Query emailed in by Charles Bazlinton:
Dear Mark
The query arises out of the subject matter of Robin's blogpost of 22 June.
I was at the same Occupy event and had also had a difference with TJN later in the day after Robin had left. TJN were majoring on multinationals and tax . I was told LVT won't work with Google for example: "because they can move their London offices to Luxembourg if we had LVT in UK". He admitted a role for LVT but not for all tax. We did not get very far due to time.
This argument applies to any re-locatable multi-national. How do you compete with tax havens under a LVT regime? Tax havens would become even more appealing under LVT presumably, because firms escape the taxing regime by settling on untaxed land overseas. So tax havens might increase in number – or have I missed something?
Best wishes
My reply:
Yes, you have missed something.
Let's assume income tax and corporation tax is nil everywhere in the world and all countries have moved to LVT-only systems.
Q: Where is the rental value of land highest? In other words: which countries get the most tax?
A: Where there are lots of people, i.e. big towns and cities, which are usually in the biggest countries (observable facts). The rental value of land in tax havens would simply not be anything special, they wouldn't be able to collect much - the current HIGH rental value of land in Monaco is merely the current value of the tax saving from living there. (And yes, if 'tax havens' decide to levy little or no LVT, then this just pushes up rents net of tax and the purchase price of land and buildings in that jurisdiction; the saving to the potential relocator is always wiped out).
But if there were no tax saving, nobody in his right mind would want to live in that concrete hellhole. Why would Google go to the trouble of relocating to Gibraltar (to minimise its tax/rent bill) when it can go to Merthyr Tidfil (to minimise its tax/rent bill)? And if reducing your rent/tax bill were the only issue, why don't all the shops on Oxford Street close down and move to Merthyr Tidfil to save rent/Business Rates?
It's all in the plan!
Dark thoughts
2 hours ago
28 comments:
Isn't your answer incomplete?
You've assumed something that isn't true.
Perhaps I'm misreading the question, but I think it's asking "if the UK had LVT but Luxembourg (or some arbitrarily chosen tax haven) did not; why would these multi-national companies stay in the UK?"
I suspect I know the answer, but would like to see yours too.
I think that the question is making the mistake of assuming that the UK == London.
There must be a place in the UK under LVT that would have such low LVT that it would itself be a tax haven. If you can stay in the lovely UK and have access to all the lovely things in the UK, why would you go to some concrete monstrosity of an off shore tax haven?
In short: we relocate your London office to Luxembourg when you can relocate it to Scunthorpe?
Rereading; I think you've already said what I've said.
Is it worth mentioning that your conclusion is true even if the other countries don't have LVT?
OP, yes, for Scunthorpe read Merthyr Tidfil*. As an afterthought, I included an extra bit in parantheses to explain what happens if other countries have no LVT, it does not make a country more attractive to somebody thinking of moving there. Which I think answers your second point.
* The irony is, tax/rent is the same thing really. If all people cared about was cutting their tax/rent bill to the absolute minimum then there would be no towns and cities; there would be no quaint touristy villages nestling along the scenic coastline etc. So this illustrates yet again that people would pay LVT.
OP, further, Luxembourg is very nice indeed, and I'm guessing that rents/tax there would be a lot higher than in Scunthorpe anyway.
Is there not also the point that it doesn't really matter if corporation do or don't pay tax if they don't have a physical existance in a country. As long as the beneficiaries of corporate profits pay taxes on their personal usage of land (and they will have to live somewhere) there is no problem. Or am I missing something?
TBH, that is another good point. If Amazon can shave their own corporate rent/tax cost to a minimum by having its warehouse in the middle of nowhere staffed by robots, then that means higher incomes for shareholders, employees and cheaper goods for customers. All of which will end up either as rents/taxes or as more spending in the productive economy - and one is as good as the other.
Another approach to answering the question:
Why do most people/companies choose to live in places with high tax? Why don't they move to lower tax countries? The answer is that they like the country they are already in, and are willing to pay the price in high taxes to stay there.
Corporation tax is easier to avoid than LVT. They can move their letterbox to Luxembourg really easily. But they can't move their whole office, because they'd have to convince all their staff to move, or hire new staff. There's a reason why firms like Google and the banks are willing to pay London rents instead of Scunthorpe: because they can't get the staff in Scunthorpe. Their clever staff aren't willing to live in/commute to Scunthorpe. The clever staff rich enough to pay London rents, and willing to do so because London is cool and hip and fun, and so Google have to be in London to recruit them.
Yet another approach to answering the question:
The Tax Justice Network want to tax corporations, because they are stupid. LVT-ers want to abolish corporation tax entirely. So we wouldn't care about Google leaving because we wouldn't want to tax them anyway if they stayed. And because we wouldn't tax them if they stayed, they wouldn't leave!
"He admitted a role for LVT but not for all tax."
That's because they want very high taxes and high state spending.
LVT-only puts a natural limit on tax. Also, if the state immediately paid the LVT out as a dividend, then state spending would be extremely low, even as LVT revenue increased over time.
"tax/rent is the same thing really"
Yes, but only income tax/corporate income tax.
Capital gains or inheritance tax are not, and they are evil.
JJ, that's another two good possible answers and the most likely explanation for TJN's twisted thinking.
Quite how high "state spending" actually is a separate debate. If you ask me, it's about 5% of GDP, it is impossible to spend more than this, the rest is redistribution, transfer payments and theft (sure, countries like East Germany spent a tenth of GDP on internal espionage and 'security' but I count that as "theft", not as "state spending").
JJ, given the ratio of distress-and-distortions-to-revenues raised, CGT and IHT are indeed evil. They each raise about as much as the TV licence fee, which you might consider morally wrong, but at least it's a stress-free tax, you just pay it.
There is also the reasonable expectation of course, that were LVT implemented, London would get cheaper and Scunthorpe would get more expensive. Until the advantages of being in London were correctly valued.
Why does Google need an office in London? Because they want the clever people; but what if the clever people could be persuaded to move to Scunthorpe because the LVT there were so low? At present, there is nothing to break the catch-22 that makes the south attractive (all the attractive things are there). It's why we see transfer payments in the form of massive public sectors in the north. LVT would slowly break that catch-22.
OP, I don't think the effect would be very dramatic.
As things stand, there is a cost advantage to moving from densely populated to sparsely populated area, which are cancelled out by the fact that sparsely populated areas are worse places to live or do business.
Under LVT, there would be the same equal and opposite forces, and whatever the tax differential is between the two extremes would merely reach an equilibrium like things are now.
The only difference is that with LVT there would be nowhere 'beyond the margin', places like Scunthorpe (where I've never been, it might be quite nice actually) would have worst case zero LVT bills, if that's not enough to attract people then nothing is. Unlike now where the taxes on incomes and capital push an otherwise profitable business into losses, even in the lowest rent areas.
Fair enough; I think your explanation is what I understand. The difference in LVT between the two places (once time has done its work) will represent the real difference in value of the locations, since if the difference in LVT is not justified, locational arbitrage will soon have people/business flocking in or flocking out until it is.
(Me either on Scunthorpe; I only pick it because it amuses some swear filters)
OP, exactly, which is another way of saying that "The difference in rents between the two places (once time has done its work) will represent the real difference in value of the locations, since if the difference in rents is not justified, locational arbitrage will soon have people/business flocking in or flocking out until it is."
And yes, Scunthorpe is part of the Holy Trinity along with Penistone and Clitheroe. And Newark (anag).
Mark
If LVT is 'really' rental value tax (in the sense of location or economic rent) why not call it RVT and get away from some of the perceived problems with 'taxing land'.
Shiney
S, I've been in debates with other LVTers about whether there is a better name for it, but it doesn't matter. Whatever you call it - Council Tax, Domestic Rates, LVT, Rental Value Tax, Sentinel Tax, whatever, the Homeys will hate it.
If you called it "Rental Value Tax" they'd have the same tired objections "Why should I pay rent on my own land?" and "But my land doesn't generate any income, I just live there minding my own business and not placing a burden on anybody!"
To which I reply: "Why should I pay rent for my own labour?" or "But most of my income is spent on keeping me alive and me earning money doesn't place a burden on anybody else either!" but they don't care, because analogies are beyond them.
p.s. Google ship containers, essentially pre fab data centres, to everywhere they want to distribute the 'service'. Imagine one or more in each medium to major city in the world, where there is a communications hub... in the middle where location values are the highest... means lots of LVT does it not? Notwithstanding the good retorts already here. TJN really have no clue whatsoever about the fundamentals of taxation. Maybe they know the 2012 Tax Guide parrot fashion. But not the principles. This KLN is more proof of that. Yet they are directing the people on it.
https://encrypted-tbn2.google.com/images?q=tbn:ANd9GcRMpyZIbWSaoDBwzNYpBadxyiyDl0l5Rx-PqMVHxAUKDy9VjArZ2A
Shiney: I find another way to describe LVT is: A payment for excluding the equal rights of others from using a valuable site. Not so much as a payment for the rent of the site. This gets around the "but I bought this with taxed income, why should I pay again?" KLN
Others: It seems the tax avoidance narrative is reaching an ideological frenzy. I even saw a QC front page Times today banging on about how unjust tax avoiders were. No mention of landowner welfare though! I think this is a good thing. Because at least it is raising the debate into the public mind. It seems bad but without the controversy it won't become important enough to get anyone talking about it seriously. And once a few newbies get it the snowball will start rolling. So lets feed it and see how it plays out.
On the TJN psychology. They claim to support LVT along with other taxes. What they are doing is this: They have to support it now else lose credibility. But... if they support it a teeny bit, they can marginalise it and have it taken out of public debate and carry on with the wealth jealousy agenda and playing Robin Hood. This is their strategy. I know this cos Mr Richard Murphy has told me he will never ever support an LVT... ever. This is not a surprise. Look at the top of their funding pyramid. Its the very guys he's trying to have taxed more. The muthas of all rent seekers. They would be condemned in the morning and out of a job if they really showed support for it. At St Paul's we saw through this and treated them like the rest of the 1%. Ignored em.
RS, re your reply to Shiney, I think I did that one in KLN number 173 counter argument iii.
Not that it makes any difference to the Homeys, they'll either say "Yes but I paid for the right to exclude others when I bought the land" or "But I'm not placing a burden on others by excluding them from my land" or that old fall back "It's my property and the government should protect people's property".
Our old favourite word "should".
How about the government levies a charge for the value of that service of protecting it? And because protecting it is much cheaper in a country of well-behaved people, all those other people get a share in the profit, i.e. the difference between the value of protecting it and the cost of protecting it, just like shareholders in any other business.
MW - I learn from you. You are Jung Si. Master of Tradition (:
Yes, sounds like another nice angle. All of em count.
"Yes but I paid for the right to exclude others when I bought the land"
This is a claim for compensation really because they seem to be saying it pays for all future wrongs. The counter:
"No, you paid for the right to exclude all others up until you bought it but none following"
"But I'm not placing a burden..."
You are when all land has been enclosed already. They will die without it. That is quite a burden.
But yeah they will fall back on logic that would/should make the most stupid imbecile look like Einstein, even in front of their best most respected friends and bosses, just to keep the goodies.
At the last that will be: Fuck off, I dont know who's should have it. ITS MINE! Conquest and dominion.
That's OK, beat the fuck out of them, take the piece of paper with title on it and say:
"You have no right to complain. These are your laws"
Tax Justice is just a sham
Google Red Herring
Not only are Google's clever people are not going to live in Scunthorpe, but the quality of the data links is probably not up to it. Their UK head office is near Victoria and they pay their rent to Lord Marchmain in the usual way.
"I know this cos Mr Richard Murphy has told me he will never ever support an LVT... ever."
Interesting. I didn't think Dick Murphy was intelligent enough to realise what wasn't in his interest.
Physio:
That's exactly the point; if the clever people don't move, the LVT will be lower, making it slightly more attractive to be in Scunthorpe.
In reality it's not a binary result; some people will be persuaded to move, some won't. In the end the difference in rentals (and LVT) will exactly reflect the relative perceived merits of the two locations. Just as the relative prices of two alternative televisions you might buy exactly reflect the perceived value of those televisions.
The goal isn't to get Google to move to Scunthorpe, it's to make Google pay the correct rate for the advantages they receive for choosing to stay in London.
OP, that's the beauty of the system. Phys, who has actually bothered looking this up, has found that Google rents offices in central London, one of the most expensive places in the world - they are already paying for the extra benefits they get from that location and they wouldn't give a toss if Lord Marchmain pays a 95% tax rate on his rental income.
And Google (and its employees and shareholders) would be delighted if income tax, corporation tax etc were reduced or scrapped and more mansions came up for sale or rent (depressing the price or rent payable).
It is not secret that Murphy advises the civil service union that the tax bureaucrats work for. They would not be pleased if he proposed a reform that would take away their jobs so he is not exactly an independent voice.
Incidentally the Google executives could easily avoid paying LVT whilst living in the south of England.
Like this
P, fair point about the bureaucrats. And as to LVT avoidance, it's a sad fact that Poor Widows would end up starving to death because they would be FORCED to pay huge amount on the FAMILY HOME which they need to PRESERVE FOR FUTURE GENERATIONS (and of course their children who want to inherit it would never be able to chip in a penny).
And Google Executives would either
a) all buy villas across the Channel in France and live there. Thus triggering massive income tax bills as they are now resident in France (as we well now, Google Executives would rather pay £1m for a house in France and £100,000 income tax in France than pay £500,000 for an equivalent house in England and £50,000 LVT in England)
b) Adopt the strategy envisaged by the two elderly gentleman in the linked photograph.
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