Killer Arguments Against LVT, Not (495)

Sobers came up with a corker recently. My thinking is that trying to establish pseudo-accurate valuations for each individual home is pointless, and we should do averaging and banding of similar homes (by size or type, or plot size or plot frontage/width etc) in each area and have same the LVT bill for all homes in the same band. We are used to Council Tax banding, and ATED (mansion tax lite) is by very wide bands. SDLT operates in bands etc. To me this makes sense.

Sobers pointed out - rather too gleefully IMHO - that in some small areas (one postcode sector or local council ward or whatever), there can be a wide range of values between similar homes. He referred to an unnamed town near him and said that semi-detached ex-council homes on a 'scuzzy' estate there sell for £300,000-ish while semi-detached homes in the nicer parts sell for £400,000-ish.

I'll take his word for it that this is all true (I am sure that there are such places), that they are all in one postcode sector or local council ward, and that valuers wouldn't pick this up and split that area into two separate valuation areas, or the valuers wouldn't discreetly classify the ex-council homes as small semi-detached in Band C and put the nicer ones into the default Band for normal semi's, Band D.

Therefore *drumroll* LVT would act like a Poll Tax where 'the poor' have to pay as much as 'the rich'! Game over for LVT!

On closer inspection this is of course nonsense on stilts, LVT is the polar opposite of a Poll Tax (it has all its advantages with none of the downsides). How can LVT be simultaneously 'an attack on wealth' and a poll tax? But we have seen The Powers That Be do such fear mongering on an industrial scale, expecially with the Cameron referenda (alternative vote, Scotland, EU) and I wouldn't put it past the Mailexpressgraph to come up with this sort of shite.

I haven't thought of a punchy slogan to rebut this yet, but credit where credit's due.
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Another one came up in conversation with Henry Law. We agreed that local taxes are inherently regressive (which we, like most people, think is A Bad Thing, opinions differ) and so LVT would have to be a national tax at a national rate, the same as most other taxes. So instead of local councils getting central govt funding for 80% - 90% of their expenditure and topping up with a bit of Council Tax, they all get grants to cover 100% of a reasonable level of expenditure, end of.

Whether that is flat-rate, per capita funding, or with loads of extras for 'deprived' areas or 'rural areas' or wherever the government of the day wants to buy votes, like the current system is a separate debate. I always prefer flat-rate, per capita of course.

The weak argument FOR local taxes is that it encourages fiscal responsibility by local councils and/or some democratic safeguards against high spending councils. So a national LVT that is divvied up equally everywhere, same as income tax or VAT receipts that pass through central government, is undemocratic..?

How exactly are fully-funded councils undemocratic? Is a fully funded police service undemocratic? Should the police meet their finance needs with on-the spot fines? The local/national distinction is in itself nonsense, if you think about it - nearly all spending is 'local' to somewhere. So your democratic safeguard is being able to vote for a low-spending government (if that were possible, you can choose between high spending Labour and tax-raising, black hole spending, fiscally irresponsible Tories).

The next layer of democracy is that local councils would still be elected, and you would judge them on results. Their job is to keep as many people as possible happy within a limited budget, so they have to choose fixing potholes vs having more cycle lanes; better old age care vs more daytime nursery places; longer library opening hours vs better upkeep of parks and playgrounds. Judging them by how high (or low) Council Tax is, is idiotic anyway, the level of your Council Tax depends largely on how 'generous' the central government is when it comes to funding your council.

(Which is why we pay twice as much Council Tax as people a few hundred yards away who are in Greater London, not Essex. So what? We paid accordingly less for the house and would be able to sell it for accordingly less. We could halve our Council tax bill by moving, but that would cost us £100,000s, so what's the point?)

Killer Arguments Against LVT, Not (494)

I haven't done one of these for ages, mainly because I've done them all and Sobers isn't trying to invent new ones. However, I tend to ramble on a bit with my rebuttals, and would like to simplify them as much as possible.

Here's a classic KLN:

"LVT would discourage improvements, like the Window Tax did. Buildings would fall into disrepair." Sometimes expressed as "Developers would all go out of business."

Short answer: only if the tax payable on each plot were directly related to the current condition of any buildings and improvements on them. As long as the owner's actions have no impact on their tax bill, they will just get on with making the best of things (or not, according to attitude and available cash). ENDOF.

I have always said that valuations will/should be carried out as follows:
1. Grouping, banding and averaging the values of similar buildings/plots within each smaller valuation area,
2. Assuming that the average £ values for such buildings/plots in the lowest value areas represents the £ zero location value baseline,
3. Subtracting the baseline value from the average values for similar buildings/plots in each other smaller area across the whole country,
4. The excess in values for similar buildings/plots over this baseline in all other smaller areas is due to their location alone, which is what LVT should be taxing.
5. The amount payable for all similar buildings/plots in each smaller area will be exactly the same, regardless of the condition of the building itself.
6. As a final tweak, compare the valuations for different types of building in the same smaller area. For example, semi-detached houses should be less than detached houses and more than terraced houses, and maybe apply some sort of fixed ratio between overall types, for which we can use the normal Council Tax bands, so larger detached houses pay 18/9 and bedsits pay 4.5/9 of whatever is payable for a bog-standard 3-bed semi with one off-street parking space, which would be 9/9.

This has the merit of simplicity/cheapness if nothing else. Whether those valuations are based on total selling price or rental values, and whether they are adjusted down to ignore the likely value of the buildings and improvements are secondary issues on which I am heartily indifferent, I don't think it really matters.

Tactically, it is better to go for a low official valuation (and apply a higher tax rate) to get the target amount. This reduces the number of appeals against the valuation, and people tend to accept the tax rate as a given. Economically, as long as average selling prices are higher than rebuild costs, which can be taken from typical insurance quotes, then the tax is less than 100% of location value and no harm done.

While we're on the topic, there is a long list of features of the current tax system which actually do discourage improvements, with which I won't bore you. These reduce the after-tax benefit of making them by about half.

The follow up KLN is then this:

"But the LVT will take money out of people's pockets, leaving them less to spend on improvements."

All taxes do that, that is the whole point of taxation. Whether you've paid £1,000 income tax, NIC, VAT or LVT leaves you the same net cash. At least with LVT, you know that you get twice the bang for your buck if you do pay for improvements. And a large part of the tax money spent by govermnent goes back into maintaining location values. With LVT, that would be a primary aim of govermnent - they are like a landlord business trying to maximise their rental income (on behalf of their 'owners', being every single voter in the country, who get dividends in cash or in kind) by keeping things as nice as possible.

Killer Arguments Against LVT, Not (493)

Under an LVT-supporting article in The Guardian:

acornishfarmer
average farm 213 acres ...worth £2M...
average income per acre £66 (2019 yr)...£12000
... you would bust family farming in UK for ever

Complete moron. He or she ignores how much (or little) LVT on farmland would be.

1. Size of farm - irrelevant
2. Current selling price of farmland - irrelevant.
3. Average income per acre - £66, that seems low to me, but I'll take their word for it. Of that, maybe £20/acre is average land rental value - the LVT would be a percentage of this. The rest is earned income and irrelevant to LVT.
4. Farmers (and their workers) would benefit from the same reductions in VAT* and National Insurance (those first as they are the most damaging taxes), so would at worst break even under LVT.
5. Tenant farmers - who pay on average a lot more than £20/acre seem to manage somehow. Long time LVT supporters and lifelong farmer Dr D Pickard owns some land and rents extra bits as and when he 'needs' them, i.e. if he can make a net profit after paying rent. If he can make a net profit after paying full rent, he can certainly make a net profit after paying LVT, which by definition would be less than the full rent.

* "But farmers and their workers don't have to charge VAT!" shout more morons. Directly or indirectly they very much do - the wheat they sell that end up in biscuits or alcohol are indirectly subject to VAT. They pay VAT directly on their personal expenditure. Or, if you look at tax incidence, these are borne directly and indirectly respectively. Not that it changes the maths much.

Killer Arguments Against LVT, Not (492)

Another one that has been bugging me for a while is the notion that, with LVT, land prices would be permanently low and so 'property developers' would have no incentive to build anything because they can't participate in any land value uplift (mainly that triggered when planning is granted)*

This must surely be nonsense. Imagine that house prices and rents are stable. Sure, they will drift upwards with real wage increases and economic growth generally, but overall flat-ish. Construction costs will also increase in line with wages generally, so actual land values would be even more stable. This would put a dampener on NIMBYism and land speculation. No village is going to be swamped overnight so no grandiose plans to oppose. Instead of a hundred landowners putting in planning permission applications and one or two lucky winners getting it, it would be just one or two builders putting in planning applications, which get nodded through.

So land prices would be stable. They might be low and stable or high and stable, but there wouldn't be much planning uplift; actual builders would pay the existing owner for the likely planning gain when they buy.

If the population is stable or growing, and the economy is growing, there will always be demand for more buildings (moving into something bigger and nicer, or renovations or home improvements, old buildings to be knocked down and replaced etc), so builders will have enough to do. Most of the people in construction just get paid for the work they do, architects, brick manufacturers, chippies and sparkies. As long as there is work and they are being paid, they are happy, even though they don't get a penny of any land value uplift.

There would still be plenty of profit to earned by the 'property developer', the one who plans and oversees everything, takes the risks, raises the finance. That has to be rewarded or nobody would do it. Even if this incentive were eroded, so what? There would be less competition for new sites, land prices would be lower and it would be like olden times where architects, brick manufacturers, chippies and sparkies club together and organise their own developments and just earn an honest crust for work done.

* The Homeys are so stupid, having said that there would be no more developers if we had LVT, they then advance the KLN "Farmers won't be able to afford the LVT and will be forced to sell all their land to developers." Which developers, you twats? You just claimed that there wouldn't be any developers left.

Killer Arguments Against LVT, Not (491)

Kester Pembroke emailed in the following, by a clueless wanker called Neil:

Or alternatively we can recover planning gain from developers and impose peppercorn leases on all land given planning permission. Then those leases are held by the local council and they create sufficient for all builders in the area to build as they see fit. We keep going until houses start to depreciate. If insufficient builders come forward we build council housing. It's bizarre to believe that planning gain should continue and the entire country taxed instead.

The bit about 'peppercorn leases' is just waffle. Once the developers - who are always seen as The Bad Guys, as evidenced by endless cinema films - have sold the homes they build, who pays it? And the notion that granting lots of planning permission would lead to house prices is falling is nonsense - when prices start falling, developers stop developing.

The bit about "the entire country being taxed instead" is mathematical bollocks. You own one home? Pay tax on one home. You are a land banker with a hundred thousand sites with planning? You pay on a hundred thousand homes. That's like saying ordinary motorists shouldn't pay Fuel Duty because they don't use as much as large transport companies.

Agreed on Council Housing - but the rent you pay on a council house is a combination of real costs (maintenance, insurance etc) and location rent. If you pay location rent to the government, that IS Land Value Tax.

Particularly one based upon subjective value and that has never worked - as every version of rates and council tax shows.

Business Rates were introduced over four centuries ago and are still going strong. Sure, the valuations are done in a sloppy manner and are a bit hit and miss, but it's still the closest we have to LVT.

... yet council Tax is still on 1991 values, which shows that reality doesn't coincide with the fantasy. The previous two rating systems suffered from the same issue.

The council tax on any home bears so little relation to its 1991 value as to be meaningless. In practice, an annual council tax bill can be anywhere between 0.1% and 100% of a home's current site premium/location rent (Mayfair vs Blaenau Gwent, or wherever the cheapest houses are). Council Tax is made up numbers. So what? The only reason we have this stupid system is because of Home-Owner-Ist resistance to a sensible valuation system, which was the same under Domestic Rates.

So this is akin to a spoiled child smashing a new toy with a hammer and then complaining that is doesn't work. Northern Ireland shows that it is not too difficult to update valuations. They assessed market values in 2005 and the Domestic Rates is about 0.7% of each home's 2005 value.

When taxing, it's not about it being 'about right'.

When taxing, the most important thing is taxing in the fairest possible way that is least damaging to the economy. Without a government or government spending, most homes would be nigh worthless. So you pay for what you get. The government would be just a mutually-owned, for-profit service provider and every citizen gets an equal share of the dividends (mainly in kind, with an element in cash).

There has to be a system that is rigorous and seen to be fair. And that is why property taxes always fail. The value of them is subjective.

Of course Domestic Rates or LVT or 'progressive property tax' or Council Tax or whatever you want to call it can be applied in a "rigourous and fair" manner, he's just doing the spoiled child again. The rental value of 99% of homes is not subjective in the slightest. It's a simple question - how much could you rent it out for? Then knock off a bit for the bricks and mortar element, round it down for luck, stick similar homes in Bands and average it all out. There's your answer.

Sure, 1% of homes are so quirky or odd that it's difficult to establish the exact market value, but the market value itself is not 'subjective'. I don't know exactly how much rain fell in my back garden yesterday, so I'd have to interpolate and guess. But "how much rain fell in your back garden" is not 'subjective', it's 'objective' and the fact we will never know the precise answer does not make it 'subjective'. 'Subjective' is questions like "Were Led Zeppelin better than Little Mix?", on which everybody has their own equally valid and irrelevant opinion.

As long as you are paying the same amount as similar homes in your area, and people in bigger homes/nicer areas are paying more and people in smaller homes/grottier areas are paying less, what's the problem?

Whereas wage taxes are always absolutely objective and unarguable. Ultimately unless things change hands rental values and property prices are a matter of opinion. That can never be a stable basis for taxation.

Property taxes are a VERY stable basis for taxation, the money is just collected (preferably by direct deduction from wages or welfare/pension payments) without the need for tens of millions of annual tax returns, quarterly VAT returns, monthly or weekly payroll calculations etc. That's a massive headache and cost with a huge amount of fraud and error.

Just because you think that some economic variable - like wages or turnover - are 'objective' does not automatically make them good subjects for taxation. You are paying for the privilege of working or running a business, providing goods and services etc (which are Good Things - if you tax them, you get less Good Things) for absolutely nothing directly in return (apart from a few contributory benefits, which are an insane idea anyway. They are the opposite of means-tested benefits, which are just as insane.)

Why not get rid of that and ask people to pay some percentage of the value of what the government provides them? Not forcible payments towards the cost (that way lies Poll Tax) but voluntary payments for the value, just like in any free market transaction? Think you're being overcharged? Move somewhere cheaper. Nobody's forced to shop at Waitrose. It's voluntary because they can shop at Aldi or Lidl instead.

Killer Arguments Against LVT, Not (490)

One objection that often floats about is that while you can establish reasonably reliable relative values for generic types of land and buildings - urban homes, factories, offices, retail premises, farmland etc, there will always be a few outliers.

I agree, things like stately homes and theme parks in the middle of the countryside (or ski-runs in the Cairngorms or whatever outlandish examples people come up with) aren't bought and sold very often. It's difficult to say what they'd sell for or rent for, and how that would be split between building value and location value.

So what?

Even with conceptually simple taxes like income tax, there are endless grey areas. Who is and isn't UK resident? Where's the line between a gift out of gratitude and a payment for services? What's a taxable dividend and what's a non-taxable return of capital? If a shareholder also works for a company, is the money they get from the company dividend, wages or a loan?

There are thousands of pages of legislation, guidance and legal cases on all these issues; it's sometimes impossible to understand why a Tax Tribunal decided that somebody's receipt from a certain source was taxable or not, and sometimes they decide the opposite way round to what you'd initially expect, given the basic facts. But they are the Tribunals and I'm not.

Nonetheless, the bulk of what you'd think is taxable income is actually taxed; some people wriggle through loopholes; others have to pay tax on stuff where the sensible person would assume it's non-taxable. Some tax is never paid and HMRC just writes it off. Overall collection rates about 90% of theoretical receipts. And we accept this as 'good enough'.

Conversely, LVT assessments for 98% of land by value are a doddle i.e. developed land in urban areas where there is plenty of data on rents and selling prices. Farmland is about 2% by value, that's not too difficult either (the tax would be tens of pounds per acre per year at most, unless we just exempt it). And collection rates will be very high - who cares where the owner lives? If they run up massive arrears, the land and buildings just get auctioned off and they get the balance.

As to stately homes and theme parks, valuers just have to make up some general rules or haggle on a case-by-case basis. If they end up getting the benefit of the doubt and are under-taxed, so what? Most of the stately homes which the National Trust owns were given away by owners who couldn't afford the running costs, and even with their membership and entry fees most of them aren't particularly profitable, so they can't be worth much, possibly next to nothing i.e. not worth taxing.

Killer Arguments Against LVT, Not (489)

Emailed in by Benj from The Library of Economics and Liberty [sic]:

The author picks up on this pro-LVT argument:

Solution: A land tax. The first person to find some unused land gets to claim it, but also, the person who owns a particular piece of land at any given time has to pay a tax approximately equal to the intrinsic value of that land (the value not due to human labour). The tax money should then be distributed evenly among society.

That's a very hypothetical example, but hey. Note the key words "the intrinsic value of that land (the value not due to human labour)". The author is clearly thick and twists it round to the opposite.

Here's the KLN:

To put this in the form of a common-sense moral dialogue:
A: Welcome to the island!
B: Thanks. Now hand over half the surplus value of your land. You owe it to me.
A: This is my land. I’m the one who farmed it. I was going to give you some to help you out, but you’re scaring me.

Who says it's his land? Land ownership can only really exist under the umbrella of a government, i.e. consensus backed up by force. Or just force. What if they were both washed up at the same time but one of them managed to save a revolver and bullets from the ship wreck? Who do you think gets to own the land?

B: You’re entitled to your value-added, sure. But you have to share the raw productivity of nature with me.

This bit is actually correct. But the author is wilfully blind as to what the "raw productivity of nature" means...

A: Seems unfair.
B: Well, let me point out that you seem to have an inborn knack for farming.
A: True, I’ve always had a green thumb.
B: Interesting. I wasn’t born with this talent, so you also owe me half the value of your inborn green thumb. I think I’m going to like this island!

Exactly not. The point about Georgism is not taxing the value of individual skill and effort. No way is the newcomer entitled to half the total value of the output. He is - ultimately - only entitled to half of what he himself would be prepared to pay in rent/tax.

If the land is incredibly difficult to farm and/or the newcomer is absolutely rubbish at farming, the land is of no value to the newcomer and the "intrinsic value of that land" is zero as far as the newcomer is concerned.

If, on the other hand, farming on that island is really easy because there are a load of pre-existing edible plants, fruit-bearing trees and incredibly tame animals, only a small fraction of value of the food is due to individual skill and effort (somebody has to go out and collect it and bring it back) and most of the value is a freebie, like sunshine or rain.

Killer Arguments Against LVT, Not (488)

Somebody emailed his KLNs to the Labour Land Campaign:

1. A couple of teachers save up for 10 years and buy a flat in London for £400k, with £300k mortgage. They want to live in it for 5 years and then move to a larger £600k property to start a family. LVT is introduced and within a year their flat is now worth £300k.

Although they have lost their deposit it doesn't matter because they are paying down the mortgage by £5k each year and also continue to save £10k per year. So after 5 years they have built up equity of £75k. The house they want to buy is now worth say £450k (rather than £600k).

So now they need a mortgage of £375k, whereas without LVT, they would have £175k equity so would need a mortgage of £425k. They are better off with LVT in place, as long as they can wait 5 years before buying. No need for compensation.

Agreed, but that was just his first example as background, here's the actual KLN:

2. The only people that might lose out significantly are those who bought within a year or two of the LVT coming in, on a 2-year mortgage deal, and get bumped onto a variable rate because they can't remortgage.

They might then no longer be able to save sufficiently to build up much equity at all within 5 years. And would be stuck in housing that is too small through no fault of their own. But most would eventually be able to save their way out of it.

My reply:

The whole negative equity thing is all a red herring.

"The only people that might lose out significantly are those who bought within a year or two of the LVT coming in"

Some points to note:

1. Trading up will still be cheaper and overall mortgage payments will be lower.
2. If LVT just replaces existing taxes on land and buildings (council tax, SDLT, inheritance tax) then their tax bill - and house prices - won't change much. They pay a bit more in LVT than they did Council Tax but save as much again in SDLT when trading up.
3. IF LVT goes further and replaces the really damaging taxes like VAT and National insurance, then they will be better off every year, so they can save up, pay off the mortgage, enjoy life a bit more, whatever.
4. If LVT goes further... then there's no reason to assume that house prices will fall much. The extra net disposable income (VAT and NIC take about one-third of your earnings) will largely go into rent and house prices, so it cancels out.
5. Even assuming house prices fall and some people are in nequity, don't forget that the principal mortgage amount is just a number.
Let's say you have a £100,000 mortgage @ 3% interest, 15 years left to pay.
That means annual payments £8,400 = total payments £126,000 over 15 years.
That's what the bank cares about - the £126,000.
So the bank just replaces the £100,000 @ 3% mortgage with (say) a £75,000 mortgage @ 7.4%. Or a £60,000 mortgage @ 11%.
All those mortgages have the same annual payments of £8,400 for 15 years.
Your payments don't change, you are unaffected (and have more disposable income) and there is no nequity any more.

No problem that I can see.

Killer Arguments Against LVT, Not (488)

@benjit14 (aka BenJamin') replied on Twitter:

Of course we can internalise the cost/benefit of NIMBYism by taxing location rents at 100%. That would solve housing issues without the need to build a single extra home. Thats what good econ looks like. Bad econ only sees the supply side.

Floppy haired developers' friend @K_Niemitz countered:

This is why I mute Georgists. Georgism is the belief that you could fit the entire population of Britain into one single house, provided the ground underneath that house is taxed.

BenJamin' clearly said "without the need to build a single extra home", I'm not sure how mentally deficient you'd have to be to interpret that as "we'd all fit into one single house".

Meanwhile, back in the real world...

1. Population of England & Wales = 56.1 million.

2. Number of bedrooms in England & Wales according to the 2011 Census = 63.6 million. The ONS explain that there's a big margin of error here, it's based on sampling. How do you define 'bedroom'? What about Dad's study or Mum's home gym upstairs? What about downstairs rooms that aren't used much and which could be used as somebody's bedroom? And the number from the 2021 Census will be higher. But it will do for a start.

Let's assume three-quarters of the population are adults, and half of those are in a couple (who still get on with each other), if every couple shares a bedroom and 'everybody else' has one bedroom each, we would need approx. 45.6 million bedrooms. And we have 63.6 million, which is an extra 40%, so the average number occupied by couple-family with two kids would be just over 4. I suspect a median family with kids lives in a three-bed semi (so they're losing out) and we know there are a lot of people with holiday homes, retirees still in a family home etc (who are winning).

Do we really have a housing shortage overall, taking "one bedroom each" as a decent base level? Nope. Would LVT go a long way to shifting people closer to the average? Yup. Clearly LVT wouldn't get us all the way there, but so what? The retirees in a family home who also have a holiday home would be paying for the privilege and the family in crowded accommodation would be compensated, however indirectly. Which was BenJamin's actual point.

(For sure, you can blame crowded families for not earning enough to pay for somewhere decent or for having too many kids. But if they all earned more and all wanted to trade up, prices would just slip out of their grasp. The misallocation would be barely affected.)

Killer Arguments Against LVT, Not (487)

Georgist, quoting Churchill circa 1909: "LAND MONOPOLY is not the only monopoly, but it is by far the greatest of monopolies -- it is a perpetual monopoly, and it is the mother of all other forms of monopoly."

Home-Owner-Ist or Faux Libertarian: "Not it's not. There are billions of landowners all over the world. Anybody can buy land. You can choose between dozens of landlords in an area."

These people aren't interested in listening to the explanation, but here it is anyway...

There is a fixed amount of land, you can't increase the surface area of a planet, no matter how much you build or how many swamps you drain. It is land itself that is the monopoly. For sure, it has been sub-divided and there are more small landowners than large landowners, but that does not change anything.

Let's agree that water companies have a monopoly on mains water supply (in their region). The fact that many water companies are quoted on the stock exchange and have zillions of shareholders does not change that. However many shareholders they have, that doesn't change the prices which consumers have to pay.

[As an aside, water prices are thankfully capped by the government at enough to give them handsome profit margins (but still at much lower than whatever the profit maximising price would be). In this case, capping prices does not reduce supply. Profit per consumer is fixed, so to maximise profits, the water companies just want to supply water to as many consumers as possible (provided the income covers the marginal costs). Stick that in your pipe and smoke it, Faux Lib's!].

Or we could cycle back a few centuries to when all the land in an area was owned by a descendant of a violent thief (i.e. an 'aristocrat' as they like to call themselves). He was clearly a monopolist and charged as much rent as he could get away with. By today, his descendants will have sold off small areas for development, which have since become very valuable, but they still owns lots of fields around the towns that have grown up.

Along comes our developer, looking for a greenfield site near the town. Some of the land is owned by a few small farmers and the bulk is still owned by one of the original thief's distant descendants. The small famers will demand the same price per acre as the 'monopolist'. Sub-division has not helped the potential buyer.

Or maybe the thief's descendants retained some of the land in the growing towns and built their own housing there to be rented out (or sold on long leaseholds). If you are looking to buy or rent, the price or rent you will have to pay to the sellers or landlords who own a single unit will be exactly the same as the price demanded by the original monopolist who owns all the housing across the road.

Another indicator that land is a monopoly is that in a monopoly, the price is set by demand and bears no relation to costs of production (the cost of producing land is precisely zero, or course). The monopolist can maximise his profits by restricting supply/pushing up prices so that his marginal revenue = his marginal costs. At the margin, land bankers home builders do exactly this, they just drip new housing onto the market so slowly that selling prices are not depressed. If selling prices fall (i.e. after every 'financial crisis'), they just mothball their projects for a couple of years. They'd be daft to complete and sell a house for £160,000 today if they know they will be able to complete and sell it for £200,000 in a year or two.

[Which also pours cold water on the idea that more generous planning rules = more construction = lower prices. Lower prices = less construction. It is self-limiting.]

With land and housing, supply is fixed in the medium term and so price is set purely by demand, which is entirely beyond the control of most landowners. Local factory shuts down? Less demand, lower prices. A new station or road is opened? More demand, higher prices. In truth, you aren't really paying for the land, you are paying for the bundle of local amenities which you can easily access from any particular plot, which is why houses with big back gardens don't sell for noticeably more than houses with small back gardens. The amenity value of a few extra square yards to store an unused trampoline and a rusty lawnmower is a tiny fraction of the amenity value of a well-paid job within an easy commuting distance.

Killer arguments against LVT, Not (488)

From the LVT group on Facebook, (H/T to John David Kromkowski)

There are 2 farms next to each other. Same size. Farm A is a bit more fertile. So we can I think agree that Farm A has higher lvt. Farmer B figures out that by planting different things and how he tills he can increase the fertility. 20 later, Farm B has greater fertility than Farm A. Farm B now get a higher LVT levied than Farm A. Farmer B says hold on a second, that increased land value is due to my labor and ingenuity, why should I have to pay more LVT?

My answer to that would be, is that, just because it's land it doesn't mean that all the rent that a landlord could get from it is land rent and therefore taxable under LVT. This is the same fallacy as those who think that LVT would only apply to agricultural land, because land in built-up areas isn't commonly referred to as "land".

The value of the rent that is obtainable from agricultural land because of its ability to grow crops or graze animals is the same as the value of the rent that is obtainable from urban land because it has a house on it. It's not the value of the unimproved land.

Killer Arguments Against LVT, Not (487)

As we come up to the big part 500 anniversary episode, here is an article which TBH spotted in The Daily Mail.

It is an absolute classic of the Home-Owner-Ist genre and highly recommended reading. See how many lies, contradictions, self-delusions and diagonal comparisons you can spot.

It would take me days to debunk them all, but this diagonal comparison is worth a mention:

Older people who bought houses years ago, and who are living on a small income, could struggle to pay their tax bill and be forced to sell a cherished family home.

And not every owner-occupier in the South has benefited from huge windfall gains. Young people with huge mortgages on recently purchased tiny flats in the capital would be hammered too, with a chilling effect on their aspirations.

Poor Widows in Mansions (low income, massive unearned gain, no mortgage) and recent purchasers (high income, no unearned gain yet, large mortgage) are at absolute opposite ends of the spectrum! If one deserves sympathy, then the other doesn't. Even if you ignore the extremes, how does that translate to sympathy for the vast majority in the middle (medium income, modest unearned gain, small/cheap mortgage)??

As it happens, these problems melt away on closer inspection:

1. Fairer Share said that clearly there would be a 'defer and pay on death' option for the former.

2. For the latter in a "tiny flat in the capital" which cost them (say) £500,000, this tax would be like a small % increase in mortgage interest rates. Instead of paying 0.2% Council Tax each year (£1,000), they'd be paying 0.48% Proportional Property Tax each year (£2,400), which is only £117 a month more (hardly 'hammered') and no worse than a 0.28% increase in mortgage rates, which purchasers should have budgeted for. The government can ease the strain by just dropping interest rates, although the chances are that interest rates have fallen by 0.28% since they took on a mortgage, so they are no worse off than they originally expected.

If they are in a "tiny flat" then no doubt they 'aspire' to 'move up the property ladder' some time in the next ten years, at which stage they will save at least £15,000 SDLT (we don't need to worry about whether SDLT is borne by buyer or seller - when you trade up you are both). So when they achieve their 'aspiration', they will get all their money back and it will make 'moving up the property ladder' a lot cheaper and easier.

Poor Widows In Mansions, part the manieth.

From The Daily Mail:

[UK Finance Minister] Rishi Sunak rejected a proposal for an emergency wealth tax to recover the staggering £280billion the Government has spent so far on the coronavirus pandemic. The Chancellor was presented with plans for a one-off levy on those with assets of more than £500,000, or £1 million for a couple, including their family home and pension(1).

But Mr Sunak has told allies that he has ruled out the suggestion because he believes it would be 'un-Conservative' and go against the party's aspirational values(2). However, he is still considering proposals to raise tens of billions from the better-off by sharply hiking capital gains tax.(3)

The Wealth Tax Commission(4) last month proposed a 5 per cent levy on housing, pension, business, equity and savings wealth that it forecast would raise £260billion. The tax would apply to every UK resident with assets of £500,000 or more and would include homes excluding mortgage debt.

About one in six adults – 8.2million people – would be liable, but the tax would largely fall on older generations who have paid off more of their mortgages and built up larger pension pots. Almost 40 per would be aged over 65, while just 6 per cent would be between 35 and 44 years old. The Commission recommended households pay the levy at a rate of 1 per cent a year for five years.

It estimated up to 10 per cent of those affected would be 'asset-rich, cash poor' and not have the ready money to pay for it. For those people, it suggested smaller payments for a longer period. (5)

1) Hooray for taxes on land and buildings, especially if they replace existing stupid taxes on land and buildings, such as Council Tax, SDLT and Inheritance Tax. Taxing pension funds is stupid because they are heavily subsidised. It it far better to simply reduce or phase out the subsidies. Taxing the value of 'business, equity... wealth' is even more stupid. If you want more tax from businesses, just reduce corporate subsidies, and if still necessary, hike the corporation tax rate. Taxing cash savings is even stupider; a proper tax on land and buildings (i.e. LVT) ignores mortgage debt and is levied on the gross rental value of the plot. So as a quid pro quo, cash savings shouldn't be taxed either, or it's heads-we-win, tails-you-lose.

2) 'Un-Conservative' just means 'won't go down well with voters'. The Conservatives are the political party with no principles whatsoever apart from staying in power as long as possible. The same applies to 'aspirational values', which is meaningless. With a full on-LVT and lower taxes on earnings and business output (which are real taxes on 'aspirational values'), people would still 'aspire' to earn more and buy a nicer house (or a nicer car or nicer holidays, or more savings, whatever, that's the whole point of earning more). And those who earn more would end up in the nicer houses and pay the LVT voluntarily.

3) This is pure tokenism. Capital Gains Tax in the UK raises about £7 billion a year, about 1% of all tax receipts (from memory - it's fairly small numbers). CGT was never intended to raise much revenue, it is basically an anti-avoidance measure to deter people from reclassifying heavily taxed earnings or profits as 'capital gains' (which were not taxed at all until 1965). The revenue-maximising CGT rate appears to be about 15% and we are already past that point on the Laffer Curve. So it is nigh impossible to raise significant extra money from CGT.

4) Wealth Tax Commission is an initiative of think-tank the Institute for Fiscal Studies. They are well-respected and influential but nothing official. Their numbers and estimates are almost certainly correct.

5) Also known as 'the roll-up and pay on later sale or death option', just to knock that KLN on the head.

Killer Arguments Against LVT, Not (487)

KLN: "VAT works to deter landlordism. LVT doesn't."

Seriously.

Sam Bowman of the Adam Smith Institute posted this as a reply on Twitter.

Killer Arguments Against LVT, Not (486)

"Unknown" submitted a couple of KLNs, you can tell his heart wasn't really in it:

1. The landlord owns the property and land it stands on because of homsesteading. Nobody has moral claim to it other than them.

Poor start. A landlord is clearly not "homesteading" and owns more land than he needs. There's no such thing as a moral claim to land, it's a legal and economic concept, so whether or not a landowner (or anyboyd else) has a "moral" claim to land is neither here nor there. But landowners do not have a moral claim on a large chunk of everybody else's output and labour, i.e. the taxes on output and earnings which are used to pay for those government services which give land its value in the first place.

2. Land is just one more scarce resource. There are many, many people who live fulfilling, economically productive lives never owning land.

If we put a 100% tax on chicken consumption, guess what? Everybody would eat turkey McNuggets.

Georgism is stupid because no scarce resource is unique. They're all scarce and thus not special. There's even plenty we're not making more of. The idea of one of them being the one thing we can tax is just ridiculous.

That's kitchen sink stuff.

I don't think that land is scarce at all, 99% of the UK population lives and works on less than 10% of UK surface area, the developed bit. Developed land = geographical areas where society in general and the government in particular make land valuable, that's where people want to live, some trade-off between good jobs, shops and leisure opportunities, good schools, low crime, good transport links, nice views, a bit of open nature - or not as the case may be. Developed land is 'scarce' because providing or organising all these services is very expensive and complicated (simply owning land is the easiest bit); it is the services which are in limited supply.

It is quite true that many people don't own land. Most of them are economically productive, but their lives are all the less fulfilling for having to fund land values out of their taxes AND pay rent for somewhere to live or do business. But if they can manage - and they can - why can't everybody? Is there a special class of people who can only lead "fulfilling, economically productive lives" if they own land? How is a landlord "economically productive" anyway? Any tenant who buys the place he was renting must know that they aren't.

The chicken-McNuggets analogy is fatuous. Land Value Tax is just landowners paying the government for the value of the services they receive, it's a user charge, like paying for the market price for chicken or turkey McNuggets. You wouldn't say that McDonalds charge a 100% tax on turkey McNuggets, they just charge market price. And the government can "tax" land rental value at 100% (for administrative reasons, call it 80-90%) and the land is still there, the same services/benefits are still being provided at that location, and demand for land is unchanged.

As mentioned, whether land is scarce or not is irrelevant. What makes it unique is the fact its "value" is actually the value of services and benefits being provided at that location. My car doesn't change in value if I buy it in Wales and park it in Kensington. If you could buy farmland in Wales and move it to Kensington, it would go up in value a million times over. That's why land is an ideal source of government revenues (there other equally ideal taxes, like fuel duty, but they are minor in comparison), and certainly far better than taking arbitrary percentages of business output (VAT), wages (National Insurance) or income generally (income and corporation tax).

Killer Arguments Against LVT, Not (485)

One of the main KLN's is that "Landlords will pass on the tax to their tenants, so tenants will be worse off".

I've done this one many times before, you have to explain about elasticity of supply and demand and most people don't, or won't, accept this logic (based as it is on observation), so that's a waste of time and energy.

The shorter rebuttal is, "OK, if the government increases income tax or NIC rates, can all employees just ask their employer for a pay rise to compensate? Can the self-employed just put their prices up?"

Clearly, there will be isolated instances where this happens, but most will just have to accept lower net incomes.

We've seen what happens when powerful trade unions in the 1970s pushed through above-market pay rises. It worked short term, but after a few years, the factories just closed down. If landlords try the same, they will end up with a load of vacant homes, so they will have to drop rents again to get tenants back in (or else they will have LVT bills with no income to pay them), thus rent levels will fall back to where they were before.

The fall-back rebuttal is, "So what? The LVT increases would go hand in hand with NIC and VAT reductions, so even if landlords 'passed on' every penny of the LVT, working tenants would end up a lot better off, just the same as working owner-occupiers."

Killer Arguments Against LVT, Not (484)

Emailed in by Ben W, from Prospect Magazine:

The title is This practical fix shows why the chancellor should introduce a land value tax seems promising, but they clearly aren't that enthusiastic at all:

All recent proponents of a residential LVT have started from the premise that it would replace Council Tax... But to replace the overall £33bn of Council Tax due for England in 2020-21 would require an LVT rate of around 0.9 per cent. While land values vary widely as a percentage of property market values across the country, 66 per cent is a reasonable guide.

At 0.9 per cent this would imply LVT on the Kensington house of around £180,000 a year (and approximately £3,000 a year on the house in Solihull). And at Local Authority level, Kensington and Chelsea could expect their annual receipts to rise from £106m to £787m, whereas Birmingham’s would fall from £362m to £115m. Such dramatic shifts are clearly unacceptable.

A sensible LVT would of course be a national tax, where all revenues go into one national pot (like it used to be for Business Rates) and local councils just get per capita grants. A 'local' LVT to replace Council Tax would be pointless as nothing much would change. At a very local level, Council Tax more or less is the same as LVT.

A further problem is that Council Tax is payable by the occupiers of a property (who may be tenants), whereas LVT is charged only to the owners.

Whether you have LVT or Council Tax, it makes much more sense for the bills to be sent to the owner, for administrative simplicity and improved collection rates.

Two accompanying tax reforms would make sense: reduce Stamp Duty Land Tax on purchases of principal primary residences (PPRs) to a flat 1 per cent, which studies have shown would significantly free up the housing market, at a cost to the Exchequer of around £320m pa. By comparison, LVT at a uniform rate of 0.05 per cent across England would raise approximately £1.6bn pa, and with the higher rates advocated above, total LVT receipts would be much greater. Secondly, introduce Capital Gains Tax at around 10 per cent on all PPR disposals.

Aargh! SDLT and CGT are both taxes on transactions! They're not as damaging as VAT, because they are taxes on land transactions rather than creation of new assets or services, but bad taxes nonetheless. Reducing one bad tax and introducing an equally bad tax is stupid.

One of LVT's many advantages is that it encourages "right-sizing", single people trade down and families trade up. That's a lot more efficient than building new homes. Taking away 11% of the selling price of somebody's home if they decide to down size discourages it.

Verdict: Fail.

Killer Arguments Against LVT, Not (483)

The Homeys claim that developers and builders would be "hit" with LVT and either go out of business or "pass on the tax" to purchasers.

Putting fancy economics to one side for a moment, the most important point here is that actual developers/builders would pay a lot less in LVT than they currently do in land- or planning-related taxes!

Here's an overview of all the taxes which are currently triggered by development:
Landowner – sells land, foregoes agricultural land subsidies on the area sold and pays Capital Gains Tax or corporation tax on the unearned capital gain.
Developer – buys land and pays Stamp Duty Land Tax
Developer – pays planning fees, Community Infrastructure Levy, s106 contributions and incurs costs of planning obligations.
Developer – claims VAT refunds as new housing is zero-rated for VAT, a kind of subsidy.
Developer – sells some “affordable housing” units at a low profit margin to a Registered Provider such as a Housing Association. This can be seen as a tax of nearly 100% on that fraction of the potential development profit.
Developer - sells the rest to owner-occupiers and private investors for a profit. The developer’s profit has two elements – the unearned increase in the value of the land since it was first acquired and the earned element (return for risk and effort) - and the total profit is subject to normal corporation tax.
Owner-occupiers and private investors – pay Stamp Duty Land Tax when they buy the finished homes.

All these land- and planning-related charges fees and taxes could and should be scrapped and rolled into LVT as part of the initial shift. The average total bill (less VAT rebates) is tens of thousands of pounds per new home (depending on where in the country it is). Even if LVT became payable as soon as planning is granted, the average would be about £7,000 per home per year. It seems sensible to give developers/builders an exemption for the first year or two after planning is granted, so developers/builders might end paying nothing at all.

As to "passing on the tax", in the next breath the Homeys will also claim that LVT will see house prices plummet (if they haven't already claimed that in the previous breath), which is tacit admittance that LVT cannot be passed on. The developer does pass it on, of course, the burden is passed up the chain to the original landowner or landbanker

The KLNs are also equal and opposite to the KLN that farmers won't be able to afford to pay LVT and will be forced to sell all their fields to developers. So a complete and utter mess and an epic fail, as per usual.

Killer Arguments Against LVT, Not (482)

One from the left this time. Richard Murphy is a big fan of wealth taxes.

In an earlier exchange, I pointed out that Land Value Tax was the best kind of wealth tax (land excl, buildings thereon being about half of marketable wealth in the UK, easy to assess, easy to enforce etc). The effective LVT rate could be much higher than the effective rate of Wealth Tax (even if Wealth Tax, had any merits, which it doesn't). A four percent tax on half of all wealth would raise more revenue than a half-a-percent tax on all wealth.

Countries that have dabbled with Wealth Tax have never managed to get the rate much higher than half-a-percent, any higher than that and you get 'tax planning', lots of special pleading and exemptions and you see falling revenues.

Which is why for example Germany phased it out their Wealth tax in 1997. Total revenues were €5 billion, i.e. naff all. I once had to prepare one of these returns, all the adjustments and exemptions were bonkers, mathematically it was like an extra 1% income tax or something, so why not just do that? Murphy appears to have realised this by now, but back to the topic.

He did a diagonal comparison to explain why he preferred Wealth Tax to Land Value Tax. His example was Mr B, who owns a house worth £100,000 and nothing else and Mr C, who owns a house worth £500,000 and has £500,000 in his pension fund. Statistics back up this general picture, no arguments there. His logic was that Mr C would pay ten times as much Wealth Tax as Mr B, but only five times as much Land Value Tax. Therefore, Wealth Tax would be more progressive. Mathematically correct but meaningless and irrelevant in the bigger picture.

The five glaring errors here are, five KLN's for the price of one, each of which can be knocked down:

1. He missed of Mr A, Ms A and Mrs A, who have no assets whatsoever, and are nearly half the population, all the younger people and tenants. And he missed off Lord D, 0.1% of the population who owns dozens of homes and thousands of acres of farmland (and has no need to invest in anything else) and is banking negative LVT, i.e. farm subsidies and Housing Benefit.

If you now consider the whole population from the A's up to Lord D, LVT is clearly more progressive than Wealth Tax. The A's pay nothing either way and Lord D pays a lot more LVT than he would pay under Wealth Tax. Mr B and Mr C just fall into place somewhere along that continuum.

2. If LVT were done properly and based on site premiums, not selling prices, the chances are that Mr B would pay very little and Mr C would probably pay ten times as much as Mr B (thus knocking his basic objection out of the park).

3. Should you count pension funds as 'wealth' or is it deferred employment income? It's a bit of both, really, but before we worry about taxing the value of pension funds, wouldn't it be easier to simply reduce the generosity of the tax breaks (of which I am now a beneficiary, that's for a separate post, the maths of this is insane). Taxes are bad; subsidies are bad; worst of both worlds is taxing and subsidising the same thing (I could give you countless examples). Net the two off and either tax that thing at a lower rate (and scrap the subsidies) or subsidise that thing at a lower rate (and make them tax free).

4. The end game is not just taxing land (or wealth) for the sake of it; the end game is reducing taxes on output and employment, which are very regressive. LVT can raise *a lot more* revenue than a Wealth Tax, so would enable us to reduce these regressive taxes significantly. So the A's are all hugely better off; Mr B is a lot better off; Mr C would probably end up better off as well (but so what?); and Lord D would just be paying a shedload of LVT (he would not benefit from VAT or NIC reductions as he doesn't pay any).

5. As mentioned, Murphy has twigged that increasing income tax rates on investment income is mathematically similar to a Wealth Tax (at least, a Wealth Tax on income-generating assets). I'm a big fan of flat taxes, of course (and Murphy isn't, of course). If you taxed employment income and investment income at the same rate, employees would pay less tax and investor would pay more, that's all fine as far as it goes.

But his modified wealth tax would allow the value of owner-occupied housing (which is most of UK land by value) to completely slip through the net (no cash income to tax), and the effective rate on land and buildings which are rented out would be much lower than the effective rate on the assets held by productive businesses:

Example:
Mr E owns a house worth £1 million which he rents out for £40,000 a year. A 10% tax on his investment income = £4,000 = 0.4% of the value of the home.
Mr F has built up a proper business with assets of £1 million which pays him dividends of £100,000 a year. A 10% on his investment income = £10,000 = 1% of the value of the assets in the business. It stands to reason that the return on productive assets is higher than the return on land and buildings, as there is more risk and effort involved. In fact, a large part of Mr F's return might be his own efforts - what if his business has minimal assets but pays him a £100,000 dividend each year?

And of course, the extra income tax collected from investment income (once you factor in 'tax planning' and evasion) would be very little, so it would fails the same basic test as Wealth Tax.

Killer Arguments Against LVT, Not (481)

I might have done this before, but it's worth repeating.

The KLNs go something like this, "The future LVT would be capitalised into a one-off tax hit on current landowners or home-owners, it's unfair to single out one asset classs [etc]" and "House prices would fall, people's savings would be destroyed [and banks would go bankrupt etc etc]"

OK, maybe the first KLN is true, but the flip-side is, having taken this on the chin, current landowners and home-owners wouldn't have a future LVT liability. You can count the NPV of the future LVT or you can see it as a series of future payments. Not both.

For example - if you have a mortgage of £100,000, you'll have to make regular, monthly payments for the next few years or decades. The NPV of those payments is £100,000. You can't add the two ways of measuring the amount of the mortgage together to make a mortgage of £200,000. That's Home-Owner-Ist maths, not real maths.

The second KLN says that house prices would fall by the NPV of the future LVT. So the best way of measuring the NPV of the future LVT is by looking at how much house prices would fall, which also addresses the first KLN.

And how much would that fall be? I actually see little reason to assume that house prices, in nominal terms, would change much.

House prices are dictated by how much purchasers are willing to pay i.e. borrow to buy them (or how much tenants are prepared to pay to rent them, and the landlord then borrows on the back of that). If the LVT on each home were approx. 3% of its current selling price and taxes on output and earnings (not to mention minor crap like Council Tax, SDLT, Inheritance tax and so on) reduced accordingly, then average working households' disposable earnings (after tax) would be £10,000 to £15,000 higher each year, year in, year out.

So working owner-occupiers would be laughing anyway (the average LVT bill would only be half the VAT and NIC reductions), and less likely to want to sell (unless they want to trade up). Even if landlords 'pass on' the LVT, tenants will still be a lot better off (again, the average LVT bill would only be half as much as the average NIC and VAT reductions) and pensioners will either pay it or roll up and defer. So there would not be a flood of homes put up for sale (even if there were, where are all those seller going to live? They'd have to buy or rent somewhere else, so there's be an equally large flood or buyers and tenants. Some of them will trade down, but just as many others will want to trade up.)

Likely buyers (and tenants) are prepared to commit a certain fraction of their net earnings (after tax) towards housing costs (SDLT, Council Tax, mortgage payments; or Council Tax and rent). This fraction is around 40% across the UK (higher in London, lower in lower wage areas). The amount which purchasers (or tenants) are willing to pay would go up (40% of a larger number is greater than 40% of a smaller number), the annual LVT comes off that first and the balance would go on mortgage payments.

You can muck about with spreadsheets to your heart's content (and I have done), but by and large, what people are prepared to pay towards a mortgage wouldn't change much, therefore, house prices wouldn't change much (and if there were the slightest risk that they would fall, then the government could just cap mortgage interest rates at 2% or something).

So on closer inspection, the KLN's melt away (as they usually do). The NPV of the future LVT hit would be plus/minus nothing. Even if prices fell, would a rational person accept a fall in the selling price of their home if it meant a massive increase in net pay and it made trading up a lot cheaper? Surely yes, unless the fall in prices and you had been intending to trade down to a cheaper home and bank the difference.

But the future tax reduction on output and earnings is real and can be enjoyed every year for the rest of your life, or the rest of your working life at least. The NPV of that is massive. After that, you can just roll up and defer if you'd rather spend it. There's no particular need to "Leave the house to the children" because they will have bought their own homes long before you shuffle off.