Saturday 16 April 2011

Killer Arguments Against LVT, Not (113)

Sobers, who appears to live in a parallel universe where the laws of economics do not apply and we just completely ignore the world the way it is:

But if the 'community' has the power to tax my property*, whatever my level of income, then they have the whip hand over me. If I'm sick and my income goes down, or business has a bad year and I make less money, does my LVT go down? Of course not. So how am I expected to pay it?

Short answer:

I'm all in favour of low taxes on turnover, wages and profits. The ideal rate would appear to be zero percent.

So let's imagine a country with zero per cent or very low income/corporation tax etc (and there are many). This of course attracts business (whether genuine on-the-ground business or offshore tomfoolery), so what happens is that rents in these countries are much higher.

A single letterbox or brass plate in a tax haven costs you hundreds of pounds a year. Rents in Monaco are much higher than in France; when the previous government hiked the top rate of income tax to 50% (actually much higher than that), rents and house prices in England (esp. London) went down and rents and house prices in the Channel Islands or Switzerland went up. And so on. This is all easily observable in real life.

All LVT does is tap into that extra rental value which is released by scrapping other taxes and does not push up the rents any further (basic economics, see here). The magic fag packet says that LVT would be up to double what Business Rates currently are, just to put it in context.

So for start-up businesses and those paying rent or a mortgage, all things considered they will be considerably better off. For sure, there are also old established owner-occupier businesses who paid off the mortgage years ago, the profitable ones will end up even more profitable and the ones who currently only survive because they use their rental income to subsidise the losses made in the actual business will now find it more profitable to become landlords and let the premises to somebody else, this is called creative destruction and I fail to see how it is A Bad Thing.

The same applies to housing. These LVT-opponents who wail on about "How am I going to pay the tax if I lose my job?" overlook that more than half of all households pay mortgages or pay rent. When people take out a mortgage they commit themselves to, er, repaying it over a twenty-five year period and somehow or other, most of them manage it, ditto tenants, why is it so much more difficult to budget for LVT than it is to budget for mortgage repayments or rent?

Hey - we might even engender a 'savings' culture, where people try and build up a bit of a cushion against this eventuality! And then there are these other bits and pieces that people have to pay for, like "food" and "utilities" and "clothing" and so on, who pays for those when you lose your job?

And, as others pointed out to him on that thread, we can safely assume that it will be up to politicians to set the LVT rate, the chances that they will go for popular appeal by reducing an in-your-face tax and sneaking in stealth-taxes again is far higher than them hiking the LVT rate; only if the LVT rate were set by economists, would it always be set at something close to the revenue maximising level. And if the rate is set 'too high' in some areas in some years, all that happens is that new development ceases in that area and existing buildings are used more efficiently - but isn't this what the NIMBYs want anyway?

No doubt Sobers will say, yet again: "Ah, but rents and prices are only so high because of planning restrictions, so if we liberalised these, rents and prices would come down." Well, I'm all in favour of liberalising planning laws, and it may well be that rents and prices would come down a bit in some areas, but so what? It stands to reason that the total rental value of all UK land would tend to go up rather than down if planning restrictions were loosened, and LVT works just as well with or without planning restrictions.

* I wish people would stop saying 'property' in this context. LVT is a tax on the rental value of land, that is quite a different concept. That's part of the genius of Home-Owner-Ist propaganda down the ages, to convince people that privately collected land rents are 'property' just the same as bricks and mortar, cars, machinery, televisions or washing machines. Even more spiteful is the notion that your wages are not your property (and hence suitable subject for taxation) or that when you take money out of the bank to spend it, one-sixth of it ceases to be your property as it has to go in VAT.

6 comments:

Bayard said...

"How am I going to pay the tax if I lose my job?",

This only applies to owner occupiers with no mortgage, of course, as mortgage payers and tenants would be out on their ear, anyway. Three answers to this: if the state is feeling benevolent when the regulations are made, there could be partial or full rebates for those who can prove that their household has no little or no income or savings. If it is not feeling so benevolent, part or all the LVT can be deferred, to be paid back in happier times. If it is feeling really tough it will suggest that everyone take out insurance to pay the tax if they lost their job, exactly like mortgage protection insurance.

Tim Almond said...

Another answer is "move somewhere cheaper". If you're long term sick and can't work then you could rent something in Lincolnshire, Mid-Wales or Somerset at near 0 LVT, living off your CI while someone else rents your London house until you get better.

Of course, with the current system, you not only have to spend all but a small amount of savings to get benefits, but if you take out an income protection policy, the money from that counts against benefits.

Mark Wadsworth said...

B, JT, brilliant, your answers are nice and short, unlike mine which does go on a bit.

chefdave said...

But if the 'community' has the power to tax my property*, whatever my level of income, then they have the whip hand over me.

Not really, because you'd only be paying free market prices for your plot. If LVT was introduced some areas would be quite heavily taxed while others would become veritable tax havens. You then get to choose how much tax you pay.

It would give most of us much more control over our financial affairs.

Snarfangel said...

Ed in the previous thread hit on a point that is just as important, IMO.

Sobers: I am indeed a 50% slave to the State (more probably). But crucially I can stop paying them if I want to. All I have to is earn less money and live more frugally. Its my choice. Under LVT I have no choice. Work to pay the LVT or be chucked out of my house. Thats real slavery IMO.

Ed: LVT: A tax system that rewards people (relatively speaking) for being productive and generating wealth as opposed to the current system that rewards the lazy and the idle. Given the current financial state of the UK, might that be a good idea?


If I don't like an income tax, I can work less. In fact, I have an incentive to work less the higher it goes. If I work less, it doesn't create more wealth for society -- someone else may have overtime hours, but that just means that person gets a bigger piece of a smaller pie, since the overall production of society will go down.

On the other hand, if I don't like a land value tax, I can use less land, or use less desirable land -- or both -- which frees up land for other people to use more productively. If I think a certain plot of land is only worth $10,000 a year and the LVT is $12,000, I am going to give it up, and someone who thinks it is worth more than $12,000 a year will use it. If the government is stupid enough to set a price higher than anyone will pay, the land will become vacant, but I can guarantee they won't do that for very long.

(A bit of simplification in the previous section, of course -- it may raise the value of surrounding land to leave some of the remaining land fallow or in its natural state, or turn it into a park. Central Park in Manhattan raises the value of the surrounding land more than it is worth developed. In fact, it would be in New York's interest, insofar as land value is concerned, to expand the park even further, which they might very well do if an LVT were in place.)

To put it in somewhat mercenary terms, under an LVT system it is in the government's interest to maximize the rent it collects. That means it will charge what the market will bear -- but no more -- and fund improvements that will bring in more than they cost. It gives governments an incentive to maintain necessary infrastructure, things like fix potholes, put in street lamps, have attractive parks, repair sidewalks, and the like, since it directly affects how much a taxpayer is willing to spend to stay there.

Under an income tax regime, it is in the government's interest to go after offshore tax havens and hire more tax investigators, neither of which are necessary with an LVT, since you can't hide land in overseas accounts.

Mark Wadsworth said...

CD and Snarfangel, exactly.

This goes back to my modest vision of The Government as "mutually owned service provider", it provides services, organises things, charges accordingly and divvies out the profits as dividends, but as we are all simultaneously customers and shareholders, this leads to a better outcome all round.

Worst case, instead of landowners and bankers whizzing round in limousines, we have politicians whizzing round in limousines, I fail to see how that is worse - at least you can boot politicians out of office.