Friday 30 January 2009

Shabbat shalom

Friday Evening Thought Number One:

Anon left the following comment in response to these poll results:

I am now approaching the end of my productive career, but that's OK, because I own the house outright, nobody can turn me out of it, and I can look forward - if that's the right phrase - to ending my days living here in peace. My modest pension will do OK for living expenses.

And now you want me to hand over to the state every year an arbitrary, unpredictable, but probably increasing percentage of an arbitrary "value" (which can only be some official's guess, since the house is unique and I'm not selling - until I'm forced to, to pay the tax)? A value over which I have no control and which will probably increase in numerical terms as the state debauches the currency. My modest pension, of course, will not rise in line with that debauchment, since I didn't used to work for said State. I'm screwed, aren't I?


OK, let's take a step back here. None but the most rabid faux-libertarians object to businesses and workers paying pensions towards those no longer able to work. Anon doesn't appear to be complaining about businesses or workers having to "hand over to the state every year an arbitrary, unpredictable, but probably increasing percentage of [turnover, incomes and profits]" to fund, inter alia, those pensions. But in turn, many people in the UK aged forty or under can't afford to buy; or could only afford to buy a home that is nowhere near big to raise a family; or may now be saddled with negative equity and thus prevented from 'trading up' to a larger property once prices have bottomed out.

Is it really morally unacceptable for such redistribution to go in both directions? Firstly from businesses and workers to those no longer able to work; but also by levying a modest charge - say one per cent of current market values per annum* - from those who own land and property (standing at a huge gain if owned for more than two decades because of artificial scarcity of building land) to those who have been priced out?
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If that's too deep, here's Friday Evening Thought Number Two. Does this count as evidence of Global Cooling?


* Remembering that I have always said that a progressive property tax or land value tax could and should replace all existing property or wealth related taxes, such as Council Tax, Stamp Duty Land Tax, Inheritance Tax etc on an approximately fiscally neutral basis such that there would be few winners or losers; and further that pensioners would be allowed to 'roll up' the tax to be repaid out of their estates and, in case Sobers is reading, that farmland would be exempted as a quid pro quo for scrapping agricultural land subsidies.

22 comments:

Anonymous said...

"farmland would be exempted": quite a loophole.

Dick Puddlecote said...

I do enjoy the posts you affix the 'tits' label to.

Mark Wadsworth said...

D, loophole?

Agricultural land is worth about £5,000 per acre (4,840 sq yds).

A typical residential plot (as at last year's peak) was worth about £100,000 for three hundred sq yds or £1,200,000 per acre.

A bit of a difference as you can see. Exempting the first £1 per square yard would be like a basic tax-free personal allowance, that's all. If you don't want to pay LVT, buy yourself some farmland and put up a tent.

Anonymous said...

None but the most rabid faux-libertarians object to businesses and workers paying pensions towards those no longer able to work.

Not true and not fair. Libertarians would believe that people should provide for their own old age, or other infirmity, themselves in a manner that works for them. Sure, we have people who are unable to work who have been forced into the state system 'trap' through no fault of their own, and they should be provided for. This will gradually diminish, due to the forces of nature and time. I cannot see this justifies the nationalisation of land.

But in turn, many people in the UK aged forty or under can't afford to buy; or could only afford to buy a home that is nowhere near big to raise a family; or may now be saddled with negative equity and thus prevented from 'trading up' to a larger property once prices have bottomed out.

I totally agree this is tragic ~ but it is tragic because of the evils of corporatist planning, not faults in the tax system. You are correct when, in the past, you have put this down to NIMBY's. But putting another system (LVT) on top of a failed system (planning)to try and correct this is, on a fundamental level, piss poor systems thinking. Read your Beer, et al. Why not kill off the cause?


Scrap planning, replace with property rights arbitration courts. Minimise the state to core functions. Get the state out of peoples lives.

There are too many unintended (or intended, in the case of many closet class warrior georgists) consequences of LVT. It gives the state massive power, and opportunities for corruption and persecution of people they don't like. The thought of some of the people I have fought politically having the power to zone and thus tax others out of their district would have me reaching for the home made semtex. I don't want to see a return to the 1970's and smallholders muttering about the FPA (however mythical that might have been in reality).

Lola said...

Silly girl. She'll catch her death going out like that. Should be wearing a vest.

Pogo said...

but also by levying a modest charge - say one per cent of current market values per annum*

Yes, I fucking well would!

The house that I bought for 120k in 1990 and have since spent another 100+k in extensions, improvements, etc etc is (even) now worth 600+K and would thus attract 6k per annum tax - somewhat more than my total state pension and after dear Gordon's depredations would eat into my personal pension - to which I've contributed substantial sums over the years.

It's not my fault that property prices have gone bonkers. I like living here and have no intention of living anywhere else - other than being priced out of the country by absurd ideas such as this.

Mark Wadsworth said...

P, "It's not my fault that property prices have gone bonkers."

Do you then at least support HH's idea that planning laws should be scrapped? Half the reason why prices go 'bonkers' is because of artificial scarcity - NIMBYs and so on. If young people don't want to pay £600k for something that by your own admission cost £220k, why should they be prevented from building themselves a new village or a new suburb?

... and would thus attract 6k per annum tax - somewhat more than my total state pension

Tell me, whence does the money come that pays your £6k pension? Might that be from younger working age people paying income tax etc, the very ones who are generating the wealth to pay for the services that have given you a £320k windfall gain over the past 18 years?

What happens if all younger people decide that this is a mug's game and all move abroad? Who pays your pension then? Who would buy your house?

Henry North London 2.0 said...

Taxation tits and paris hilton

Are you serious!!

Honestly Ive heard of SEO but this is ridiculous Im just shy of my 10000th hit since I put Sitemeter to work six months into my blog So I probably hit 10000 properly a while ago

2 years going strong

Mark Wadsworth said...

HH, "But putting another system (LVT) on top of a failed system (planning) to try and correct this is, on a fundamental level, piss poor systems thinking."

No it's not - they are complementary. Liberalising planning laws is the carrot, LVT is the stick. Sensible banking supervision wouldn't go amiss either.

...closet class warrior georgists

However much you liberalise planning laws, sites in city centres will always generate MONOPOLY returns to the owners. I am a free marketeer, and I abhor monopolies. It's not 'class war' it's weighing up the respective interests of business/investment/labour and monopolists.

"Read your Beer, et al."

Who, or what, is 'Beer'?

Anonymous said...

OK ~ I wasn't referring to you with the georgist comments, but to the swivel eyed loons who sit in dark corners worrying about people who own lots of land that they have 'stolen' from people, etc etc etc. Class warriors in all but name (and I say this from a long line of peasants). Anyhowz...

I was being flippant with the Beer comment ~ he was one of the first systems thinkers (Stafford Beer). However, what ever you think of his conclusions, if you try to look at systems / organisations as a science, you soon come to the conclusion that you would with any other science.

We have a planning system that is restricting property growth. The systems / scientific method would be to remove that system or amend it to prevent it from doing the damage. To put another on top of it isn't complimenting it, as the faults still exist in the original system.

Now, about Cities. Why are they the size they are? Is it because there is an optimum size for them? No. It is because of planning. If this didn't exists, they could grow and expand organically, thus defeating any monopoly by those owning land in the original city. Prices would increase to such a level that residents and businesses would think hey, look, I'm off to that new development with its nice parks / houses / cheap units. In reality, like all economic systems, this would be a self correcting thing.

As I said. Scrap planning, minimise the state. You can then all argue what is the ideal tax (which brings me back to the 'you have a choice of being hit by something' argument) all you like because it won't matter ~ it will all be feathers. Until then, the unintended consequences of LVT are really, really dire, and really really unjust.

Attack the root cause,not the symptoms.

Lola said...

You can't really 'scrap planning' - that way lies anarchy.

What you might perhaps want to do is to localise planning, and I mean localise, down to the settlement level.

I live on the outskirts of a small suffolk village. I like isolation (to be fair my habits are not very neighbour friendly). Why should my little bit of heaven be sacrificed to someone else's whim? All such planning liberalisation might do is to permit farmers easy development opportunities, handing back power to the rent seeking landowner.

I can see the advantages of LVT in the effect it would have on land prices and the consequential stabilisation of house prices - and also commercial property prices. But there must be some quid pro quo to protect the interests of householders who really don't care about the market price of their home - it's what they have created that they value.

Furthermore introducing LVT may actually depress house prices - this is going to get right up the noses of the mortgage companies (yes yes I know I know who cares) but there are also equity release clients who are sustained in the place they love and call home who may well be severly compromised by LVT. It would be unreasonable to cause them problems on what may appear to be a retrospective value reducing tax.

Perhaps a main part of the answer is to couple LVT with a major reduction in public spending so LVT can be minimised. How likey is that? Not bleedin' very is my view.

Look, the whole tax system needs a major revision, and to a system that is so transparently fair and acceptable that no subsequent political party or government will have a hope in Hell of getting it turned back. Couple this with a genuine and successful crusade on reducing the nanny/client state and we might be getting somewhere.

Without all this I find myself a bit sympathetic with Pogo.

Mark Wadsworth said...

HH "Until then, the unintended consequences of LVT are really, really dire, and really really unjust."

As opposed to VAT, Income Tax, National Insurance, corporation tax, which take about half of people's earned income, out of which they are supposed to pay Pogo the £600k his house might be worth?

L, "Perhaps a main part of the answer is to couple LVT with a major reduction in public spending so LVT can be minimised. How likely is that?"

More or less improbable. According to that survey, only seven per cent support cuts in tax and spending (aka waste).

By the same token, the same people reckon that Public opinion [is] in line with government reclassification of cannabis.

So basically, there is no hope for us whatsoever, and it's every man (or woman) for himself (or herself).

Anonymous said...

Lola - that is a vest she's wearing, she forgot to put a cardie on.

Tax simplification would be a major step forward, in whatever form it took.

Taxing land ownership is also attractive.

To the masses the most attractive option is to tax those who have what they do not.

Like taxing Ms Hilton's assets.

economicvoicedotcom

Anonymous said...

You can't really 'scrap planning' - that way lies anarchy.

Presumably we knocked down the anarchistic UK that was built before the advent of planning laws did we?

Pogo said...

MW: Do you then at least support HH's idea that planning laws should be scrapped? Half the reason why prices go 'bonkers' is because of artificial scarcity - NIMBYs and so on.

To a large degree, yes... However, you need some form of "planning" otherwise you end up with the Spanish speciality of a concrete factory right next to a housing estate and school - usually in a beauty spot as well.. ;-)

Planning needs to exist, but in a far less arbitrary form than at present. Planning officers have virtually unfettered power to be complete obstructive arseholes - and I say this anecdotally but from both personal experience and that of friends - virtually at their personal whim (sometimes soluble with a "backhander"!) and planning appeals become horribly time-consuming and expensive as a result. A simpler system such as the Republic of Ireland used to operate (perhaps still does) gives a lot more freedom without a complete descent into anarchy.

If young people don't want to pay £600k for something that by your own admission cost £220k, why should they be prevented from building themselves a new village or a new suburb?

I agree wholeheartedly. The relative value of my property is simply that - relative.

"P: ... and would thus attract 6k per annum tax - somewhat more than my total state pension"

Tell me, whence does the money come that pays your £6k pension? Might that be from younger working age people paying income tax etc, the very ones who are generating the wealth to pay for the services that have given you a £320k windfall gain over the past 18 years?


Ah, you mean the ones that I've paid faily massive amounts of tax to finance their education, health care, etc..?

What happens if all younger people decide that this is a mug's game and all move abroad? Who pays your pension then? Who would buy your house?

Noone. However, it's a tad unlikely that this scenario would unfold. As to who pays my pension, the answer is "me" - I'm not, and never have been, so naive as to expect that the state will keep me in retirement in the "style to which I've become accustomed". :-)

Taxation needs to be some way related to an ability to pay it otherwise it becomes cruel and regressive. Capital taxation is precisely that, IMHO of course.

Mark Wadsworth said...

P "Taxation needs to be some way related to an ability to pay"

Of course it does!

It's fair to say that on the whole low income people are tenants or own the smallest houses or flats; and very wealthy people are in the biggest or most valuable houses and flats, yes? So by definition, a tax on land or property values relates to ability to pay, in the broader sense.

For pensioners, cash flow is a bit of a problem, so fine, just roll up the tax and your heirs can pay it.

Please do not overlook that in the long run, even apart from the value of living rent free, house prices go up in line with wages, i.e. about 6% nominal compound since 1952 (this is assuming they fall 40% from their 2007 peak by 2012).

So a 1% tax is only one-sixth of your untaxed capital gain and is not even going anywhere near the imputed rent.

Pogo said...

It's fair to say that on the whole low income people are tenants or own the smallest houses or flats; and very wealthy people are in the biggest or most valuable houses and flats, yes? So by definition, a tax on land or property values relates to ability to pay, in the broader sense.

Maybe, maybe not... Until the last few years when house prices started to become ludicrous I would have agreed with you, but now, those with the "bigger" houses tend, in my experience, to be those who've been living in them for a long time and the size of their incomes doesn't equate to the value of the house. In my case, for instance, today I probably couldn't afford to buy the house in which I live.

For pensioners, cash flow is a bit of a problem, so fine, just roll up the tax and your heirs can pay it.

Fine, I suppose... As long as the difference between the interest rate charged on the deferred tax doesn't get too out-of-step with the rate of house price inflation. A difference of more than 6 points would send the heirs into negative equity if their parents survived more than about 25 years retirement! :-)

Mark Wadsworth said...

P, "... today I probably couldn't afford to buy the house in which I live."

Even ignoring pensioners, that has been true for most people for several years. That's what you call a bubble.

A % tax on property or land values prevents bubbles, as it acts like a higher interest rate. So if it had been introduced in the mid 1990s when prices were low, your house would have climbed steadily to £300,000 by now instead of trebling in value and then plummeting.

As to the interest rate, provided it were less than average house price inflation (and a sensible rate would be), the final bill would be less than the number of years unpaid x final value x 1%. So even after fifty years, the heirs have to shell out half the selling price. But there'd be no Inheritance Tax on anything else.

Lola said...

HH - I think that you mean the delightful chaos of the classic unplanned English village scene. I agree, planning blights innovation and variety - I personally have dealt with bonkers planners whose idea of 'design' - well it just isn't design.

The point I think I am making is that population pressures now make some form of moderation, or perhaps mediation between competing interests, important. In fact that was always the case as fuedal lords and other local power brokers did control development, under whatever interest. Local democracy should mean that planning is able to reconcile competing interests. Which is does not do now.

Anonymous said...

perhaps mediation between competing interests, important.

Aha! Which is why you replace planning with presumed consent and property rights courts. You are free to to whatever you like on your land, but you must compensate me if that activity limits what I may do on mine, etc

Thus, society would 'zone' itself organically, as my widget factory wouldn't effect the property rights of your widget factory if I built it next door, on the other hand, if I built it in the middle of a housing estate I would have to compensate lots and lots of householders, possibly up to the value of them having to relocate if my widget production was particularly smelly or what not, etc, etc.

Mark Wadsworth said...

HH, you probably wouldn't set up your widget factory in a residential area as land prices are too high, you'd go for an industrial estate.

But however small you make government, the core functions cost (say) ten per cent of GDP. And that money has to be raised somehow. If they scrapped the worst taxes VAT, National Insurance, income corporation tax etc, then you as a widget manufacturer and your investors and employees would no doubt be delighted.

But you still need to rent or buy some land for your factory. You are in a bidding war with e.g. a fizzle manufacturer, and the price you pay is basically a function of your expected net profits, so by cutting taxes on production, the ultimate beneficiary is the person who rents or sells you the land.

If there were a tax on the value of that land, it would not increase your rents (because these are a function of your expected profits) and similarly would depress the price you pay for the land, because the price would adjust down for the tax you'll have to pay in future, so it doesn't really 'cost' the purchaser anything.

And for the current landowner, of course it is a bit of a bummer paying the tax, but as he's not currently doing anything with it or expending any effort, his only choice is to keep it idle, rent it (and pay the tax) out or sell it for a lower price. The tax does not depress economic activity and wealth (or widget or fizzle) creation.

LVT receipts would easily cover the core functions of the state, no other taxes, everybody wins, apart from a one-off windfall loss to current landowners (whose land is going to fall in value by about three-quarters anyway between 2007 and 2012).

Lola said...

'A one off windfall loss to the current landowner" Excellent. And about time to. A good clear out.