Friday, 18 April 2014

Georgism without Land Value Tax (2 or possibly 3)

Two commonly used KLNs are that "there will be too many losers in the short term" and "LVT will never raise enough money to replace all other taxes."

I'm not sure that the second one is true and it's certainly not relevant to anything, even our 'biggest' tax, income tax, barely raises a fifth of what the government spends each year; tobacco duty (which lots of people think is great) only raises one or two percent.

But hey.

So here's a thought experiment at least:

We work out how much each household or business is currently paying in total tax, things like VAT will have to be apportioned somehow between suppliers and consumers; occasional taxes like Inheritance Tax can be annualised etc.

Then we abolish all these other taxes, and the tax bill for each home, plot of land, farm, shop, office etc is simply set at whatever the occupant's current total tax bill is.

So in the short term, there are no winners or losers at all, everybody's disposable income is worth exactly the same as before and there is no disincentive to getting a (better) job, making higher profits, increasing your turnover or realising capital gains etc.

For sure, people's incomes and business' profits change. If it goes up, households will move somewhere nicer, and businesses will move into larger/better premises; if it goes down, the reverse applies.

By and large, movers will be competing against people with similar gross incomes, so whoever has the highest gross income out of that small group of similar bidders will be the new owner or tenant of each particular building/plot. The tax on that plot is then simply re-set at whatever the business' or household's total tax bill would have been under the old rules (however estimated). That might be lower or higher than the previous occupant's, that doesn't matter. By and large people will be swapping places, trading up and trading down.

Over time it will all level out, and some bright spark will point out that the total tax bill on similar homes in the same street, or shops on the same High Street is pretty much the same etc, at which stage you simply average out all the tax bills for similar premises in the same area.



Sobers said...

Nope. Never going to fly. Firstly its totally arbitrary - a 20 yo student pays no tax, but can expect to have an above average income later in life. Similarly everyone expects to retire, on a lower income most likely than their employed income, so no-one will want to tie themselves into a tax payment in eternity. Equally what happens if you can't pay? Are you jailed? Can you go bankrupt for your tax payment, and have it reset? Presumably a business that goes into a profits slump would be made bankrupt by its tax payment, even though the underlying business wasn't actually that unprofitable.

Its basically slavery. How do you calculate the tax debt of someone becoming an adult at 18? Are you born into a tax debt to the country from the moment you are born? What if you leave the country?

Mark Wadsworth said...

S, you clearly didn't understand the concept and hence your criticisms are completely worthless.

"a 20 yo student pays no tax, but can expect to have an above average income later in life."

Read the post! His current zero tax bill attaches to where he lives, which might be a room he rents in a shared house or a room at his parents' house. So he only pays zero tax for the rest of his life if he stays living where he is today for the rest of his life.

Sobers said...

Well that makes even less sense. It basically is a one step removed income tax - the tax on the property they inhabit is the same the income/business/consumption taxes they would have paid under the old system. How is that any different, apart from more complicated?

Apart from which, how on earth would you calculate the tax paid by any individual without knowing what they spent their money on, or how much they saved? A non smoking non drinking saver would pay a lot less tax than a smoking drinking mass consumer, for the same income. If you average consumption rates across the population people who pay lots of excise duties and Vat will end up with lower tax bills, and those who are abstemious savers higher ones.

DBC Reed said...

At first glance, the Piketty Tax which appears to be LVT Plus Plus, taking in all forms of capital appreciation, might be another pan-tax unifier.

Mark Wadsworth said...

DBC, not really.

If we assume that all "wealth" (as arbitrarily defined) is charged to an annual tax at an arbitrary % of its notional selling price, then ignoring distortions and evasion and so on, you can still raise more money from full-on LVT on site-only rental values.

The arbitrary annual "wealth tax" % required to collect as much as LVT would, would be so high that basically it wouldn't work (even if there were any economic or social benefit to a "wealth tax" which there isn't).

benj said...

Nice one.

Ditch the moniker LVT. Replace with "Progressive Poll Tax", or PPT for short.

My only criticism might be, it's easier to calculate the rental value of land, than the new PPT(when somebody moves) under the old(current) tax regime.