Killer Arguments Against LVT, Not (348)

Emailed in by MBK, from The Economist:

But if LVTs are so great, why are they so rare?

One explanation is that it is too difficult to value land separately from what sits on it. There is not much of a market, for example, for undeveloped land in central London.

The author knocks that one right on the head:

… this can be overcome. The 2010 Mirrlees Review of British taxation argued that bean-counters could compare the price of similar buildings in different locations, for instance.

Correct. Identify a few bellwether buildings (a three-bed semi-detached house, an office block of a given size, whatever) in a marginal area i.e. very cheap areas, i.e. one where it's just about worth maintaining an existing building but not much new is being built. The land value in that area is to all intents and purposes zero. The amount by which the total value of a similar building (a three-bed semi-detached house, an office block of that given size, whatever) in a different area exceeds the one in the marginal area is by definition the payment for the "location, locate, location". Simple subtraction and a bit of averaging is all you need.

In any case, the efficiency of the tax does not depend on accurate valuations.

Exactly. LVT would probably work best if it's the same % rate everywhere, but it doesn't really matter. So if the tax on a three-bed semi-detached house in a valuation area is set the same for all such houses in that area, the cheapest might be paying 90% LVT and the most expensive only 70%. So what? There's no magic to the 70% or the 90%, either way it's a tax on the land value.

The bigger barrier is political.

Correct.

LVTs would impose concentrated costs on today’s landowners, who face a new tax bill and a reduced sale price. The benefit, by contrast, is spread equally over today’s population and future generations. This problem is unlikely to be overcome. Economists will continue to advocate LVTs, and politicians will continue to ignore them.

That turns logic and facts on their head. Having done the spreadsheets umpteen times, it is quite clear that if you shift taxes off earnings and onto land values (and other monopolies), then in the short term one or two per cent of the population have their state granted privileges removed (and will scream blue murder) but at least three-quarters of the population would be thousands or tens of thousands pounds a year better off.

Once today's rent seekers have found themselves proper jobs and rejoined the productive economy, everybody's happy. Or else you might as well argue that we can't legalise drugs because it would put deprive drug dealers of their livelihood. You can't miss what you never had.

And if we are not to worry about the future, we might as well throw in the towel right now.