Killer arguments against LVT, not (49)

Spotted over at An Englishman's Castle, the tried and tested formulation:

What these Land Tax fanatics fail to realise that land is a tool, it is the same as a scribblers typewriter or an accountant's calculator. It is a tool of the trade. The profits of the trade are already taxed. Why should one sort of tool be taxed when others aren't?

Unproductive assets such as jewellery and show off watches would be a fairer target, why not suggest those (1)? The land under your des res may not be a tool but was paid for from taxed income (2).

1) There is no argument for taxing jewellery or watches (as the mining company will usually have paid for the mineral extraction rights, and that is the end of that). The bulk of the value of jewellery or watches consists of the enterprise and effort that go into making them, so taxing the value of the finished product would be just as bad as Value Added Tax, against which I have railed ad nauseam.

2) I commented thusly: ... LVT is NOT double taxation of incomes; income tax is double taxation of land values (if you trade from a good location, you pay the location value to the landlord or the bank; and then you pay income tax to the government on the post-rent profits you made from trading from that good location etc).

Further, historically, taxes on land values were the traditional, and entirely natural, source of public revenue to meet common expenditure and taxes on incomes and output are relatively new inventions. As more and more ground rents were siphoned off into private hands (with the collusion of the government from time-to-time), the government itself had to take a second bite of the cherry by levying taxes on whatever was left over after rents were paid, i.e. by levying taxes on (net) incomes.*

In the Middle Ages the argument that 'I pay for my land out of taxed income' simply did not stack up (as there was no income tax); when they started sneaking in income tax, the counter-argument would have been 'But I've already paid my 'tax' (or 'ground rent') for where I live or where I trade from - income tax is just double taxation'.

* Ultimately, the whole thing bites itself in the behind of course; the rents that the landlord receives are (largely) subject to income tax; the net profits you earn after rents are subject to income tax; and the rent you pay to your residential landlord or the interest you pay to the bank on the mortgage are subject to income tax or corporation tax yet again, etc. Far better to just have one layer of tax - on ground rents and on ground rents only - and have done with it.

A brief history of UK tax, Part 6.

To round off the series, I shall allow myself the indulgence of picking and choosing the least-bad aspects from the long and iniquitous history of taxes in the UK, see footnotes...


1. It would be based on the feudal idea that collecting 'rents' for exclusive possession of land (including the right to use parts of the 3G spectrum, landing slots at airports etc) is the natural least damaging form of public revenue*, having the admiral knock on effect that local councils are motivated to concentrate spending on things that make an area more desirable, but with democratically elected councils and government rather than feudal overlords, of course.

2. Ultimately, nearly all services that the government provides are local services, with the exception of immigration control, diplomacy and defence. So instead of the national government collecting taxes on incomes and production and using this to pay for social engineering, local councils would collect tax, spend what they need to and pass up the rest to the national government.

3. Taxes on land values keep prices low and stable, so banks would only need to lend first-time buyers enough to cover the value of the bricks and mortar element, the resale value of the land value element being negligible.

4. You may notice that taxes on incomes and production do not appear in this system, quite simply because these are the worst taxes. It should be borne in mind that taxes on land values could never collect more then ten or fifteen per cent of GDP, as opposed to the forty-five per cent of GDP that is currently collected. This ten or fifteen per cent would be more than enough to cover the cost of the core functions of the state, with maybe enough left over to pay a modest Citizen's Pension to the elderly. If voters decide that they are happy to pay a low flat income tax of ten or twenty per cent to pay for some form of minimal-but-universal Citizen's Income and other forms of redistribution like vouchers for education or health, then so be it, I wouldn't actually be averse to this.

5. In theory, there would be little need for welfare in the long term, because with low or no taxes on incomes and production and no property/credit bubbles, the economy itself will develop in a much healthier and resilient way. There's only one way to find out, isn't there?

6. The best time to introduce such a system will be some time in the next few years when property prices, and hence land values, bottom out so the impact of the change on land values would be negligible. Realistically, there is no chance of it happening of course, because voters are still blinded with the Fool's Gold of the next house price bubble and most MPs own two homes.

Ah well, I can but try.

* People who claim that the underlying site-only unimproved value of any land that they owns (excluding bricks and mortar and improvements) is down to their own efforts - with the narrow exception of farmland, which is of such low value relative to urban land, that 95% of it would be exempt from LVT anyway - is seriously deluded. The fact that they might have paid an inflated price for this in the past in the expectation that the tax system would continue to justify the higher value is neither here nor there for these purposes.

A brief history of UK tax, Part 5.

However, there is nothing so bad that you can't make it worse. The post-modern tax/subsidy system that has now been introduced looks superficially like the picture in Part 4, but some of the arrows have flipped round.

1. Instead of homeowners, wearing their homeowner hats, being net payers of even a little bit of property tax (i.e. Council Tax, average bill £1,000 or so), the government is now subsidising mortgages via artificially low interest rates and other subsidies (things are even more extreme in the USA or Australia, but let's stick to the UK for now) that is worth around £3,000 per annum to the typical mortgage borrower.

2. Banks have cut interest rates on savings far more than interest rates on mortgage lending, so banks are now net recipients of interest from savers, who we can look at as being in the 'landlords and home-owners' box, including people who cashed in at the top of the market and sold to rent or traded down. On a cash basis, older homeowners with savings are worse off, but the political advantage of trying to keep house prices above their equilibrium level seems to be keeping them quiet so far.

3. Banks are unlikely to pay much corporation tax for the foreseeable future, and are now recipients of taxpayers' money in the form of various bail-outs, interest rate subsidies and government guarantees.

Of course, now that government revenues from landlords and banks have gone negative, the arrow for 'Income tax etc' has to become even fatter. We are now seeing the largest amount of churning in the history of the world ever - from young to old, from rich to poor, from non-property owners to property owners, from savers to borrowers, from productive to unproductive, from childless to single parents etc - that it is difficult to work out who is actually a net winner or loser from all, but it would appear that younger, childless private sector workers who are tenants are propping up the whole system, which is why the number of them becoming first-time buyers has now dried up while they wait for the whole pyramid to collapse.

Click here for full series, final episode with my suggestions for a 'least-bad' tax system tomorrow.

A brief history of UK tax, Part 4.

We now move to the system that has been in place for the last half a century. Faced with the threat of introduction of Land Value Tax by the Liberal Government in 1909, when only ten per cent of households were owner-occupiers, landowners, whether represented in the House Of Lords or not is moot, decided to stage a tactical retreat and co-opt ever larger sections of the working population into what is essentially a giant Ponzi Scheme.


Because notional income and capital gains on homes are now lightly taxed (relative to taxes on income and production), their resale values are artificially inflated. The two boxes 'landlords' and 'households and businesses' are largely synonymous of course - but once they have overpaid for buying a home, people think with their 'homeowner' hats on and want this state of affairs to continue, so that they can in turn sell for an inflated value later on (without thinking about exactly when they hope to do this), but without them noticing that they are paying far more in income taxes etc than they would ever be paying in LVT. Compare the outcry over a 3% rise in Council Tax, that might cost an average household an extra £35 a year, with the relative lack of outcry at the government's announcement that National Insurance would rise by 0.5% in a year or two, which would cost the average household £200 a year.

Schedule A taxation and Domestic Rates (as the last vestiges of some sort of land or property value taxation) were scrapped in the 1960s and the late 1980s respectively, as a result of which property price bubbles and busts have grown larger and larger.

The penultimate throw of the dice was the sale of council housing at massive undervalue in the 1980s by the Tory government, in the hope that becoming a homeowner would make voters both more small 'c' and large 'C' conservative, since when 70% of households have been homeowners. The irony is that taxes on income and production erode the tax base, so tax rates have to rise ever higher to compensate for this and to pay for a welfare system for those that are excluded from the party.

Click here for full series, next episode tomorrow.

A brief history of UK tax, Part 3.

Things took another turn for the worse after the Industrial Revolution. Because living standards in towns and cities, however awful, were slightly better than in the countryside, people moved to towns to work in factories. While Victorian industrialists contributed to the rapid growth in prosperity, it shouldn't be forgotten that many mill owners also owned the houses in which their workers lived, so they could cash in three times - they made a profit from their labour, charged them rent and allowed them to fund what little 'public services' there were out of their own taxes.

There was still some residual taxation of agricultural land values at the time, although the agricultural sector became less and less relevant to the national accounts. Over time, and culminating in the Town & Country Planning Act 1947, rural landowners were cut off from the growth in land values enjoyed by urban land owners (see dotted line) and need not be considered further. As compensation for this, a system of agricultural land subsidies was invented by which agricultural land-owners are paid money for, simply owning land, which of course do not benefit tenant farmers or keep food prices down.


Click here for full series, next episode tomorrow.

A brief history of UK tax, Part 2.

It all started to go wrong around the time of the Magna Carta, when the barons basically said that they were no longer going to pass on the rent they had collected, and if The King needed money he'd have to collect it from the little people. So The King imposed all manner of taxes, tithes, imposts and duties to fund his lifestyle and various foreign military adventures, while the barons sat pretty. The little people were now of course paying twice - once for the value of what they got (exclusive possession of the land they farmed) and again for the cost of whatever else  it was that the barons or The King wanted to do.

Click here for full series, next episode tomorrow.

A brief history of UK tax, Part 1.

Let's go back to basics and look at the way the 'government' raised money in Anglo-Saxon and early Mediaeval times. Broadly speaking, it was accepted that land was held by 'The King' on behalf of 'The People'. So people (to the extent that they weren't serfs or slaves, of course) paid market rents for exclusive possession of the bit that they wanted to farm to the local squire, wealth trickled up through various feudal levels, all the way to The King etc. 

There was very little in the way of 'taxes', in the sense of payment for nothing in return, and because having to pay market rent does not depress economic activity, everything hummed along smoothly (apart from the frequent invasions, of course):
Click here for full series, next episode tomorrow.