More Not Seeing the Bleedin' Obvious

Here.

So this implicitly recognises that tax cuts boost economic activity. So why not extend that thought and cut taxes everywhere?

Now we know that this is about making some areas less tax costly than other areas. Fair enough. I can see what they are trying to do, but the way they are going about it...?

Since the prime tax cost difference area to area is 'rent' - which reflects itself through the productive factors of production - labour and capital - you'd thunk it bleedin obvious just what to do nationally.

Or have I missed something, again?

Killer Arguments Against LVT, Not (349)

From Conservative Home.

First the author agrees with this from a pro-LVT article in The Economist:

All that changes is the price, which falls until it exactly offsets the discounted cost of paying the tax forever.

Correct, LVT is a one-off thing and does not affect people in the future. It's the opposite of deficit spending.

Then we get this:

However... a fundamental objection still remains. A land value tax, however modified, applies to the whole value of the land not just the capital gain – and therefore amounts to the gradual confiscation of an asset purchased out of taxed income.

(On the facts, most land was not "bought out of taxed income" anyway; anybody who bought more than fifteen or twenty years ago effectively got the land for free. And if anything, that is an argument against income tax, not against LVT)

But he's now completely contradicated his first correct statement: the LVT is borne entirely by current owners in terms of lower future selling prices. (And most of those owners would benefit from an equal and opposite reduction in other taxes. The sooner we do the tax shift the more people will benefit i.e. if they move to LVT when you are 20 years old you benefit much more than if the move to LVT when you are 40. So why bugger about for another 20 years?.)

To keep it simple, let us assume 100% LVT, so land would be bought and sold for plus/minus nothing (i.e. land and buildings would be sold for the value of the buildings).

If land has no value then that value cannot be confiscated. The future LVT payments do not affect the future purchaser; instead of handing over the capitalised value of the future rent in one big chunk to the vendor, he pays much smaller amounts every year to the government.

Well, Well, Well.

From - very surprisingly - Conservative Home.

Here

You really couldn't have better arguments for LVT/CI.

Killer Arguments Against LVT, Not (232)

Tim Montgomerie of Conservative Home wrote an article yesterday explaining why Tories should support more property taxes if proceeds are used to cut other, more harmful taxes.

He's hardly a hard-core land value taxer - he says in favour of e.g. more council tax bands and he's happy with higher SDLT or even CGT on main residences - and he's not specific about which taxes he would cut (income tax?) but nonetheless, he gets the usual shit storm in the comments. Most of the objectors play the Poor Widow Bogey; there's a "landlords will pass on the tax"; a few "attacks on wealth"; a "double taxation" or two and a smattering of "Tories should be cutting taxes not increasing them".
-------------------------------
Nothing new here, all easily dealt with, in fact, we can do all of these in one fell swoop...

... let's not bother collecting Land Value Tax at all. Let's just replace all taxes with a single, flat income/corporation tax at the revenue maximising rate of about 60% (this is hardly more than the current average tax rate on income of about 52% - there are lots of people with a much higher tax rate than that who still go out to work or run a business), no deductions and no tax breaks except the one outlined below. In theory, that would raise about £600 billion a year, much more than the government needs (before we factor in the 'cost' of the tax break).

Poor Widows In Mansions don't have much income so wouldn't pay much tax; landlords can't pass on tax paid by their tenants (and nobody has advanced the thesis that landlords pass on their own income tax, unless they are idiots); it's not an "attack on wealth" in these people's eyes because - apparently - your earning capacity and your earned income is not wealth; and even though in practice taxing incomes is double taxation (and LVT is not), these people don't appear to consider it as such.
-------------------------------
That leaves us with the objection that the government should be cutting taxes on work and enterprise (and rightly so), which requires one simple tax break....

... we cap each business' corporation tax liability at whatever its liability under full-on LVT would be (i.e. double what they currently pay in Business Rates), so three-quarters of businesses would pay nowhere near 60% tax, it would be more like 20%.

... we cap each household's total tax liability at whatever its tax liability would be if we had full-on LVT and an equal and opposite Citizen's Dividend/personal allowance. About three-quarters of households would benefit from the cap* and most of those will end up paying a lot less than all the taxes they currently pay, directly or indirectly.

This would reduce the overall tax take, net of Citizen's Dividend to roughly the right level (£200 billion a year? This is a thought experiment not a maths lesson), and if we have to cut spending to match, then I'm sure all those Poor Widows In Mansions will be only too happy to do without old age care, free NHS treatment, bank bail outs and so on, as long as they can keep their cherished memories etc.

* Let's take a home at the bottom of the top decile by value, which is currently worth about £280,000. The LVT on that at (say) 7% of its current value = £20,000 from which we deduct an 'average' working age household's Citizen's Dividends. 1.9 adults @ £3,500 + 0.7 children @ £1,750 = £7,525, giving this household a net tax bill of £12,500. A household which can afford to buy a house for £280,000 with a mortgage must be earning about £56,000; to be in the top decile by income, a household has to earn something like £80,000. Such households are currently paying massively more than £12,500 in publicly collected taxes (and a shedload more in privately collected taxes, if they bought their house in the last seven or eight years), so they're happy.

If a household in such a home only has taxable income (however defined) of £10,000, then they pay £6,000 tax, of course. The break-even point for being better off under the new improved system is where a household's income is about one-tenth of the current value of the house they live in; so a household earning £28,000 or more in a top decile house will be better off under these rules.

The tax bill for an 'average' working age household in a median home currently worth £150,000 would be capped at about £3,000, which equates to an average tax rate of about ten per cent of their earned income, scarcely worth worrying about.

They published my article at ConservativeHome

It always looks nicer in print, as they say.

Today's LVT round up

Five Six seven items worth a mention:

1. Samuel Brittan wrote one of his occasional articles in the FT:

... far from being an outrageous Bolshevik idea, the case for a land tax is one of the oldest and least disputed propositions in economic thought. The underlying theory was developed at the beginning of the 19th century by the highly respectable David Ricardo. Many chancellors have said that they would jump at a tax that had no disincentive effects on work or enterprise but had a strong redistributive element...

Doubtless some of the tabloids would present a land tax as a threat to the ordinary homeowner with a modest garden. We need to prepare for this in advance. Just as income tax is only levied above a threshold, there would have to be similar thresholds for a tax on land. If politicians really want to think about the unthinkable, as they sometimes claim, here is a place to start.

2. From the Tory Reform Group:

Properties of all shapes and sizes are already overtaxed by the likes of council tax, business rates, stamp duty land tax, planning charges, and landfill tax. If these taxes were to remain then LVT would be burdening people with further unwelcome costs. Instead, LVT should replace those property taxes - either entirely or at the very least mostly...

This would be simple to implement since land cannot be hidden in an offshore tax haven and calculating the tax bill would be made easier by the fact that land values are already measured by the market, therefore compliance costs could be reduced. The same bureaucratic processes for collecting business rates could readily be translated to the collection of LVT.

The LVT would not harm enterprise. It would boost productivity, discourage urban sprawl, could replace the plethora of punitive property taxes, and would be relatively simple to administer and collect.

The extra revenue raised would be enough to fund a radical package of tax cuts to “put fuel into the tank of the British economy”, as George Osborne promised last year, and would reconnect the link between effort and reward by making sure everyone pays their fair share. This is very much a policy that ought to be part of any modern, progressive Conservative agenda.

3. From yesterday's Evening Standard:

Today's proposal from Tim Montgomerie of the influential Conservative website, conservativehome, reflects rising Tory frustration over the lack of tax cuts. Mr Montgomerie proposes that we move towards taxing wealth rather than income, by introducing new council tax bands for homes worth over £500,000, £1 million and £2 million (in England, the highest band is currently H, for homes worth more than £320,000 in 1991).

He also wants a cut in tax relief on pension contributions. The money raised, he argues, could then be channelled into tax cuts, for example raising the income tax threshold and abolishing the 50p top rate. This could give new momentum to Lib-Dem calls for a similar "mansion tax".

Mr Montgomerie is right that the council tax system needs reform. The absurdity of a tax based on 1991 values - newer homes have to be assigned a nominal 1991 value - has been preserved only by the timidity of politicians on all sides in handling this hot potato. Yet however fair such higher bands might look in Exeter or Rotherham, they would amount to a tax on London, which is where the vast majority of such homes are.

Nor do London's £1 million-plus homes always indicate great wealth: they are just a sign of our inflated housing market. We do need to rethink local taxation. But piling more taxes on London to fund tax cuts for the rest of the nation is not the way to do it.

The ES is just the usual stupid Home-Owner-Ist nonsense - the 50p tax rate is of course a "tax on London" as well, so replacing it with a Mansion Tax is geographically neutral, I just wanted to give Tim M's article a favourable mention, but it was in The Times which is behind a pay wall.

4. Also in the FT (spotted by Derek), a fine article on barriers to entry and rent-seeking:

Ghaleb Ibrahim, a grizzled Jordanian immigrant with a mane of wavy grey hair, holds to a modest vision of the American dream. He wants to own and drive a taxicab in Milwaukee, Wisconsin, the city in which the television show Happy Days was set.
The trouble is that he does not have $150,000. That he says is what it would cost, over and above the price of the vehicle itself, to buy from its existing owner one of only 321 cab licences in issue by the city...

The creation of an economic rent – often by persuading the political system to grant some kind of a monopoly or privilege – means a one-off chance for someone to get rich and then a permanent barrier to newcomers entering a market. The Milwaukee cab licences are together worth $48m – and since 1991 more than half of them have migrated to companies owned by one family: the Sanfelippos. Even at their own more modest price estimate of $80,000 their permits are worth as much as $13m.

Is that $48 million real wealth? Is it capital, or an asset (as the incumbents argue in the article), or is it merely a measure of the burden placed on passengers (in terms of higher prices, worse service) or would-be taxi drivers who are prevented from earning a living - in other words a zero-sum game. Exactly the same zero-sum rule applies to land wealth as well, of course.

5. Finally, also from yesterday's Evening Standard, the sort of fight that would be far less common if we had LVT:

A seven-year row between neighbours over a narrow strip of courtyard in Peckham could reach the Supreme Court.

The dispute, which has cost up to £50,000 in legal fees so far, began in 2005 when Angela Boggiano, 45, and Craig Robertson, 43, put up a white picket fence. It ran along what they say is the boundary between the back of their terrace home and the front of Devon Cameron's mews house.

In 2007, they replaced the fence with a wall, and plant pots were put along a gravel strip measuring 10ft by 2ft which Mr Cameron, 48, contends is his...

You want the land? You get the LVT as well.

6. Late addition. Lib Dems ALTER member David Cooper appeals to the NIMBYs over at The Daily Mail:

This development is driven by a simple business proposition. Locally, an acre of productive farmland can be purchased for about £7000. Working a farm in West Berkshire turns a decent profit, and is a perfectly good business proposition. But land speculators bank on far richer rewards. If they can get planning permission to turn this acre into residential land, its value will shoot up to over £700,000...

The value of fields (called greenfield sites in the trade) close to towns rises by a factor of a hundred or more when planning permission is given to build on it. This value uplift happens once. An already built up (“brownfield”) industrial estate may be entirely suitable for new housing, but the owners have far weaker reason to push for the planning changes that would be needed to achieve this.

Taking Newbury as an example, there is a large, old and underused industrial estate near the town centre, which could go a long way to accommodating the needed houses. There has been far less push from its owners to make the necessary planning changes, and it is not included in the current housing strategy.

So he's got the NIMBYs onside, but he shies away from explaining which simple tax would take away the planning gain uplift (thus taking away the motive to build out in the green belt) as well as encouraging/forcing the owners of the industrial estate to bring it back into use.

7. Late, late addition. Spotted by Mombers in today's Evening Standard:

Councillor Stephen Greenhalgh, leader of Hammersmith & Fulham Council, hit out at Liberal Democrat plans for higher levies on more expensive homes... Alarmingly for many Londoners, influential Tories are also now backing proposals for higher council tax bands on homes worth more than £500,000, £1 million and £2 million. (a)

These levies would all disproportionately hit the capital. (b) Mr Greenhalgh told BBC radio: "We have the fourth highest property prices in the country. A lot of the houses that would fall into the £1 million or £2 million plus bracket are owned by ordinary people still. This is not a way to catch the wealthy. It's a way to clobber people often on relatively modest incomes that may have assets that are incredibly high but not necessarily incomes that match."

He stressed there were many "long-standing family homes" in areas such as the Peterborough Estate in Fulham, which were bought under the right-to-buy scheme and then shot up in price. (c) He also warned that new council tax bands or a "mansion tax" would be "hugely expensive" to introduce as it would require a property revaluation estimated to cost £200 million.(d)

a) See item 3 above.

b) Yes, because that's where land values are the highest. You could just as well say that the 50p tax 'disproportionately hits London' because that's where most high earners live.

c) Wot? These people were allowed to snap up council owned housing for rather less than £100,000 and have made a windfall gain of a million quid and they're whining about a few thousand quid additional Council Tax? They can always sell up, then they won't be 'ordinary people... relative modest incomes' any more, will they?

d) That was The Morbidly Obese One's estimate of the cost of a full revaluation of all homes in the UK for council tax purposes, that's less than £10 per home. As a matter of fact, HM Land Registry have enough info on their databases to do full and accurate land valuations for a tiny fraction of that, but even if it did cost £10 per home for updating valuations which are 21 years out of date, it's money well spent, its still only 1% of annual Council Tax receipts.

Why stop at Council Tax Band K?

The Evening Standard summarises an article from ConHome:

Mr Browne dismissed Business Secretary Vince Cable's idea of a land tax as "cloud cuckoo land" and unworkable.

He told ConservativeHome website: "Far better would be to introduce higher bands of council tax above band H. Introduce a band I for properties over £500,000, a band J for properties over £1 million - even a band K for properties over £2 million. It would be easy to introduce, simple to collect, wouldn't complicate our tax system, and will cause far fewer hard luck stories... It is patently unfair that a family with a three-bed semi in Manchester incur the same band H council tax as a billionaire industrialist in his £100 million palace in west London."

One of the nasty things about Council Tax is the fact that the bands are so wide, i.e. homes at the top of Band C were worth 40% more than those at the bottom thereof (as at April 1991), in Bands D to H the gaps are from 31% to 45%, and Band I is unlimited (this is for homes worth > £424,000 twenty years ago, surely there must have been a few even then?). Thus the ratio between the cheapest homes in Band I and the most expensive in Band A is just under ten-to-one.

UPDATE: CM in the comments reminds me that Band I only applies in Wales, so the ratio in England is only eight-to-one. Which would be a bit like capping the income tax payable by the highest paid footballer in the Premier League at eight times the amount payable by a sales girl in the ticket office or something.

Excel tells us that if we had twenty six Bands, from Band A to Band Z, and a 'band width' of just over 20%, the ratio between the bottom of Band Z and the bottom of Band A would be a hundred-to-one (=1.2023^25). Whether we rank homes by selling price, underlying land value, total rental value, site-only rental value or any combination thereof (interpolating between them is quite easy) is neither here nor (as is what we do with homes which fall below the bottom of Band A), but having more, narrower Bands seems to me to be a much better way of doing it.

For sake of argument, Council Tax in new Band A would be £300 a year and in new Band Z it would be £30,000; or it might be £100-to-£10,000 - depending on how much you need to raise to replace other taxes and how many homes fall into each Band etc.
------------------------
See also last week's Spectator: Why mansion tax makes sense, if only for the excruciating Killer Arguments Against LVT, Not.

Killer Arguments Against LVT, Not (163)

I cheerfully admit that simply pointing out that 'land is different' is not in itself a definitive argument in favour of taxing land values (and a few narrow classes of other government-protected monopoly rights) rather than anything else, because there are those who say that merely because something works in practice does not prove that it works in theory. But the reverse logic that 'land is an asset like anything else and therefore if you are going to tax land you have to tax everything' simply does not wash. For example:

Roger Helmer at ConHome: "Fifth, if we can tax mansions, what about other property? Cars? Racehorses? Pension funds? ISAs? Where do we stop?"

Or IanB in the comments here recently: "Look Mark, the whole economy is about allocation of scarce resources. Anything that isn't scarce ends up being free because supply is infinite. This whole "land is scarce but other products aren't so land is different" thing is inept reasoning, and if you are honest you have to use the same reasoning to conclude that anyone owning a scarce resource-which is just about everything from cheese to chalk- is a "monopolist" making unjust profits."

This notion that land is like any other asset or that rental income (cash or non-cash) is like any other source of income is quite clearly hokum. Let's start with 'cheese', but we can do the same exercise for cars, racehorses, pension funds or chalk if you really want:

1. As the economy grows, the price of basics/manufactured items tends to fall relative to wages (because we are more efficient or more productive) but land values rise relative to wages. 



2. This is mathematically true and verifiable - when the Mini was first made, it was sold for £500 and a house cost £2,000. Nowadays you can buy a small car that's far better than a Mini was then for £7,000. You cannot buy a house for £28,000 today (or only in the most depressed parts of the UK).

3. If there were some horrible situation, like pestilence, or war, or all our young people emigrating abroad, then cheese prices (in the UK) would rise and house prices would fall. 



4. There are no NIMBY restrictions on how much cheese can be produced; there are not even any practical or economic restrictions (or if there are, we are nowhere near those upper limits).

5. A piece of cheese has inherent value. A piece of land has no inherent value, it is just mud and stones. Its value depends entirely on where it is. Cheese with planning permission is not worth a hundred times as much as cheese without planning permission. The value of cheese or chalk does not change depending on where it is. A piece of cheese in Newcastle is worth the same as piece in Mayfair.

6. The only instance where cheese behaves a little bit like land is where the producer can exclude other suppliers from the market. The price of a cheese sandwich in the supermarket is £1.50, but on a train you are a captive audience, there are no competitors and they can charge you £3, take it or leave it (what I refer to as 'embedded rent'). 



7. If one man wants a piece of cheese he places no burden on others who also want one. If there were no demand for cheese, it would not be made in the first place. Not only is the amount of physical land fairly fixed, it does not need to be manufactured, it is just there. There is a natural tendency for people to want to live in urban areas (more jobs, more amenities); there are centripetal forces, which drive land values in urban areas ever higher.

8. Supply of cheese rises to meet demand. In demanding cheese, I am creating employment opportunities for cheese makers and retailers. If demand for cheese goes up, then that does not push up the price, it creates even more jobs.


9. Cheese producers and suppliers are fairly competitive and do not make super-profits. Demand for cheese is what it is, and as long as the price offered is more than the cost of producing and selling it, it will be produced and sold.

10. Land rents quite clearly reflect landowners’ monopoly power (or their share of the cartel’s monopoly power). A cheese factory in the middle of prime Surrey commuter-belt will be no more profitable than one outside Swansea (because they compete with each other), but land in Surrey commuter-belt will always command a much higher price than on the outskirts of Swansea. Two landowners in different parts of the country do no compete with each other, and two landowners of neighbouring plots do not compete either – they are members of the same mini-cartel.

11. Do cheese prices increase when interest rates fall and vice versa? Does the price of cheese depend largely on credit conditions?

12. Is there an eighteen-year credit-driven boom-bust cycle in the price of cheese, which always ends up with a financial crisis and a recession?

13. The supply of cheese rises to meet demand and prices stay stable (or might even fall because of economies of scale). If demand for land goes up, the full benefit of that increased demand accrues to land owners as supply of land in desirable locations is fixed.

14. Does The Daily Mail celebrate when the price of cheese goes up? 



15. Do countries fight wars over cheese? Did the Normans invade us or did we invade North America to secure cheese supplies or did they/we just announce that the land belonged to them/us? 
For sure, countries fight wars over natural resources, such as water or oil, and in olden times may have fought over valuable agricultural land (needed to make cheese) but that is secondary.

16. A tax on cheese is shared between supplier and consumer, leads to a fall in cheese output/consumption, destroys businesses and jobs, makes us all poorer. The tax leads to evasion and smuggling and thus pushes up the tax rate on everything else to compensate.

17. A tax on land-location values does not affect the amount of desirable locations. It is paid by the occupant and born by the owner but cannot be passed on in higher prices, so it does not reduce output or increase prices one iota.

18. This is evidenced by the fact that the retail price of consumer goods is much the same all round the country, even though the Business Rates payable by shops in desirable city centres is a vast multiple of that paid shops in less desirable locations.

19. If all businessmen and workers decided that their income was taxed too heavily and went on strike to avoid earning money and thus having to pay tax, the country would grind to a halt. If all landowners decided that their rental income (non-cash rental income in the case of owner-occupiers) was taxed too heavily and decided to abandon their land and stop collecting rents, then the government would acquire the land by legal default and it could rent it all back to us and would have far more revenues than it could ever raise in income tax etc.

20. Ownership of land tends to become concentrated in fewer and fewer hands over time - look at the USA, they started off with everybody owning a smallholding and where are they now? Land ownership is almost as concentrated as it is in the UK. This is precisely because land ownership is so lightly taxed. Taxes on cheese are not particularly high, as it happens, so let’s look at taxes on motor vehicles. In the UK, they are very high indeed, about £50 billion year (mainly on road usage, i.e. fuel duty) on vehicles worth maybe £300 billion. As a result, people drive smaller cars or drive fewer miles than they otherwise would do, roads are used more efficiently and there is, unsurprisingly, a much wider spread of car-ownership than there is of home-ownership.

21. There is no 'community' input into the value of a piece of cheese - the cheese is made by a small group of individuals (farmer, factory, supermarket). There is a producer surplus (profit) and a consumer surplus.

22. To make money from cheese, you can't just make one piece – or buy one piece - and then sit back and collect rent for the rest of your life, you have to make and sell more cheese every day. A piece of cheese deteriorates and goes off, it does not slowly increase in value. It needs to be stored and looked after. Cows and machinery and lorries and fridges have to be regularly used and maintained at huge cost to remain profitable.

23. This is quite unlike bare land, which can increase in value enormously without the owner lifting a finger, all he needs is a register in HM Land Registry, a legal system prepared to evict squatters, an exemption from Business Rates or Council Tax and for the economy to grow or the amenities provided around his site to improve and he earns money in his sleep.

24. A tax on land values tends to depress buying and selling prices without affecting gross rents, thus dampens the boom-bust cycle without discouraging new development. See Business Rates, which is the closest thing we have to LVT, see also the fact that house prices were low and stable between 1950 (once the supply shortage caused by bombing in WW2 had been overcome) and the late 1960s, a period in which we had Domestic Rates and Schedule A tax (which between them amount to crude forms of Land Value Tax). High taxes on incomes, profits and output certainly do no dampen the boom-bust cycle, and if anything greatly worsen the impact of the bust/recession periods.

Killer Arguments Against LVT, Not (159)

Roger Helmer stepped up to the oche at ConservativeHome:

I was encouraged to see Eric Pickles’ robust rejection of the Lib Dems’ Mansion Tax in Saturday’s Telegraph, but rather surprised to see our own Tim Montgomerie, usually the soundest Conservative around, appearing to support the idea of such a tax... his big idea is a wealth tax, in the form of a mansion tax on homes over £1 million, and there I suspect that many Conservatives, and not just Eric Pickles, will disagree. Let me list just of the few reasons that led me to think “over my dead body”.

First, as a Conservative, the phrase “No new taxes” is burned into my DNA...

Correct. So let's take the opportunity to dump a load of stupid taxes - like Council Tax, SDLT, Inheritance Tax, Insurance Premium Tax and the TV licence fee - and replace them with the oldest tax there is, a tax on land values, or just harmonise the taxation of residential land and buildings with the taxation of commercial land and buildings (Business Rates).

Second, any attempt to soak the rich and to punish success cuts across Osborne’s laudable objective of making Britain an attractive place to invest and to do business. There is an excellent economic case for a flat tax, and part of the philosophy of the flat tax is to avoid itsy-bitsy targeted hits on small segments of society, in favour of a single, clear, simple tax rate that we can all understand -- with zero exceptions and allowances...

I completely agree that all taxes on income or profits or output - income tax, National Insurance, VAT and corporation tax - could and should be merged into a single flat tax on incomes with zero exceptions and allowances (with tax breaks for pension savings being the most expensive and damaging), at least that way people would realise what the real rate of tax is (somewhere in the region of 50%). Can he now explain how such a tax on incomes does not "soak the rich and punish success"?

But how about a flat tax on residential land values as well to replace the mish-mash of "itsy-bisty targeted hits" listed above? That's clear and simple and we can all understand it. That doesn't discourage people from making money in the slightest, it just directs spending from land values to more productive stuff.

Third, an impost on wealth and property comes very close to breaching the right to property, enshrined in various charters of rights. OK, we have Council Tax, but that is (at least in theory) a payment for services, not plain confiscation...

This is the nub of the matter, isn't it?

i. As things stand, most taxes are on wealth creation. i.e. incomes. 'Wealth' is just a by-product of wealth-creation, it's what is left over after taxes have been taken away. And notwithstanding that land or rental values might be a measure of the wealth of an economy as a whole, they are not in themselves 'wealth', they are just a measure of how much money is transferred from wealth-creators to land 'owners' . It's no different to a welfare saying that as he is entitled to £X,000 in benefits every year, the capitalised value of that is £[20 x X],000 and that he is therefore wealthy.

ii. People in their capacity as land 'owners' play little or no part in wealth creation. The fact that most people who consider themselves land 'owners' also happen to have a job, run a business etc is a separate issue, they'd still be doing those jobs or running those businesses if they were tenants.

iii. The eternal conflation of 'land values' with 'property' is infuriating as well. Why is somebody's income not considered his 'property'? Sure, the politicians get away with justifying income tax using the 'ability to pay' argument, but your income is your property nonetheless.

iv. Worse than that, each £1 tax raised from wealth creation has dead weight costs; however efficiently the government spends or redistributes it (and they don't), society as a whole ends up £2 poorer, and the potential income of land 'owners' falls by £2. If they collected that £1 from land rental values instead, there'd be no dead weight costs and land 'owners' (collectively) would end up £1 better off (it's that a slightly different group of people would be occupying the land, i.e. those willing and able to pay for the nicest bits).

v. The final insult is that the Home-Owner-Ists decry Land Value Tax (or Mansion Tax, or Domestic Rates or Council Tax or whatever you want to call it) as "an attack on wealth" while simultaneously wailing about "ability to pay". The fact that some people don't have enough money to pay the Council Tax (or whatever) is surely a sign that these people do not have any true 'wealth' at all, isn't it?

vi. Think about it: who is wealthier, a Poor Widow In A Mansion or a high-earning household in the mansion next door? If the proverbial Poor Widow In A Mansion were asked to pay the same amount in tax as the high-earning household, who is more able to pay it - the PWIAM or the truly wealthy household? So it's not really a tax on wealth at all is it, or else the "ability to pay" argument falls flat on its face.

vii. His comment about Council Tax being payment for services is laughable, Council Tax raises far less than the cost of all the services people receive, most of which are local, and certainly a lot less than the value of services which a home-owner receives, or else land values would be negligible. And income tax etc. is a 'payment for services' as well, isn't it? It's just that it is used to pay for services which benefit just about everybody but the payer.

Oh God! Not More. Please no more...

http://conservativehome.blogs.com/platform/2011/08/brian-binley-monetarism-and-this-weeks-low-growth-figures.html#comment-6a00d83451b31c69e2015390a4f112970b

A "wonderful set of loonies" debate home-owner-ism...

Lola pointed this out on the Goblin post yesterday. Over at ConHome, John Moss is arguing for more government regulation and more big-money institutional participation in the rental market. Some might call this corporatism, but lets face it, we live in a real world and it is a corporatist one.

Lola described it as "wonderful set of loonies debating over at Conhome" and valiantly set about demolishing on the old 'rent is dead money' argument via discussing opportunity cost and location value. I get this all the time and I tend simply to respond with 'So is mortgage interest, its just rent on money' I'll take notes from Lola and try harder next time!

Your host would no doubt have something witty and/or clever to say about this. Alas he's on holiday and you're stuck with me, and I can't speak for MW. My thoughts (speaking as a squeezed renter in the south east) are quite simply that

a) Failing a proper LVT, I'd welcome institutional money and more supply in the rental market.
b) Lola is right, most of them are loonies over there, although special mention to Tony Makara who tends to talk sense and I remember was particularly good on the credit crunch too back in 2007/8.

What does anyone else think? Feel free to start an intelligent debate (or just mock the loonies) in the comments!

"The Great EU Debt Write Off"

As I've long been saying, for every financial asset there is a financial liability (they always net off to +/- nothing) and the reason that banks' balance sheet totals are so huge is because they all owe each other vast sums of money; if you took all banks as a whole and netted off inter-bank payables/receivables, their balance sheet total would shrink by two-thirds.

Steve Baker MP (1) at ConHome refers us to the results of an exercise carried out by the ESCP Europe Business School (who appear to be quite well known) applying the same principles to payables/receivables between eight different Member States of the EU:

* The countries can reduce their total debt by 64% through cross cancellation of interlinked debt, taking total debt from 40.47% of GDP to 14.58%

* Six countries – Ireland, Italy, Spain, Britain, France and Germany – can write off more than 50% of their outstanding debt

* Three countries - Ireland, Italy, and Germany – can reduce their obligations such that they owe more than €1bn to only 2 other countries

* Ireland can reduce its debt from almost 130% of GDP to under 20% of GDP.

* France can virtually eliminate its debt – reducing it to just 0.06% of GDP

1) Steve Baker MP is a man to watch, having once suggested that UK government gilts held by the Bank of England can simply be cancelled (unless Steven Baker MP is a different person to Steve Baker MP?). He also mentions the unfortunately named Mark Reckless MP who is (or was) a big fan of debt-for-equity swaps (once he was on course to become an MP, he told me to stop emailing him on the topic).

Killer Arguments Against LVT, Not (126)

What really puzzles me is that the minute you mention taxes on land values, people go completely hysterical, and it's not just the Home-Owner-Ist propaganda kicking in, I suspect it is because people do not have a clue about maths, let alone economics or equity.

I had a hysterical reaction five years ago when I originally suggested replacing Council Tax, SDLT, Inheritance Tax, Capital Gains Tax and the TV licence fee with a flat one per cent annual charge on the current market value of all residential land and buildings - and not being totally daft, I made it clear that there would be a roll-up/deferment option for pensioners.

The way the maths works, very few people would actually be much better or worse off in £-s-d, whether on a year by year or on a lifetime basis - with the big upside that about a thousand pages of tax legislation could be swept away and the more modest upside that maybe housing would be allocated ever so slightly more efficiently, thus preserving The Hallowed Green Belt - but nope, hysteria was the order of the day.

Since then, on the basis that you may as well be hung for a sheep as a lamb, I have proposed that you might as well replace all taxes with Land Value Tax, which means raising eight times as much, and I get exactly the same grief - not eight times as much, which confirms that people really don't have a clue about numbers (if raising £40 bn in LVT is bad and earns you grief, then surely raising £320 bn in LVT is eight times as bad, yes?).

And lo, let us once again dip into the recent rich harvest of crap over at The Guardian:

How do you propose to fairly tax the owners of farms (1) or woodlands (2) without making their products disproportionately high? (3) What about industrial and retail land, which is the seedbed of small business which create new jobs? (4) And critically, what about pensioners: many are asset rich, living in houses where the mortgages have been paid off, but cash-poor with modest weekly incomes (5). A land tax would (literally) kill some of these people: it would be a choice between paying the "unavoidable" tax or turning on the heating...(6)

That said, the UK tax code is Byzantine in complexity, and there is a good case for ripping the whole thing up and starting again (7). I'm a former partner in a Big Four accounting firm, not a tax specialist, and a lawyer. And even I pay an accountant to keep my tax affairs in order: not to avoid anything, just to make sure I pay the right amount and don't trip up. There's a lot of dead money sloshing around like that (not dead to tax advisers, obviously). (8)

Yup, that's what you get for your money over at a Big Four accounting firm!

1) The article made it quite clear that LVT would be a replacement tax for income tax etc. It wouldn't be rocket science to work out how much income tax etc the agriculture industry currently pays. Let's say it's £2 billion in income tax a year (half a million people @ £4,000 each) and they farm 50 million acres, so the average income tax bill/acre is £40 a year. The author of the article mentioned specifically that it would be important to increase the personal allowance to £10,000. Maybe this would reduce the total amount of income tax paid by the agricultural industry by a quarter, in which case, provided the tax on agricultural land were no more than £10 per acre, then no harm done!

2) Profits from forestry are, bizarrely enough, income tax free to the landowner under current UK law, but not the income of forestry workers (which is subject to PAYE as normal). The rental value of forests is very low - about £10 per acre a year - because the value of a growing tree only increases by £1 per year or so (and half of that gain goes on wages and upkeep). So a tax on forests of about £5 a year would more or less balance out the 'cost' of increasing the personal allowance of forestry workers to £10,000 (or whatever the precise figures are).

3) The commenter fails to realise that farm and forest rents are a balancing figure! Total income, i.e. the value of the output, is more or less fixed (they compete with produce from abroad, the price of which would be unaffected by minor tinkering with the UK system); costs are more or less fixed (wages are dictated by how willing people are to do the work, again, a lot of the workers might be from abroad), and the rental value is merely an estimate of the net profit. A tax on a balancing figure, the net profit, affects neither the total income, i.e. the value of the output, nor the costs.

4) Ahem. It's not the 'land' which creates the jobs, it's some bloke (or blokess) with an idea, with ambition, with a bit of money to invest who taps into a new market and harnesses people's skills who create jobs, so reducing the tax on income and profits, however slightly, makes it more likely that jobs will be created. The land is just where all this happens.

I could rehearse the same arguments as in 1) or 2) or merely point that 'industrial and retail land' is already subject to something very similar to LVT, referred to as 'Business Rates'. Reducing taxes on incomes and increasing Business Rates (whether you call it LVT or not) on a £ for £ basis must have some mild positive effect on business activity. Worst case, an existing business is so badly run that it can no longer afford the LVT. In which case the owner decides he'd be better off shutting up shop and renting out the premises, which is guaranteed to make him a small profit for no effort whatsoever, with the added bonus that the new tenant will be running a more profitable business, creating more jobs, adding more value etc. Win win!

5) The Poor Widow Bogey, outing number 1,234,567. Exemptions, deferments, discounts, higher state pension, yawn.

6) Nope. It would be a choice between paying the tax, turning on the heating, trading down, taking in a lodger, selling up and moving in with family, rolling up the tax, asking the heirs to pay, taking out a lifetime mortgage etc. etc. There must be millions of lonely single pensioners who are shivering away in three bed 'family homes', would it be so terrible if some of them moved into blocks of flats or sheltered housing, thereby slashing their tax bills, preserving the wealth that will 'cascade down the generations', getting a bit of company and an on-site warden etc?

7) Exactly. And as all tax is ultimately a tax on incomes, why not move to a far simpler, yet sophisticated, way of taxing incomes (by taxing land values) rather than stick with a complex, yet damaging, way of taxing land values (by taxing incomes)?

8) Very much so. I'd be first on the scrap heap, but hey, our whole economy is based on lies, I just sort out the paperwork.

Killer Arguments Against LVT, not (90)

I've heard this argument a dozen times if I've heard it once, the first time here, when I was still arguing for a very modest reform (to replace Council tax, Council tax benefit, Stamp Duty, Inheritance tax, Capital gains tax and the TV licence fee with a flat tax of approx. 1% on the value of residential land and buildings):

Bill: This idea... has IMO all the the electoral attractiveness of the poll tax (and that is being unfair to the poll tax).

The sheer stupidity of that comment baffles me to this day.

1. He overlooks that the (admittedly deeply unpopular) step of replacing the old Domestic Rates with a flat Poll Tax (aka Community Charge) was a step in completely opposite direction; it was a regressive move, and the people who went on the riots were the people and households right at the bottom who were suddenly several hundred of pounds a year worse off. The large majority of homeowners were a couple of hundred pounds better off, and those in the biggest and nicest houses were presumably significantly better off (good contemporaneous account here).

2. What I was suggesting was neither 'progressive' nor 'regressive' and was about simplification as much as anything; some of those at the bottom would lose their housing benefit, but for eighty or ninety per cent of households, LVT would be much the same as their Council tax (less Council tax benefit, where relevant) plus TV licence fee is now, plus or minus a couple of hundred pounds a year even at the margin (bearing in mind that most Council tax benefit claimants are in the lowest Council tax bands A and B, and so instead, they'd get a lower LVT bill which would be payable in full).

3. In a world where the Lib-Cons think it's OK to take away Child Benefit from a random selection of higher earning households and the EMA from a random selection of low-to-middle income households (a loss of a couple of thousand quid a year each),or where the Lib-Cons can merrily hike VAT by 2.5% and National Insurance by 2% (making working households several hundred pounds a year worse off) I don't think the LVT idea was particularly radical.

4. Those who would gain most would be those with proper wealth besides the inflated value of their house which brings them over the Inheritance tax threshold; those who are thinking of buying or selling a house (who would save the Stamp Duty and/or capital gains tax, where relevant). And bearing in mind that I explained the roll-up option for pensioners, not even they (or their heirs) would be materially worse off in the long run (no Inheritance tax, and the resale value of houses would go up by the amount of the Stamp Duty cut).

5. So even if you could identify people who on closer inspection genuinely ended up paying more in the long run (and there would be some, obviously, e.g. no more 'single adult' discounts as there is for Council tax and many of those in the top decile housing-wise whose house is worth £300,000-plus), these are exactly the people who would not be going on riots, and on a crude political level, I don't see why they would be so much more deserving of public sympathy than e.g. people clobbered by the 50% income tax rate (not that I support the 50% rate, I'm just giving an example).

6. And on an administrative level, LVT beats the Poll Tax (or TV licence fee) hands down: there's no need to track down every adult, you just do the rough and ready valuations and send out the bills. A house can't just disappear, can it?

7. Finally, I'm an enthusiast of universal benefits (like a higher tax-free personal allowance, a Citizen's Income/Pension, health and education vouchers etc). If there really were items of public expenditure which cost a similar amount for each person and benefit each person equally (without flowing straight through into higher house prices, and I struggle to think of any apart from perhaps the cost of running elections), then the way forward is to reduce the personal allowance (or other universal benefits) accordingly, rather than dishing out £x per person universally with one hand and clawing back £x per person universally with the other.

Go figure.

Where can I get one of those magic shovels?

Social Housing Minister Witterings alerted me to a nice bit of Home-Owner-Ist propaganda entitled We need house prices to go up over at ConHome. The author got a fair old kicking in the comments, and I posted it at HPC just for a giggle, where the kicking continued unabated.

To my surprise, the author really is the gift that keeps on digging. He posted the following response at HPC:

David T Breaker said...

Thanks for the link to my post and feedback. Always welcome. I would however like to make a few points which you seem to have missed;

1. I recognise house prices are above the "historic norm" of 5x average earnings; my argument is that this "norm" no longer applies due to the fall in other prices, which means more income is available for housing costs, and the rising population.

2. I recognise first time buyers would like lower prices; my argument is that the large deposits are the problem however, and these are caused by banks fearful of falling prices. When prices start to rise again the deposit requirement will drop.

3. Falling prices doesn't increase supply.

4. We do not want to build on our countryside!

To which I responded thusly:

1. This is Ricardo's Law of Rent all over again. [He acknowledges that] if the economy becomes more efficient, this does not primarily benefit workers or businesses [or even consumers], it merely serves to drive up house prices. So why bother working? You can make more money by buying land and watching it appreciate.

2. So no more "no more boom and bust" then, just more "boom" for ever? When house prices were low and stable (for a few brief years in mid-1990s or indeed in the 1950s and 1960s) there was no problem getting a decent 20% deposit together for FTBs, was there?

3. Falling prices will increase the supply of affordable housing. That's all FTB's are asking for. Or have I missed something? For sure, falling prices are bad for the economy, but trying to keep the bubble inflated is worse. The best thing we could do is a nice big crash, let 'em fall and then keep them low in future.

4. OK, either we want to increase supply (in which case he contradicts his own point 3, which suggests that an increase in supply is A Good Thing), or we want to prevent all new construction (which is A Good Thing if you are a Greenie or NIMBY). In any event, where on earth does he think that existing housing was built? Great Britain was once all forests, you know.

"Government by international treaty"

Denis Cooper coined this phrase a few years ago, and he emailed me a good example today, (which he also posted on the relevant thread at Con Home). From Hansard:

Mr Dominic Raab (Esher and Walton) (Con): The European investigation order would allow police and prosecutors throughout Europe to order British police to collect and hand over evidence... Britain has until 28 July to decide whether to opt in or, like Denmark, to opt out. Will the Leader of the House indicate when the Government's decision will be made, and will the House have an opportunity to debate the measure in advance?

Sir George Young: I am grateful to my hon. Friend. He says that the Government must decide by 28 July what action to take. I will certainly ascertain from the Foreign and Commonwealth Office or the Home Office, whichever Department is the appropriate one, what action they propose to take in response to my hon. Friend's question.

As D says, "That the Leader of the House is unclear which department of the British government now has responsibility for the activities of the British police speaks volumes about the constitutional confusion created by EU membership.... We seem to have entered a new phase where the Foreign and Commonwealth Office is in part a kind of Colonial Office in reverse, with the instructions coming in rather than going out."

Tax simplification

I (almost inadvertently) got quite a good debate going over at the HPC 'blog today.

It was certainly more instructive than the knee-jerk responses I got over at ConservativeHome back in March.

A case for legalising cannabis

ConHome have kindly published my article.

Conservative Home

They have kindly published my article on Land Value Tax today. All comments - positive or negative - would be gratefully appreciated!

ConservativeHome (1)

They've turned on comment moderation.

Where's the fun in it now?