20 comments on “Reuters listening to the wrong tax campaigners again

  1. OK, I’m genuinely confused now. I thought (largely, I think, from my reading here) that Land Value Tax was a bad idea. But in Tim’s Forbes article he says it’s the best type of tax of all. I know the guys over at Samizdata aren’t in favour, but then they’re not economists.

    Which is it?

  2. Ah, good question.

    From the point of optimal taxation theory, LVT is great. However, the usual LVT proposals are defective.

    Also, the use of LVT should be to replace more damaging taxes. Again, usually (as in DBC of this parish), it’s just “MOAR TAX!”

  3. We already have a bastardised form of LVT in Council Tax and Business Rates. Replacing them with a simpler LVT would be a sensible step.

  4. I like the idea of LVT.

    What taxes should it replace (Income, Inheritance, Corporation etc.) so we know what the total charge for the total land area would be ?

    Assuming a standard 1 sq.metre rating with a positive or negative multiplier for an actual sq.metre, how could the multipliers be calculated fairly eg. -1p per sq.metre for an upland hill farm and +£10000 per sq.metre for a Knightsbride shop ?

    Could it be phased in over time eg. an X% reduction in tax liability this year replaced by Y% of LVT liability.

  5. MattyJ, there’s a difference that an LVT is charged on the owner, whereas Council Tax is charged on the occupier.

    That may not matter much in a properly functioning market, because the incidence would fall on the occupier anyway (rents would increase to pass on the tax).

    However our property system is heavily regulated and has non-commercial operators so I’m not convinced that it would actually do so.

  6. LVT is one of those ideas that economics and policy nerds think is wonderful, and on paper is indeed wonderful. Its just in practise it would be a nightmare and immensely unpopular. We already have versions for domestic and commercial property, and both are disliked by those paying them far more than taxes on income etc. The nerds who like LVT fall into the classic ‘Not real socialism’ trap and assume that because the current versions ‘aren’t real LVT’ their preferred version will be stunningly popular. Just as the policy nerds thought the Poll Tax would be popular.

    Instead LVT would result in many people receiving higher tax bills over time when their income hadn’t risen to match for example, which is not a way to endear a tax system to people, demanding more tax when they’ve had no extra income to pay it with. Forcing people to leave houses they’ve lived in for years because they can’t afford the LVT is also another way to piss people off.

    Just as with Basic Income ideas, its impossible to get from where we are now to an LVT without pissing off so many people as to make the transition impossible. Its politically impossible in a mature democracy to negatively affect a large proportion of the population in one fell swoop with one specific and very transparent policy without it blowing up in your face. All those who stand to lose will vote against, as will many who stand to gain but think it unfair the others should lose out, particularly if there’s suitably hard cases among them.

    Any political party that throws its lot in with either LVT or BI will regret the day some pointy head talked them into it, it’ll be electoral suicide.

  7. @Jim: http://kaalvtn.blogspot.co.uk/2013/01/a-poor-widow-bogey.html

    @Bobrocket: just use market rents or selling prices (albeit LVT is charged on the maximum permitted use). It doesn’t really matter because it is the differential that is important, not the absolute amount.

    It should replace as many taxes as possible, and the total amount to raise is just the amount of spending the government proposes.

    Anyone who can’t afford to pay it while alive, can just pay it on death (since it replaces IHT anyway).

  8. @Jim. Maybe I’m a bit weird, but council tax (for all its faults) is the one tax that I don’t mind paying. Because I can see the effects of the money being spent: bins emptied, pot-holes filled, parks maintained, etc.

  9. @John: while there is a correlation between people’s incomes and the value of houses they live in, that correlation is nowhere near 100%. What a person can afford one day maybe they couldn’t later on as prices rise and/or their career takes a bit of a downturn. Thus demanding people pay taxes based on the value of their house rather than the level of their income will inevitably cause a lot of people trouble, as incomes are subject to considerably more variation than house prices, and LVTs can only be paid out of income (the house you live in generating no income).

    Thus every revaluation of the LVT base values will create more losers, and more people who have every incentive to dislike the tax. It will also be disliked as people will not like the uncertainty – they will have no control over the amount of tax they will be asked to pay. People like certainty, not wondering if next years LVT bill will be bigger than lasts when they’ve had no pay rise in the meantime, or had to take a lower paid job.

    Whether a tax change will prove popular and sustainable is as much down to human nature as to whether its theoretically more efficient or not.

  10. @ BobRocket
    The trouble with LVT is that a tax on the unimproved value of the land cannot exceed the value of the crop grown less direct farming inputs – otherwise the farmer/landowner just walks away and the state gets land that generates less income than the tax levied upon it.. Agriculture takes up 90+% of the farmable area of Britain and generates 4% of GDP – so the maximum yield from LVT would be <4% of GDP. Before Oscorne pseudo-austerity drive to reduce (a bit) Brown's profligacy, government spending (including transfers) was over 40% of GDP.
    So you cannot use LVT to replace any significant tax – it won't even bridge the budget deficit if you leave all other taxes in place because it will reduce income tax by 20-45% of the amount collected on the income of all landowners (except charities and public bodies exempt from taxes including LVT).
    To get any useful amount from a property tax you have to ignore all the theoretical basis behind LVT and tax the rent/imputed rent on the buildings that "improve" the land.

  11. john77,

    “To get any useful amount from a property tax you have to ignore all the theoretical basis behind LVT and tax the rent/imputed rent on the buildings that “improve” the land.”

    “Land Value Tax” should really be called “Location Value Tax”. It’s not about the land, it’s about where it’s situated. You can own a piece of land with no housing on it near a railway station. The government improves the rail line, the value of that land will rise.

    The reason it’s best to tax land rather than buildings is that the building is irrelevant. What’s relevant is that they own a finite natural resource, and typically one where the value of it is provided by someone else. Move the capital from London to Hull (not just parliament, but the opera houses, theatres, bullshit agencies) and the house prices in London would become almost worthless overnight.

  12. Move the capital from London to Hull (not just parliament, but the opera houses, theatres, bullshit agencies) and the house prices in London would become almost worthless overnight.

    I suspect London housing prices are sustained more by the financial series industry and its support functions than by government, media and assorted luvvies.

  13. LVT would be a good idea, except that it’s impossible to switch to it, unless perhaps if it’s a replacement for rates, at similar levels.

    Introducing a land value tax would cause the resale price of your house to fall by the present value of all future tax on it (minus the present value of whatever rates you abolish at the same time). If you use a discount rate of 3.5%, that’s about 30 times the annual tax.

    It would be unjust as well as politically impossible to make that sort of confiscation from someone who’s bought a house out of taxed income.

  14. Assuming an LVT was implemented and people put up with it, does it result (eventually) in land being owned only by those who can afford to pay tax on it? Presumably yes. So there’s less ownership, depending how ravenous for money government is. Simultaneously the value of land diminishes to reflect its attendant tax burden, yet the demand for land is what it would otherwise have been.

    Feel free to pick holes …

    Btw, ever heard of polders? Can’t see why we don’t stick a few along the south and east coasts.

  15. Thank you to Tim and everyone who’s explained the workings out of LVT. It’s appreciated.

    The thing is, it seems to be predicated on the idea of the amount of land available being fixed. So imagine an LVT on the Fens before the Dutch came over and showed us how to do drainage. Land that was previously useless, being under water, was now productive.

    Conversely, recall the floods a few years ago in the West Country. It seemed then to boil down to an EU-mandated change in dredging policy, which eventually led to land being flooded which previously wasn’t at risk.

    How do we factor these things into calculating the LVT owed?

  16. Take the village that gets a bypass. The residences on the now quiet old road are worth more due to less pollution, safe for children to play and walk etc. Businesses on the quiet old road are worth less. So someone has to revalue which means a government committee with a set of rules, and we’re close to being back to where we are now.
    The key part of the LVT is the ‘umimproved’ bit of the model, but it is such hard work to make it fairer than now.

  17. @ BiW
    I was talking about “Land Value Tax” – which is only levied on the value of unimproved land so as not to discourage improvements.
    There is an argument for tax on the capital value of improved land – but that is NOT an LVT (and rates do that already – but badly because they are always out-of-date when they are levied).

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