The Fat Bigot opines on the pro's and con's here.
He's definitely making progress. For example, he notices that there is some circularity in the calculations (and that it would be easier for higher income people to occupy 'the home of their dreams', rather than forcing them to pay to subsidise lower income people to occupy it) which is something else that has occurred to me.
To put it in simple terms...
1) We have no idea of knowing exactly how much total LVT receipts would be in the absence of all other taxes; but provided that the bulk of the receipts were dished out again as a Citizen's Income/Pension or as health/education vouchers (which is the 'other half' of the Tom Paine/Georgist equation, which he cheerfully ignores*), it barely matters what our starting figure for receipts is.
2) Everybody's disposable income would rise if the rate and hence the CI were increased, so they'd have more to spend on housing but a larger share of that housing bill would be taken up by LVT.
3) If we kicked off with a rate that was pitched on the low side, we could inch it up in future years and inch up the Citizen's Income etc accordingly. This would continue until we reach an equilibrium where people start spending that extra income on other stuff (cars, holidays, education, savings, investments etc).
4) If we hiked the rate beyond that stage, we'd notice some inflation in the nominal price of freely traded goods and services and some deflation in the capital selling prices of land and buildings, at which stage any extra LVT receipts would be used for paying off the accumulated National Debt instead.
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Ultimately what it boils down to is this:
a) An average household in an average home in an average area would be neither net welfare recipient nor net taxpayer over their average lives. Every penny they earn can be spent on the free exchange of goods and services.
b) Land Value Tax is a tax on the consumption of the value that is created by society in general (with the government acting as referee). Let's assume for sake of argument that each person contributes equally to that value creation, so those households who wish to (and can afford to) consume more than their 1/27 millionth share would be net tax payers; and those households who are happy to (or only can afford to) consume less than their 1/27 millionth share would make a small profit on the deal.
c) Clearly, it is not true to say that all individuals contribute equally to creating that value. Presumably, people who work harder, earn more, invest more wisely or are just born lucky with extra skills contribute more, which is why the first use to which LVT would be put is replacing income tax (so that those people keep all the value that they create personally).
I've left a few comments over there to get you started. Do your best.
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* He ignores a lot of the 'other halves' of lots of equations, for example he says that workers would demand higher wages to cover their LVT bill. Simply not true. Workers care about their net wages in the same way as a canny investor looks at his net return. On Day One, net wages would jump by about half because there'd no longer be income tax or National Insurance deducted. Those workers who currently under-occupy would be delighted with this; and those who currently over-occupy would be a bit miffed. Assuming that they are all paid similar wages, any demand from higher wages from the latter group would be offset exactly by the fact that the employer could push down wages for the former.
And as we know the overall split between 'wages' and 'profits' is governed by the Pareto Principle, i.e. if workers get too greedy, businesses fold and wages fall; if bosses get too stingy, then profits rise, encouraging more entrepreneurial workers to set up their own businesses, thus competing down profits again.
Not an individual of mental adventure
7 minutes ago
15 comments:
A few points:
Firstly it is no good saying 'the average person, in the average house, in an average area' would be unaffected by all the changes. I suspect Mrs T thought the same about the Poll Tax. Very few people are average, while plenty are around the mean, huge numbers are far enough away to be big losers. And as we discovered during the Poll Tax, losers create more political pressure than winners. If the introduction of LVT created more losers in constituencies than the average majority of MPs from the govt proposing the change, it would never happen. Those affected negatively would vote against, those affected positively would have less incentive to change their vote.
Secondly LVT seems to exist in a 'perfect LVT world'. Introduce LVT, abolish all other taxes, and pay a Citizens Dividend. Great. Could work. A massive upheaval to society undoubtedly, but the result MIGHT be better than what we have now.
But that isn't going to happen is it? The most likely scenario is some form of LVT replaces Council Tax, and MAYBE a few minor taxes as well. But Income tax & VAT remain. And I can't see any govt wanting to get rid off CGT or IHT. The idea of a Citizens Income isn't on the agenda either.
So my question to the LVT crowd is this - if some form of LVT were proposed without the abolition of taxes on income, capital etc, and without a CI, would you oppose it on grounds of fairness, or would you support it on the grounds it may not be perfect, but its closer to where you want to be?
Sobers, your first point is reasonable, but given that landholding is so heavily concentrated in the UK, the number of people who would be better off would massively outnumber the number who would be worse off, so if people approached it in the informed and rational fashion you assume they would, introducing LVT would be a political winner.
The barrier to introducing LVT isn't that most people wouldn't benefit, but that most people aren't aware of its effects.
S: "So my question to the LVT crowd is this - if some form of LVT were proposed without the abolition of taxes on income, capital etc, and without a CI, would you oppose it on grounds of fairness, or would you support it on the grounds it may not be perfect, but its closer to where you want to be?"
OK. Back to the real world.
Labour have run up a massive accumulated deficit, and although the Lib-Cons intend to run smaller annual deficits, they have no intention of actually paying off any of the old debts; and certainly no intention of significantly reducing the amount of money the government spends on its mates in the private sector, the quangocracy, the EU and so on.
As we know, the most cunning form of stealth tax is deficit funding. Whether those debts are ever repaid (out of tax surpluses) or just hang over us for ever more is neither here nor.
So in the unlikely event that a future government ever decides to pay off those old debts it will have to increase taxes. Once we get to that stage, the question will be: "Should we increase Stealth Taxes like VAT (and cripple the economy even more) or introduce LVT?"
To which my answer will be "It's better to introduce LVT than to increase VAT".
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PL, yes of course. LVT is the opposite of Poll Tax. There'll be three winners for every loser, and I can hardly see these large landowners donning balaclavas and throwing Molotov cocktails, can you? You could avoid the Poll Tax quite easily by not registering your address, a piece of land can't just quietly disappear, can it?
Please also note, as much as I like Sobers, he is a landowner/farmer who has made a lot of money by selling off bits of land to developers, even after deducting all the bribes etc that he has to pay.
I hardly see what my personal situation has to do with the cogency (or not) of the arguments I propound, but I suppose I can let that slide.
With regard to winners and losers, which is it to be - either the average person is unaffected, in which by definition there must be plenty of losers, given the nature of an average, or the winners outnumber the losers by 3 to 1, in which case the the average person will be better off, not just revenue neutral?
Similarly, if LVT is introduced without the other caveats (abolition of other taxes/CI) then there will also be MANY more losers. Council Tax is pretty unpopular now, I doubt it would do much for the popularity of LVT if it was a slot in replacement for CT, with little or no offsetting measures.
I suspect LVT-ers may prove to be rather like those who defend Communism on the basis that it has never been implemented correctly anywhere, and would work perfectly, if only someone would do it 'properly'. Any contrary evidence from the real world can always be brushed off as a failure to introduce it in the right manner.
Sobers: With regard to winners and losers, which is it to be - either the average person is unaffected, in which by definition there must be plenty of losers, given the nature of an average, or the winners outnumber the losers by 3 to 1, in which case the the average person will be better off, not just revenue neutral?
It's both. Take the situation in which all the revenue is paid out as a citizens' dividend. As every pound taken from a citizen would be paid out to a citizen, the average financial impact on a citizen would be zero. However, as landholding is so highly concentrated, there would be more people gaining than losing.
Similarly, if LVT is introduced without the other caveats (abolition of other taxes/CI) then there will also be MANY more losers.
Whether or not that would be true would depend on what the extra tax revenue were being used for, if not for CI or reducing other taxes. Without more information, there's no way to say whether or not your statement is true.
I suspect LVT-ers may prove to be rather like those who defend Communism on the basis that it has never been implemented correctly anywhere, and would work perfectly, if only someone would do it 'properly'. Any contrary evidence from the real world can always be brushed off as a failure to introduce it in the right manner.
That's a bizarre comment, given that most LVT supporters are more than happy to point to real world examples of LVT being introduced and highlight the benefits produced.
Unlike communists, LVT-ers can point to quite a few instances where it was partially implemented or temporarily implemented and proved quite successful.
The German colony of Kiaochow is a great example of a short term but highly successful full implementation. However even where it has only been partially implemented it has still proved somewhat successful to highly successful depending on how thoroughly it was implemented. Here's a list.
The communists only wish they had such a list.
We LVT-ers are under no illusions about LVT's political unpopularity with those who rule us but the economic benefits are just too big to ignore, so we have to keep on pointing them out. The fact is that every so often enough people realise that it would be a good idea, and it gets implemented to some extent. After a few years people forget what's making life so good for them and it falls out of favour. Or something else gets rid of it. But that's life.
Please also note, as much as I like Mr Wadsworth, he sold his property holdings while the market was high and now wishes to prevent other people enjoying the same kind of windfall he pocketed.
If winners outnumber losers by 3-to-1, how can LVT apply a downward pressure on house prices? Winners are, by definition, people who have more cash in their pocket as a result of LVT being introduced. More cash = more spending power, including the power to spend more on acquiring a home.
The logical answer is that those who are winners will want to trade up to the median and those who are losers will want to trade down. So the prices of houses which sell below the median price will tend to rise and those above the median price will tend to fall. So LVT would apply a downward pressure on more expensive houses and an upward pressure on cheaper houses, assuming that a full Single Tax/Citizen's Dividend solution was implemented.
But if LVT just replaced Council tax and the other minor taxes that Mark normally mentions, I wouldn't have thought that it would have much of an effect at all unless the price of the house was way above the top Council tax band (in which case it would definitely cause a downward pressure). I could be wrong though as I don't have access to the figures required to calculate the effect.
S, PL and D have answered your question, but you are deliberately misrepresenting what I said:
"With regard to winners and losers, which is it to be - either the average person is unaffected, in which by definition there must be plenty of losers, given the nature of an average, or the winners outnumber the losers by 3 to 1, in which case the the average person will be better off, not just revenue neutral?"
Of course the average (or median or whatever) person will be unaffected... by LVT/CI! That is quite a different thing to saying that the average (or median or whatever) person will benefit from the move from income tax to LVT.
Let's imagine I suggested moving from a crime ridden society to a law abiding one. Does an average person benefit (in cash terms) from living in a law abiding society? Well, no, obviously not - he steals nothing and has nothing stolen from him. But does an average person benefit by moving from a crime ridden society to a law abiding one? Yes of course.
TFB, I'm an economist not a politician.
It struck me in the late 1990s that flats were dirt cheap to buy and gave an excellent rental yield, so I bought some. I had no idea that they would double or treble in value in the space of five years.
By about 2002 I realised that we were in a bubble, due to pop by about 2005 (OK, I guessed two years too early) and started selling them off again. I got mugged fifty yards from my front door in late 2007 and for this and other reasons, I sold that house as well.
You have also cheerfully admitted to having more than recovered the total price of your house by converting a part of it into a flat and selling that off. That doesn't make you a bad person any more than what I did makes me a bad person.
TFB, as to your second comment, see what D says. I'm a fiscal conservative, and I'd prefer to hold back part of the LVT receipts for repaying the national debt, which would almost certainly tilt the balance towards depressing house prices.
D, scrapping the list of minor taxes I always mention would have no impact on house prices whatsoever, not even at the top end - if we got rid of SDLT that would in itself boost the selling prices of expensive houses by 4% or 5%; if we got rid of Inheritance Tax, that would contribute another few per cent. This would more or less counter-act the effect that a flat 1% property value tax has of depressing prices.
TheFatBigot: If winners outnumber losers by 3-to-1, how can LVT apply a downward pressure on house prices?
Because the LVT captures a proportion of the capital value, thereby reducing the financial value of what is being paid for upfront.
Winners are, by definition, people who have more cash in their pocket as a result of LVT being introduced. More cash = more spending power, including the power to spend more on acquiring a home.
There is no more cash, it is just held differently, so spending power isn't increased overall.
@Paul Lockett: That doesn't make sense - by definition a winner will have more cash than before, so will have more ability to buy a bigger house, thus bidding up lower than average house prices (which are the important ones really). Whereas the losers will be the expensive house owners, so those houses will tend to drop in value, as the owners trade down, or spend some of their income on remaining in the same place.
Also if LVT is introduced without a corresponding abolition (or at least massive reduction) in income tax, anyone in a higher than average house (which remember is £150K) will lose out, even if a CI is introduced. Which means pretty much the entire SE of England is going to lose out. You can argue this is a good thing, as it would provide incentives for people and business to move to the cheaper areas, which is correct. It is however political suicide.
I repeat my point from before - introduction of LVT without corresponding reductions in income taxes and the introduction of a CI, will result in a large amount of losers, which will be geographically concentrated, and politically impossible to ignore.
S, you seem to be having two separate debates:
1. What would happen if LVT were introduced on top of other taxes. In which case, the question is how the money would be spent.
Was the 50% top rate politically popular? Possibly, even though I do not support it. How will the money be spent? P*ssed up the wall, no doubt.
2. What would happen if LVT replaced other taxes, or ALL other taxes if I had my way.
It is completely incorrect to say that people in expensive houses would lose out. What matters is your household's "house value to gross income ratio". The fag packet says, the break even point is about seven.
Examples:
In a block of flats worth £140,000 each, those households earning more than £20,000 will indifferent or better off; and those households earning less will lose out.
On a street with £1 million houses, those households earning £140,000 or more will be indifferent or better off; and those households earning less than £140,000 will lose out.
In the Blue Socialist world, the income tax paid by those earning over £20,000 (in the first example) or £140,000 (in the second exxample) are actually subsidising the lower earners in the block/the street.
Now I'm all in favour of dishing out LVT proceeds as a CI (once we've covered core functions of the state which cost bugger all, 5% of GDP or something) and are making inroads into repaying public debt.
But the CI is all that people will get. Those 'only' earning £100,000 on the posh street will not longer get a special implicit subsidy to live on the posh street.
LVT/CI is not about 'income inequality' (which might well increase) it's about land equality!
Sobers: @Paul Lockett: That doesn't make sense - by definition a winner will have more cash than before, so will have more ability to buy a bigger house, thus bidding up lower than average house prices (which are the important ones really).
There would, however be two major effects pulling in the opposite direction:
1. As the LVT would be a cost associated with holding the title, it would reduce the amount available to cover other costs, such as mortgage payments.
2. As the LVT would be eroding any potential capital gain, there would be less speculative purchasing of housing as an investment and therefore, less overall money chasing housing.
Also if LVT is introduced without a corresponding abolition (or at least massive reduction) in income tax, anyone in a higher than average house (which remember is £150K) will lose out, even if a CI is introduced.
I would expect that the switch over point would be much higher than that; remember that we're talking about a Land Value Tax, not a House Value Tax.
Which means pretty much the entire SE of England is going to lose out...
Far from it. Even if we were to, for the sake of argument, go with your figures, it would only result in people who own houses there losing out. Those who rent would be largely unaffected.
...You can argue this is a good thing, as it would provide incentives for people and business to move to the cheaper areas, which is correct. It is however political suicide.
If LVT is political suicide, it is because its effects are not widely understood. If that were not the case, then, given that far fewer people own homes in the SE than don't, the effect that you point to need not be a barrier to political success.
I repeat my point from before - introduction of LVT without corresponding reductions in income taxes and the introduction of a CI, will result in a large amount of losers, which will be geographically concentrated, and politically impossible to ignore.
I think this point's been fairly well addressed by by both myself and MW. Unless you clarify what you're assuming the extra tax revenue is being used for, if not CI or reductions in other taxes, then you're making an assertion on the basis of an equation with one side missing.
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