Killer Arguments Against LVT, Not (248)

There was a another rich harvest of KLN's to an article in the Guardian yesterday. As I've said before, Home-Owner-Ism depends on DoubleThink, they will say anything to score a point, even if they have said exactly the opposite to score another cheap point a few minutes earlier:

To illustrate:

HamptonCourt: What's not to like? Erm, the fact that renters end up paying little or no tax, at the expense of homeowners. But then you don't like homeowners very much do you?

The second part of that is a good old fashioned lie. As it happens, there'd be more owner-occupation if we replaced taxes on earnings with LVT. That is a fact: owner-occupation in the UK grew at its fastest during the period when we had Domestic Rates and Schedule A tax. Since the pinnacle of Home-Owner-Ist economic policy ten years ago, owner-occupation rates have been falling again.

But would tenants end up paying little or no LVT..?

Glazelle: Short-sighted renters that can't see that the cost of LVT will simply be added onto their rent perhaps? (FWIW, I own property and have no issue with LVT, indeed I see it as progressive, by which I also mean "The way forward" as well as progressive as in taxation).

So there we have it.

When it suits them, the Homeys argue that tenants will pay NO LVT (and by reverse logic that this is an attack on owner-occupation, which it isn't). And in the next breath they are happy to argue that tenants will pay DOUBLE LVT, and then shed some crocodile tears for the poor tenants.*

The truth, as ever, is somewhere in the middle.

1. Tenants will, by definition, pay exactly the same amount of LVT as the owner-occupiers next door. Unlike the current tax system, it is the substance and not the form which is taxed.

2. Tenants (and first time buyers) will probably end up gaining most, not because they are tenants but because they tend to occupy smaller/cheaper homes relative to their earned income than current homeowners (or landlords) do.

3. So if taxes are shifted £1 for £1 from earnings to land values, tenants and first time buyers will gain (say) £1.50 on the income tax side and lose 75p on the land value tax side. The Poor Widow In A Mansion will gain 10p on the income tax side and lose £10 on the land value tax side, etc.
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* Remember always: tenants are already paying the LVT (the location premium) as it is included in the total rent [cost of maintenance + location premium = total rent].

In the first instance, the landlord will be asked to pay the LVT. He is perfectly entitled to try and add it to the rent if he wants, but it seems unlikely to me that tenants will be willing to pay twice over for the location premium [cost of maintenance + location premium + location premium (LVT) = total rent]. That is quite simply not how it works, the LVT or the location premium is calculated as [total rent - cost of maintenance].

For sure, if taxes on earnings are reduced by £200 billion then a lot of that will flow through into higher rents, so it will look as if the LVT is being passed on, but that is not true. The location premium is dictated by average net earnings in any area, so if taxes on earnings go down, then the location premium (and the LVT) clearly go up.