Saturday, 9 April 2016

Killer Arguments Against LVT, Not (390)

From the comments to an article at Tim Worstall:

Jim: an LVT cannot by definition be paid out of the income generated by the land for the vast majority of people, because they are being taxed on their house, which generates no actual cash income because they live in it. Therefore an LVT is an income tax by proxy, because income from employment is all most people have

That's a tired and tested KLN, debunked here. LVT is paid out of the earned income that would otherwise be collected in mortgage payments or rent. The point is that ground rents would be collected and pooled publicly instead of earned income being collected and pooled publicly. So by definition, it is good for equality of disposable incomes after housing costs (hooray).

And ironically the very people who do generate income from land (businesses) would make out like bandits from an LVT because they already pay a fairly hefty one, plus lots of other taxes.

Yes, Business Rates is pretty close to LVT, but residential land is not (Council Tax is a pale, distant relic of LVT). Perhaps commercial landlords would end up paying less tax, perhaps they'd end up paying more. That can be fine tuned one way or another. But residential landlords would almost certainly be paying a higher share of their rental income in tax i.e. keeping less of the ground rent for themselves (can also be fine tuned one way or another).

Thus the actual effect of LVT in the long run would be that everyone ended up living in a house that they could afford the LVT on from the income they made, so everyone’s income would be taxed at roughly the same rate.

That's a fair assumption.

People with more income would afford the nicer (and higher LVT) houses, poorer people would have to move to lower priced and lower LVT houses. They’d end up paying the same proportion of their income in LVT.

Perhaps they would. Having established that there would be more equality in disposable incomes (hooray), this is not necessarily levelling the playing field between low and high earners (why should it?), it is levelling the playing field in favour of the productive economy and away from landowners (hooray).

People who currently have a lot of their income taken in direct tax get nothing directly in return would be paying a similar amount in LVT, but the bonus is that they get to live in the nicer homes for a much smaller outlay (hooray). They end up better off. That's good for the work ethic and for social cohesion (hooray). Win-win-win.

So its just an income tax via a very circuitous route.

He is seeing 'income tax' as something natural, it is not, it is highly artificial. I could just as well say that 'income tax is LVT by a very circuitous route', which it is - income tax is a crude, damaging and indirect tax on land values, whereas LVT is a sophisticated tax on incomes (earned income is taxed much more lightly than unearned income and to a large extent it is voluntary).


Lola said...

Are there some typos in your first response paragraph?

Mark Wadsworth said...

L, I have corrected it.

Bayard said...

"So its just an income tax via a very circuitous route."

So? Ultimately, all tax is paid out of income, except for a tiny proportion of taxpayers who are living off a dwindling lump sum (perhaps the Taxpayer Living Off Savings can join the PWIM in the Homey's Mythical Bestiary). What makes income tax income tax is not that it is paid out of income, but that it is proportional to income. Idiot!

Mark Wadsworth said...

B, good point, wish I'd said that.

Lola said...
This comment has been removed by the author.
Lola said...

In re the point that all taxes are paid from income he is absolutely correct. Income is a share of the profits of private business. Profit is wealth creation. And you can only raise taxes from that source. There is no other source. In that sense all taxes are taxes on that wealth creation process. The point that he is missing is the observation by Ricardo that 'all profits return to rents'. That is the landlord will always seek to capture as much of that profit for himself as he possibly can - and quite rightly so. But land is unique. It is the only finite resource. No one is making any more of it. And it only has value as far as we all pay to construct a system to protect the landlords exclusive rights to it. So, why should the landlord not be taxed to pay the costs incurred in protecting that exclusivity? In other words we tax the location rent to protect the exclusivity. And yes, ultimately that tax is incident upon the profits of private business.

Mark Wadsworth said...

L, the tax incidence is not not the private business, the tax USA straight swap for rent or mortgage payments.

benj said...

Might as well say paying rent is a tax on income, or so is paying for any other goods or services for that matter.

It's the other way around. All taxes and costs are "land taxes" insofar as they reduce rental income/selling prices of land. Except the more indirect they are, the more unfair they are, and so the more inefficient they are.