Killer Arguments Against LVT, Not (228)

One of the supposed Killer Arguments goes something like this:

One school of thought which appears to be gaining traction with liberally minded people is a land value tax, which would be levied at a percentage of the value of any land one might own on an annual basis. This is portrayed as a tax that would hit the rich hardest, but actually its advocates do not understand that it would likely affect the rich the least.

So who would it affect the most? Let's take a few examples and determine who would be most ill affected by a land value tax in the UK.

The value of the UK housing stock is approximately £3.75 trillion. In order to raise last year's tax revenue of £550 billion using a land tax alone, we would need to set a flat tax of 14.6% of land value per year. Yes, that's not a typo, the cost of this tax on residential property would be absolutely eye watering...

[The total value of all land and buildings in the UK is more like £6 trillion, of course: he kicks off with a complete bare faced lie. He then does some worked examples based on the entirely flawed premise that landlords or farmers can pass on the tax in full as higher rents or food prices, as well as wilfully understating people's current tax bills and introducing a few sleight of hand mathematical errors]

Whom else would the land value tax negatively affect? Pensioners would be the obvious answer. Take a grandad on the state pension. He bought his council house, now worth £120,000, via the right to buy scheme, and now lives on the state pension of around £7,000 a year. His tax bill under the current scheme is simply VAT on his non-necessities. This is likely to be at or about £1,000 a year.

The land value tax would impose a tax upon him of £17,520 a year, or just over 250% of his income. Unless your goals in taxation are to make your grandad sell his home that he spent his whole life working to pay for*, the land value tax is not a progressive way forward.

Using a more correct estimate of the total value of all land and buildings in the UK of £6 trillion, the rate would be more like 9% (and that's assuming that fuel, fags and booze duties were to be replaced plus other bits and pieces. The actual full-on rate of LVT** would thus be more like 7%, half of what he says).

But the point is, how is that an argument? No matter how anything is divided up between a large group of individuals, the average amount per individual, or the amount for the median individual is always pretty much the same.

- There are 51 million adults in the UK; £550 billion divided by 51 million is an average of about £11,000 per individual. Some taxes are borne indirectly via corporations and pension funds, so we don't really notice, and the median adult earns less and pays less tax than the mathematical average, so the current tax bill for a median adult = about £7,000.

- If we collected that £550 billion on land/building values instead at the rate of 9%, the tax on a median home worth £160,000 would be £14,000, there are two adults in the median household, so the tax bill for a median adult = about £7,000.

To my mind about £7,000 in income tax, National Insurance, VAT etc is pretty much the same as about £7,000 in Land Value Tax, so comparing median bills is pointless and not an argument for or against anything. When people try to 'prove'that one of these figures is hugely larger than the other they just make themselves look stupid. Which they are.

* Well that's a bare faced lie, isn't it? If he bought his council house under Right to Buy, chances are he was paying a lot less in mortgage repayments than he would have been paying in rent, he has received a massive free gift from the taxpayer to subsidise it.

** To replace the big taxes Income Tax, National Insurance, VAT, corporation tax; as well as nuisance/wealth taxes like Business Rates, Council Tax, SDLT, Stamp Duty, CGT, Inheritance Tax, TV licence fee and Insurance Premium Tax.