Killer Arguments Against LVT, Not (122)

The penultimate killer argument from the article at Appraiser10.com is as follows:

Herbert J. Davenport

Herbert J. Davenport, an early 20th century economist from the University of Missouri and Cornell University, was a major critic of the land value tax. Davenport sympathized with the goal of taxing the "unearned increment." However, he believed that efforts to do this by means of a land value tax would cause the land to be used less efficiently. For farm land, he thought that this was obvious.

"The farmer", he said, "is continually renewing his land's fertility and other characteristics. A tax on one parcel of land will simply cause farmers to abandon it and to prepare and fertilize other untaxed land. And a tax on all agricultural land will simply be a tax on the production of farm goods." The result, he believed, would be a decreased supply of farm goods relative to other goods, higher prices of farm goods, and a fall in the amount of land on which crops are grown.

It would be simplest to just make farm land exempt from LVT, because even if it were taxed at full rates, this would only raise one or two per cent as much tax as could be raised from the six or seven per cent of UK land which is developed and privately occupied. And there is the point that the value of farm land is mainly dictated by how well tended the fields are, which is largely down to the effort of farmers, and the location value is secondary.

A much better place to start would be to scrap farm subsidies which don't really benefit farmers at all, because the supermarkets merely reduce the price they are willing to pay for farm produce.

Nonetheless, Mr Davenport is quite wrong in principle.

i. In round figures, half a million people work in agriculture in the UK, tending 50 million acres of land, which works out at about a hundred acres per farmer or farm worker (UK farming is hyper-efficient in terms of food-per-unit-labour, it's just not so good in terms of food-per-acre, which is largely down to EU regulations and NIMBYism) .

ii. Let's assume average farming incomes are £15,000 to £20,000 a year, so they are paying (say) £4,000 in income tax, National Insurance etc a year each.

iii. Agricultural rents are between £10 and £100 per acre/year, so a hypothetical full-on LVT on farm land would average out at about £40 per acre/year.

iv. So if farmers had to pay LVT instead of income tax and National Insurance, it wouldn't make much difference to their tax bills on Day One, but...

v. They'd have every incentive to maximise food production, it would be cheaper for them to employ people (as wages would be paid out tax-free as well, of course) and even if their output prices went up (which they wouldn't, as all their other inputs would be cheaper as well) then the supermarkets would absorb most of the increase (it being them who currently make all the profits and indirectly siphon off the agricultural subsidies).

vi. Paying LVT is no different, in economic terms, to paying rent or to paying off a mortgage. So if Mr Davenport were right (which he isn't), then there would be no such thing as tenant farmers (which there clearly are) and nobody would ever buy farm land with a mortgage (which they do). Tenant farmers currently seem to manage to make a living, even though they have to pay £10 to £100 rent per acre/year as well as paying income tax, so there is still plenty of margin of error as between tenant, landlord and the tax office to ensure that nobody loses out in particular.