Killer Arguments Against LVT, Not (211)

From Director of Finance Online:

The justification for taxing property rather than people is that buildings don’t move: the taxman always knows where they are. (1) Well, before Britain resurrects plans for a mansion tax it ought to look at Ireland’s latest levy on property. Half the country is refusing to pay.(2)

... If people don’t pay, the state can claim the assets. That’s why the UK chancellor has put a 7 per cent tax on property purchases above £2m and is planning an annual levy on homes whose ownership (rather than the asset) has been moved abroad. (3)

The main mistake of the UK’s poll tax in the 1980s was to tax people rather than apply town-hall rates to their property. (4) As people consume the councils’ services, a tax based on the number of residents rather than the value of the home made sense:(5) but for ease of collection a tax on heads was disastrous. (6) People move, houses don’t. Homeowners don’t risk their main asset for the sake of a levy of less than 1% of its value: (7) transient people see the same charge of say, £500 or £1000, as sufficiently draconian to justify refusal to pay.

1) Nope. The justification for taxing land values (not buildings, as such) is that it is people in general who create land values by abiding by common and mutually beneficial rules, i.e. respecting each other's boundaries. The fact that land is immobile is not just a bonus, it;s a feature. Land/location value is created by those people and morally belong to those who created it. For sure, there will always be people who don't obey the rules (criminals, fraudsters, terrorists, foreign armies etc) which is why we appoint a small number of people for dispute resolution and protection against internal and external enemies (police, courts espionage, immigration control, army etc = the government). When you have people + government you have a "state" and it is the "state" which creates the land values.

2) Because it's a poll tax. not a land value tax (as he explains later on).

3) Apparently, they are already finding ways of wriggling out of the higher SDLT charges, which is prone to such avoidance as it is a tax on transactions and not on ownership.

4) Agreed.

5) No it didn't! It didn't make sense at all, he's turning the whole logic on its head. His view seems to be that the council decides unilaterally what 'services' to provide to people (whether they want them, get them or value them) and then forces everybody to pay a fractional share. That's the wrong way round.

The coherent view is that the "state" creates land values so "the state" is perfectly entitled to levy a user charge on land values for the market value of benefits received. The government, as appointed intermediary, collects all the ground rent - and then we can have a good old argument about what to spend it on - education, healthcare, welfare, pensions, defence, whatever.

6) Yes of course it was disastrous, because the whole underlying logic was completely flawed. If something doesn't work in practice, there is something wrong with the theory.

7) People will pay a darn' sight more than 1%. Tenants and recent purchasers pay the full market rent. Businesses pay Business Rates, which are pretty close to LVT. Remember: the logical conclusion of this is that the bulk of LVT receipts - after paying for the core functions of the state which is not much more than 5% of GDP - are just divvied out again as a Citizen's Dividend (with possibly some earmarked as health or education vouchers, again, separate debate). Simple maths says that at any one time, two-thirds of households will be getting more back than they pay in; collecting from them is easy, you just net off the LVT with the CD, so the amount of people from whom a significant amount of tax has to be prised is relatively small.