Friday 24 August 2012

Killer Arguments Against LVT, Not (230)

On my internet trawls, I stumbled across this old post by Adam Collyer again, in which he concedes that replacing taxes on income with taxes on land values has some merit. He plays the Poor Widow Bogey of course, and then this:

The truth is that ultimately, State services can only be financed by taking the fruits of economic activity away from taxpayers. However it is dressed up, whether you tax assets or wealth creation, that is what you are doing.

Nope. By sleight of hand he reclassifies 'land rents' as 'assets', if you unpick this, it must be clear that the claim is simply not true. Taxing the rental value of land does not take a single penny out of the productive economy.
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Simple like-for-like comparisons illustrate this. Let's take as our comparisons four similar sites occupied by four similar people. The sites might be farms, business premises or homes, that does not matter. To keep things simple, let's assume a very small government and negligible taxes. These four sites are owned/occupied as follows:

OO = owner-occupied, without a mortgage
LM = owner-occupied by with a large mortgage
RP = rented privately from a private landlord
RS = rented from the government (i.e. Forestry Commission land, Crown Estates office block or shops; council or housing association home).

Let's agree for the sake of this discussion that OO is the optimum position, if everybody were an owner-occupier without a mortgage, this would be the best outcome.

There's no real difference between LM and RP, both occupants are handing over rent to a private landlord/bank. This means that the landlord/bank can enjoy and consume 30% of the economic output of the tenant for nothing in return. At RS, the tenant is handing over 30% of his economic output to the government, but the government is providing services; it guarantees his exclusive possession with land registry and police, it pays for the roads giving access to the site, it collects his rubbish etc.

So the Homeys can either argue that the landlord is part of the productive economy, in which case so is the government, or they can concede that the landlord is doing nothing for the tenant (he is charging the tenant for the value of the services which the government provides him qua landowner virtually for free).
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Or let's look at site RS. The tenant is handing over 30% of his output as rent, this is a fixed cost and therefore does not influence his marginal decision making, he will still seek to maximise his income or make best possible use of the site. The rent he pays is not a tax.

What would the difference be if the government changed its policy and said "OK, we're going to stop charging you rent but you have to hand over 30% of your earned income as a tax"? In the very short term, not much, but the tax has deadweight costs, it depresses the size of the economy by a few per cent, it encourages tax-evasion and discourages optimum use of the best sites.

If you're lucky enough to be on a good site, you can just free-ride, or sub-let it or sell it to somebody who is prepared to work harder, at which stage the site becomes effectively an LM or RP site, and so the tenant faces two burdens - rent to the private landlord/bank, who are merely enjoying economic output for nothing in return, as well as the income tax paid to the government. Economic output will go down quite markedly.
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A private landlord or bank will take the rent/interest and spend it on stuff which benefits himself, i.e. other people's output. He will not voluntarily plough that money back into the economy by paying for police, building roads, paying for education etc.

The UK government since 2008 at the latest is openly klepocratic, about a third of government spending is not just wasted, it is actually stolen to line the pockets of insiders. But even then, at least two-thirds of it is spending which actually benefits citizens generally (even if it benefits citizens you don't particularly like, they are still citizens. Perhaps some of them don't like you either).

Even if a government were close to 100% kleptocratic and took nearly all the LVT and spent it on itself, fancy cars, nice houses, big cigars etc. How is that any different from the landlord doing this? At least you can vote out politicians for free. I'm not aware there's a similar mechanism for getting rid of the landowning and banking classes.
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So how do we achieve the optimum position where everybody is a mortgage-free owner-occupier but prevent the inevitable concentration of land into ever fewer hands?

Simple: by scrapping taxes on earned income and slapping all land with LVT, dishing out the bulk of it as a Citizen's Dividend (in place of the Welfare State).

By definition, the average citizen or household will be paying plus-minus nothing in LVT minus CD; the OO will be paying LVT instead of income tax, but gets this rebated by the CD. The LM will have a much smaller mortgage, largely rebated by the CD. The RP's and the RS's rent will be largely rebated by the CD.

Thus the average citizen or household will effectively be an owner-occupier as of right just like everybody has the right to vote, or to ring 999, or to write a letter to his MP. And owner-occupation is supposed to be A Good Thing, yes?

So why make people struggle and fight for it half their lives and then free-ride for the rest? Why not keep things constantly at a gentle simmer; nobody is a debt or rent slave and nobody is a free-rider. People can enjoy close to 100% of the value of their economic output for the whole of their lives, it's up to each individual or household how they are going to budget that over a lifetime and how they are going to divvy up their available cash (earned income plus CD) between land rents and other consumption opportunities.

It's hardly my fault if today's Poor Widows In Mansions thought that they could free-ride for the rest of their lives and if they didn't actually defer spending during their lifetimes and save up some cash to see them through retirement.

3 comments:

Sobers said...

Of course LVT is paid out of earned income - where else would the cash come from? Your house doesn't generate any cash just by living in it.

All LVT achieves is a mass swap around of people and houses, and at the end of it all, people end up paying the same amount of LVT they would have paid in income (or other) taxes, but most likely living in a bigger or smaller house than before, depending on whether they were a low income/big house or high income/little house person. Everybody lives in a house that has a LVT bill that their income can afford, and that bill is paid out of earned income. There is no other source of funds to pay it.

Steven_L said...

All LVT achieves is a mass swap around of people and houses

But removing VAT, payroll taxes etc poaches a vast amount of high tech business from around the world.

Taxes are taken off wealth creation and put onto land rents, it really is quite simple.

Mark Wadsworth said...

S: Of course LVT is paid out of earned income

Wrong, you still don't get it. LVT is, by and large, paid out of your Citizen's Income, it's only if you want to live somewhere nicer, bigger or in a higher wage area than the median that you have to dip into your earned income. And it is questionable whether the extra income you earn in high wages areas compared to low wage areas (for doing the same job) is truly earned anyway.

All LVT achieves is a mass swap around of people and houses

Wrong, that's just ONE OF MANY positive things which will happen.

SL,ta for back up.