Sunday 19 July 2009

Killer arguments against LVT, not (19)

I said, in the comments here: "LVT is a straight user charge in return for the legal protection and other benefits that accrue to property owners, which only the state can provide."

Ian B hit back with "And which every citizen receives, and which you intend to give non-landowners for free, which means they are getting something for nothing."

Nope.

To expand slightly on my original reply, there are basically four groups of people. Those living on the streets, who get very little in the way of protection from the state, don't pay rent and wouldn't pay LVT; social tenants (which is a whole 'nother topic); owner-occupiers, which includes children living with their parents (or indeed parents living with their children); and private tenants.

Let's focus on the private tenants (owner-occupiers would simply pay much less income tax, VAT etc. but possibly a bit more in LVT if they live in an above-average house). The total rent that private tenants pay includes a large element that relates to location values, which in turn result from what the state does; what it allows or doesn't allow; and of course the fact that the 'exclusive possession' that the landlord is selling is only worth as much as the landlord's own right to 'exclusive possession' which is in turn guaranteed and policed by the State. The tenant's rent doesn't include an element for the COST of the things that the State does that don't add value.

So those tenants are not getting "something for nothing", they are paying for its market value in a free-ish market. If the landlord in turn is asked to pass on the element that relates to the location value (or a percentage of the total property value as a rough and ready approximation), then neither the landlord nor the tenant are 'getting it for free', and the total tax that the state gets from tenanted or owner-occupied property is much the same.

2 comments:

John B said...

Indeed, it's obvious, unless you're blinded by contracts, that in the situation 'a house exists, someone owns it, someone lives in it', the LVT impact is going to be the same whether or not the two 'someones' are the same person.

This is why studying accounting is useful, as it gets you into the habit of looking at the substance rather than the legal form of financial arrangements.

(See also: pensions and retirement. The substance is 'money is taken from people who are working to pay people who used to work'; whether this is done by ensuring that people who used to work are capital owners, or just by taxing the people who are working is much less relevant).

Mark Wadsworth said...

JB, that last paragraph is an excellent summary. We have been trying Plan A for half a century and it clearly hasn't worked; it's far cheaper and more efficient to do Plan B. That's the relevant bit.