To round off the series, I shall allow myself the indulgence of picking and choosing the least-bad aspects from the long and iniquitous history of taxes in the UK, see footnotes...
1. It would be based on the feudal idea that collecting 'rents' for exclusive possession of land (including the right to use parts of the 3G spectrum, landing slots at airports etc) is the natural least damaging form of public revenue*, having the admiral knock on effect that local councils are motivated to concentrate spending on things that make an area more desirable, but with democratically elected councils and government rather than feudal overlords, of course.
2. Ultimately, nearly all services that the government provides are local services, with the exception of immigration control, diplomacy and defence. So instead of the national government collecting taxes on incomes and production and using this to pay for social engineering, local councils would collect tax, spend what they need to and pass up the rest to the national government.
3. Taxes on land values keep prices low and stable, so banks would only need to lend first-time buyers enough to cover the value of the bricks and mortar element, the resale value of the land value element being negligible.
4. You may notice that taxes on incomes and production do not appear in this system, quite simply because these are the worst taxes. It should be borne in mind that taxes on land values could never collect more then ten or fifteen per cent of GDP, as opposed to the forty-five per cent of GDP that is currently collected. This ten or fifteen per cent would be more than enough to cover the cost of the core functions of the state, with maybe enough left over to pay a modest Citizen's Pension to the elderly. If voters decide that they are happy to pay a low flat income tax of ten or twenty per cent to pay for some form of minimal-but-universal Citizen's Income and other forms of redistribution like vouchers for education or health, then so be it, I wouldn't actually be averse to this.
5. In theory, there would be little need for welfare in the long term, because with low or no taxes on incomes and production and no property/credit bubbles, the economy itself will develop in a much healthier and resilient way. There's only one way to find out, isn't there?
6. The best time to introduce such a system will be some time in the next few years when property prices, and hence land values, bottom out so the impact of the change on land values would be negligible. Realistically, there is no chance of it happening of course, because voters are still blinded with the Fool's Gold of the next house price bubble and most MPs own two homes.
Ah well, I can but try.
* People who claim that the underlying site-only unimproved value of any land that they owns (excluding bricks and mortar and improvements) is down to their own efforts - with the narrow exception of farmland, which is of such low value relative to urban land, that 95% of it would be exempt from LVT anyway - is seriously deluded. The fact that they might have paid an inflated price for this in the past in the expectation that the tax system would continue to justify the higher value is neither here nor there for these purposes.
A grim document
2 hours ago
8 comments:
I do like the simplicity of your scheme. Despite my (dwindling) objections to LVT, I could live with such a system of taxation.
It will never happen though. The govt sector is too large. It will never allow itself to be reduced, and made dependent on taxes it cannot easily increase. Parkinson's Law and all that. The only way govt spending can be reined in, and new systems imposed is when the current system implodes. Lack of cash is the only pruning tool we can hope for.
Here's to the bond vigilantes! May the Chinese and Arabs stop buying our Treasuries! Only then will politicians have to face the music.
3G spectrum? I assume you mean all radio spectrum; no point in limiting it. As for LVT being nothing more than the 'least-bad tax', I thought from other posts that you'd seen the cat, so maybe you're just trying not to scare the natives. LVT has positive benefits that are entirely separate from the mere spending of the revenue raised; why be shy about how positive it is?
Why do you think LVT has a lower potential level? I'd say it's at least equal, if not higher. Taxation acts as a limit on rents, so if you remove existing taxation you allow rents to rise, giving you a larger tax base. Not broader; just larger. A Citizens Dividend could be funded without any need for distorting taxes, and a flat income tax is still distorting.
Will it happen? Depends how bad this recession/depression turns out to be. Just needs one country to take the plunge: if it happens somewhere it'll happen everywhere.
S, thanks.
SEL, my guesstimate is that people are happy spend about a third of their net income on renting or buying property (as are businesses), half of that is land rent and half buildings rent. So at any time, about 15% of GDP is spent on land rent. LVT would capture most but not all of this, so receipts would be approx. 10% to 15% of GDP.
For sure, GDP would probably grow more quickly without income taxes, that's a different topic.
Ah, so you're talking about a social/political limit rather than an economic one; fair enough. In that case you have to consider the money currently being spent on taxes. With that loss removed people should be happy to pay more LVT, especially if the bulk of it is returned as a positively redistributive Citizens Dividend, no? The potential is there in the economics, so if you want a CD or CI it should be funded from that rather than from a flat income tax.
The other way to look at it is to start with the economics. Those non-revenue benefits of LVT work best when the charge is levied at its full potential, so it should be. You then have to decide what to do with the money, and the obvious answer is a Citizens Dividend. Of course the idea needs selling, and the last hundred years haven't been too good on that score.
SEL, at present, wealth and property taxes (Council Tax, Business Rates, Inheritance Tax etc) are about 5% of GDP. Scrapping income taxes, VAT etc would increase people's net incomes by half, or maybe even double them. So LVT receipts would be maximum of two or three times current property taxes.
So I'm pretty convinced that LVT would not raise much more than ten or fifteen per cent of GDP, but as I say ... there's only one way to find out, and that's just do it.
I prefer sales tax over income tax as the second tax, supplementing LVT.
I do not like the government knowing much I earn.
Anon, VAT or sales tax is far worse than flat income tax.
Even with flat income tax, there is no need for the government to know how much you earn - your employer just docks ten or twenty per cent of your pay; the bank docks ten or twenty per cent of your interest income; companies just pay dividends out of net income after paying ten or twenty per cent corporation tax.
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