Thursday, 15 January 2015

The F-Word

When most people think about paying for Government services, they believe this should be based upon the ability to pay. This contradicts what we think is fair when paying for private goods and services. Why the difference?

I believe it is to due the mistaken belief we pay compensation to the Government for the services it provides. The poor therefore need subsiding by the rich. 

The correct view is we  pay (or should pay) compensation to the community for benefits we receive  from it. Out of which, how we best divvy up the proceeds is a separate topic. Take note faux-Libs. 

We earn an income, then buy capital, which benefits everyone. Unlike income and capital, Land, by definition, is not reproducible. Exclusive occupation of productive Land is therefore the main* burden we place upon the community. It is the permission to exclude others that is the benefit we should be paying for. Measured by the market, as the rental value of Land.

It is not therefore a "tax" but a user fee. Which perfectly aligns with the same incentives as drives the rest of our economy. And, joyfully, we get a fair distribution of income, capital and welfare (in the economic sense) as a result.

At its base, Capitalism is all about paying market based compensation. It works because it is fair. When we apply this to landownership, and other negative externalities, we get a fair and efficient way of paying for services we share.

* other burdens, or negative externalities, include State granted monopoly rights, and pollution.


Mark Wadsworth said...

Agreed. You bloody Communist.

Ben Jamin' said...

God knows what that makes you.

A Trotskyite?

Bayard said...

"It is not therefore a "tax" but a user fee."

What you call it is not the point. LVT is based on the ability to pay. If you are not able to pay the capital AND the current costs of owning land, then you'd be a fool to buy it, whether those current costs are small, as now, or large as they would be with LVT.

Transitionally, LVT would not be based on the ability to pay, but eventually it would be. If Winston Churchill had succeeded in bring LVT in at the start of the C20th, the equivalent of this blog would probably trying to make the case for switching to the "much fairer" income tax and people would be scratching their heads and saying "WTF are they on about?"

Ben Jamin' said...

@ B

1.Taxes are a % of income and capital, so are based on the ability to pay. By definition.

2. Anything else isn't a "tax" in my opinion. If it's not a % of income and capital, it cannot be based upon the ability to pay.

For sure rich people tend to buy expensive goods and services. But, that's a generalisation. Individually, who knows. But whatever they are charged, the price doesn't change just because they are rich. Or a poor widow.

Same with LVT.

Mark Wadsworth said...

B, agreed on 'transitional' thing. This is the ultimate irony.

We are perfectly prepared to accept that people's income can fall - especially if they retire without having saved enough.

And we accept that when people's income falls, they have to give up some of their lifestyle, like not buying a new car or not renewing their Premier League season ticket or not having a new hairdo every week or whatever.

But the one lifestyle choice which is apparently unacceptable is for people to move from an expensive home to a cheaper one.

Bayard said...

BJ, you're getting into "Alice in Wonderland territory here: “When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’ Unfortunately for HD, words mean what people take them to mean and if everyone but you thinks that the Road Tax is a tax, then it is a tax, not a user charge, argue it how you like.

MW, have we done "LVT doesn't take into account the ability to pay" as a KLN?

Ben Jamin' said...

@ B. I tend not to be very original, so only repeat what I read and understand. So, defining LVT as a user fee wasn't my insight, much though I wish it was.

And I never said LVT doesn't take into account the ability to pay (that might be a Poll Tax), but it wasn't based on the ability to pay.

Are these things important? Yes, because if you given them an inch, they'll take a mile.

So we need to get these things spot on, every time.

Ben Jamin' said...

@ MW

"But the one lifestyle choice which is apparently unacceptable is for people to move from an expensive home to a cheaper one."

The important word being "choice". LVT is public finance based on choice. Not coercion, like taxes on income/capital or Poll Taxes.

In this sense, it's just Capitalism applied to paying for State Services.

I personally think the richest person in the UK, with the largest income shouldn't have to pay a penny into the common pot if they don't want to.

All they have to do is live in a marginal location.

And yes, I do get called a Communist regularly for saying such things :)