Sunday, 7 May 2017

Killer Arguments Against LVT, Not (412)

I like it when we get a pair of matching opposites, two arguments, at least one of which is fundamentally flawed and which neatly cancel each other out:

KLN 1: "Rich people won't pay the LVT, they will all just move abroad or move to small flat in the cheapest areas where the LVT is next to nothing."

KLN 2: "LVT is a stream of future annual payments, so will depress the selling price of land by the net present value of the LVT. Therefore LVT is a one-off hit on whoever owns land at the time it is introduced (or looks very likely to be introduced)."

KLN 2 completely cancels out KLN 1. Today's "land rich" will pay the tax in full, they can't evade it by selling up and moving abroad or to a cheap area because they have already paid it in advance by accepting a lower selling price.

But Homey DoubleThink being what it is, I am sure they are capable of believing both simultaneously.
On closer inspection...

KLN 1 is in itself nonsense of course. That's like saying "If private landlords charge high rents for nice homes in nice areas, rich people will move to wherever it's cheapest" or "If parents can send their kids to a state schools for 'free' but pay fees to send them to private school, they will send them to state schools."

KLN 2 is logically accurate, but I don't see why that's an argument against.

a) If other taxes on 'wealth' in the wider sense and land and buildings in the narrower sense are eliminated as a quid pro quo for introducing a low level LVT that raises the same amount, there is no "hit" whatsoever.

b) If a higher level LVT is introduced and taxes on output and employment are reduced, then the amount of rent (or mortgage) which tenants and buyers can pay increases buy the same amount and the overall impact on actual net rents collected by landlords (after paying LVT) or on selling prices will be surprisingly little. In other words, the net present value of the extra LVT is matched by an increase in the net present value of people's future earnings or earned profits.

c) If LVT is a one-off hit to current values, then the people who actually pay it in cash aren't really paying any tax at all, that has all been swallowed by the current owner. So after that, we are in a much lower-tax environment. So in future, high earners won't be paying any extra tax, and neither will low earners, middle earners or anybody else.

d) The bulk (i.e. 95%) of today's land rich paid pennies for their land decades or centuries ago, they've had their money back several times over, and so the tax merely partly reinstates the status quo as it should be. Some poor saps have taken out large mortgages in recent years, if they have to pay mortgages and LVT on the same land, that is indeed a double hit and superficially unfair, but most of these people will win more on the tax cut swing than they lose on the LVT roundabout, and further, we can shift some of their LVT liability to the bank and everybody's happy.


mombers said...

We've seen VAT rises and pension auto-enrolment impose a hit on wages - not like there's no precedent. These hit the majority of people, whereas the losers under LVT are a tiny, tiny minority who have made out like bandits

Mark Wadsworth said...

M, that KLN is the gift that keeps on giving...