Two wrongs don't make a right, I accept that the transition will be a bit icky for those who lose out in the short term (i.e. those whose house is worth a very high multiple of their current income) but that's no reason for sticking with a demonstrably bad tax system.

b) People didn't pay income tax in the past because they wanted to buy a house, they paid income tax because they had to, and that money was spent on much the same things as it would have been spent on if we'd always had Land Value Tax instead of income tax, and on the whole, the LVT which people would have paid is roughly equal to the income tax, NIC, VAT, Council Tax etc. which they actually have paid (or borne).
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If we introduced LVT, then all the high income people (who now receive their UK income tax free) would buy a house abroad and commute from there."

a) That's quite clearly bollocks, it simply wouldn't happen to any great extent and would be balanced out by wealthy people from overseas (including a lot of UK tax exiles elsewhere) returning to the UK.

b) If you bought a house in France and commuted to the UK, you'd incur significant extra commuting costs which would wipe out any tax saving AND once the French tax office realised you were French resident, they'd tax you on your income anyway.

c) There are also tax havens, like the Channel Islands, Isle of Man, let's assume they charge no income tax on income from the UK. So high income people could (subject to anti-avoidance provisions) buy a house in these places (very expensive) and hopefully avoid UK income taxes anyway. How many of them do it? Not many. And if a lot of people tried to do it, this would just push house prices on those small islands through the roof, until they reach a level where it's cheaper staying in the UK and paying the LVT (remember that house prices in two countries will always adjust up or down so that tax arbitrage on a large scale is impossible).

d) Or you could move to Switzerland and go for lump sum taxation, which is a splendid scheme for foreigners, whereby they pay no income tax on their foreign income and are taxed on a notional income of five times the rent they pay (or five times the imputed rent for owner-occupiers), plus wealth tax (usually less than 1%) on a notional total wealth of a hundred times that same rent.

In other words, by and large, the tax you'd have to pay as a tax exile in Switzerland would be about eight per cent of the value of your home each year, much the same as the LVT we'd required in the UK to replace all other taxes.
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"First they ignore you, then they ridicule you, then they fight you..."

There's a cracking article in The Daily Mail. It appears that they are moving from the "ridiculing" to the "fighting" stage.

The comments are the usual drivel (plenty of raw material, at least!). The "best rated" comment draws deeply from the seemingly bottomless well of Home-Owner-Ist DoubleThink:

Been here before! (1) The 'soak the rich' policy of the Labour government in the 70s resulted in the wealth creators, innovators, in fact anyone with the potential to succeed, leaving the country (2). It came to be known as 'The Brain Drain' and came close to reducing us to 'third world' status. "Those who ignore the lessons of history are destined to repeat it" (3)... The last thing this country needs now is more befuddled fog of leftist ideology.(4)

1) Yup. We used to have Domestic Rates and Schedule A Taxation, and as a result, we managed a quarter of a century of low and stable house prices. Scrapping those directly contributed to the return of the bubble/bust cycle from about 1970 onwards.

2) Yup. But that was because they were taxing incomes at punitive rates. So let's scrap income tax, VAT, corporation tax etc. and have Land Value Tax instead; higher earners (relative to the value of land and buildings they own/occupy) will end up better off. The UK would become a magnet for inward investment and most importantly - you can't take land abroad.

3) Yup. See point (1).

4) Yup. Socialism - whereby the productive economy is milked by the senior echelons of The Party - clearly doesn't work. But neither does Blue Socialism, whereby the productive economy is milked by the land owning classes. Most homeowners own very little land indeed and a lot of them have huge mortgage debts, which they have to repay out of income from which far too much tax has been deducted (so they are running up a down escalator). Yer average homeowner is being used as a human shield by the big guys: "Don't tax us or this puppy will die!".

Ming Campbell - Quote Of The Day

From Jock Coats (himself a Lib Dem)

'I hope [Chris Huhne*] will stand again, as has seemed likely ever since the "discussion" about Ming's leadership began, ooh, sometime after 4th March 2006 I think it was'.

* Jock Coats and I are both 'Georgists', we favour land value taxation over taxes on income and profits, and a 'Citizen's Income' flat-rate universal cash benefit scheme over the mess of a welfare state that we have. Chris Huhne is vaguely in favour of Land Value Tax, altho', having once shared a platform with him, he spent most of his speech yapping on about 'green taxes' and 'climate change' so I'm not holding my breath.