Killer Arguments Against LVT, Not (121)

Moving swiftly on to the next item on the list at Appraiser10.com:

Unequal taxation

In addition, the emphasis on land's value exceeds what many feel to be reasonable. (1) It is claimed that workers who do not need to own land, such as doctors or computer scientists, would feel little effect, while agriculture (2) or manufacturing, for instance, would bear far more of the tax burden. The tax would have a greater impact on people whose assets are more concentrated in land, (3) and such people would have difficulty paying the tax without selling or mortgaging their property. (4)

Let's get the minor niggles out of the way first before moving to the nub of the argument...

1) First you have to unlearn everything you have been taught so far. If people became accustomed to Land Value Tax, and somebody suggested replacing it with income tax, then that would seem even more unreasonable.

2) Farming is a special case, I'll do that in the next post. I'll cover the other three categories below.

3) Land is not a proper asset - it only has value to the owner because there is an equal and opposite liability or burden on 'everybody else', so the net value of land is precisely nil. I explained that last week.

4) Yes, LVT converts the notional cost of owning land (value x interest rate) into a real cash cost, while reducing the actual cost of creating wealth (i.e. regulations and taxes on turnover, incomes and profits). If you buy land with a mortgage, then you have to generate the post-tax income to pay the mortgage, but owner-occupiers are exempt from this market discipline. If everybody is subject to the same market discipline, then by and large, this will lead to a better outcome all round.
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As to 'doctors, computer scientists and manufacturing', let's just remind ourselves of actual numbers:

i. In 2009-10, income taxes in the broader sense (income tax, National Insurance,VAT, corporation tax) raised £346.3 billion,
ii. In 2009-10, Business Rates (being pretty close to LVT on commercial premises) raised £23.4 billion.
iii. Business Rates average out at about £20/sq yard/year for land used for commercial activities.
iv. if LVT replaced all other taxes, the required rate to be applied to all developed land (whether commercial or residential) would be on average about £40/sq yard/year (with a median of about £24).
v. Replacing all other taxes with LVT would mean a major shift away from taxes on productive activity to taxes on residential land

Therefore, under a full-on LVT system, what would happen is that the tax bill on wealth creating enterprises would fall from currently £369.7 billion to £46.8 billion. There is a massive safety margin here, and the chances of all but the most decrepit loss-making owner-occupier businesses failing as a result of the tax shift is more or less zero. Quite how the tax saving would be split between higher wages and higher dividends is an unknown, but it's safe to assume that the usual 80/20 rule would still apply.

More specifically:

a) GPs only need tiny plots to run their practices, but these tend to be in town centres where rental values and hence LVT would be high (say £100+/sq yard/year), add to that the fact that GPs are higher earners and live in the nicest and biggest houses, and their net income wouldn't change much (if it went up, then the NHS could simply reduce the amount it pays them).

b) Hurray for 'computer scientists'! As they require very little land to ply their trade, this is exactly the sort of thing that is outsourced to clever people in India, who pay no tax in the UK at all. If the net income of UK based 'computer scientists were to rise, then the chances are that less stuff would be outsourced, as a result of which we'd retain these skills and more money would stay sloshing around in the UK (either because well paid 'computer scientists' then rent or buy the nicest houses or simply spend their money here).

c) Manufacturing is currently subject to the most savage tax rates of all (including VAT and all manner of 'green' taxes and regulations) and manufacturing uses sites at the edges of towns and cities with low rental values (and so would pay relatively little in LVT). There are always trade-offs, but provided there were a sensible approach to planning permission for new factories and associated infrastructure (power stations and motorways to get goods and people back and forth) there is no reason to assume that their total tax bill would be more than a fraction of what they currently hand over in VAT, PAYE and corporation tax etc.