There is another way

As the Guardian reported yesterday:

Official figures showed that the UK’s net worth rose by £492bn between 2016 and 2017 to £10.2tn, with the lion’s share of the increase accounted for by a £450bn jump in the value of land.

The overwhelming case for taxing land and wealth, in general, has to be repeated time and again.

This gain is more than 60% of total UK government spending last year, and the vast majority will never be effectively taxed.

This has to change.

Land Value Tax is part of this. But it is not alone. We need capital gains tax on housing, including that used as homes (even if only on final disposal by the survivor of those in a relationship) and we need effective wealth taxation. Inheritance tax is so far from that it needs to be abolished and a fresh start made.

It’s the land with planning permission which has risen in value. If we increase the number of planning permissions then we’ll stop that rise in value. Does seem simpler than having ever larger government really.

38 thoughts on “There is another way”

  1. Yeah, but you can’t tax anything but income. Too much envy and punishment in this, without any real justification for taking people’s stuff without their compliance. Pile o’ money theory, verified again.

  2. Where’s the cash flow? Taxing an uplift in value doesn’t work unless the value is monetised or the state takes a share of the asset.

  3. @Alex

    Precisely. Some of my mates mention someones ‘worth’ and think all that is money and can be raided, when most of it will be tied up in plant and machinery, future expectations of value and what not.

  4. Important point made by Alex there. Value is uniquely discovered at the point where the asset being “valued” changes ownership as part of a transaction. Any other “valuation” is pure speculative bollocks. The simple introduction of a LVT would completely change what that unique value might be. You certainly can’t usefully assign a figure for the total value of land or a rise in it. Any attempt to realise other than a minute proportion of it would change the value.
    So no, Spud’s Courageous State can’t get its grubby mitts on it because the very attempt to do so would cause much of it to evaporate.

  5. Property taxes are common in the U.S. Yes, they do cause some problems, but, generally, everybody is adapted to them. Just the cost of living somewhere.

    A key element is they are local, at the city or county level. The voters have a pretty direct line to their taxers, which moderates the rates.

  6. @Gamecock

    Property tax is not the same as a land value tax as far as I am aware – what do they actually tax in the US?

  7. All these figures show is that the government’s meddling in what is laughably called the housing ‘market’ has simply resulted in soaring notional value

    As others correctly point out the ‘value’ isn#t real money and cannot be taced
    Its like taxing corporate ‘brand value’

    Ooops have I given him another idea…….sorry!

  8. I don’t think buildings appreciate in value?

    Round here, people make a profit by knocking down old houses and building an enormous new house with a tiny garden.

    The old house was probably worth £10k in 1970, £600k in 2018. The new house upwards of £850k.

    Taxing the old house owner 30% of £590k seems a bit steep, even over 50 years, if you’re already taxing the land.

    I suppose it’s an incentive in Spud’s mind, but even his Institute says you should depreciate buildings.

  9. Hmm, yes starfish.

    He does though maintain that corporate brand value is always worthless.

    But that would’t stop him taxing it at someone else’s value…

  10. Tried to have a debate with the great potato about the nhs, and perhaps after years of failure at keeping people alive, we might consider looking at other countries systems to see if there might be a better alternative. Of course his only answer was raise spending on the nhs by 2% of gdp. When i argued that this wouldn’t solve anything and that treating the nhs as a shibboleth never to be challenged wasn’t very progressive, he said i wasn’t debating and closed the thread to further comments. I forgot how much of a coward this man is. If you are reading this “professor” – your’e a cunt. And you know it.

  11. I liked this comment on that blog very much

    Jang Sung Taek says:

    Perhaps we should review membership of an organisation whose number [one] budget item is to grant subsidies to owners of qualifying land, and then design a zollverein whose number one feature is to protect those very same recipients from competition.

    And the response from the learned professor, playing for time

    Richard Murphy says:

    You may need to unpack that a bit

    What a fvcking ignorant cretin the man is

  12. The great moqifen/BraveFart conundrum can be stated as whether Capt. Potato is nastier than he is stupid or more stupid than he is nasty.

  13. BlokeInTexasInNormandy

    FWIW, Texas doesn’t have an income tax (it’s known as the ‘third rail’ of Texas politics.

    So they raise the majority of their revenues from property taxes, which are assessed as a percentage of the officially assessed market value of the property. You end up paying about 5 percent of the ‘value’ of your property every year.

    Not good.

  14. My property taxes in Texas were around 2% of the assessed value. Revalued every year, and you can appeal. Nearly all the money went to city and county, hardly any to state. The city I lived in lowers the percentage rate most years. But the valuation goes up by more. It was, then, deductible against federal income tax. Maybe it isn’t now after the Trump reform.

  15. In Switzerland I’m wealth-taxed at 0.25% of the net value of my properties (i.e. assessed value minus mortgage debt), and I’m income-taxed on the theoretical rental value minus my mortgage interest.

    And the next person who tells me that Switzerland is all low-tax gets a metaphorical slap. My net rate of tax + social security was only about 5 percentage points behind that of an equivalent salary in the UK. Once the kids are grown up I’ll be paying even more.

  16. “The great moqifen/BraveFart conundrum can be stated as whether Capt. Potato is nastier than he is stupid or more stupid than he is nasty.”

    The Schleswig-Holstein question de nos jours………..

  17. Limiting the amount of planning permission granted is a feature, not a bug.

    Your proposal is like trying to solve the problem of murder by making murder legal.

  18. Oh, and a point not often mentioned – you have to pay a wealth tax out of current income. If you can’t, you have a problem and will have to either pay it out of savings or liquidate all or part of an asset.

    Just ask all those accidental Americans who discovered belatedly that the US wanted to tax their non US pensions retroactively and with penalties.

  19. How does net worth change if you just rewrite a number for the “value” of a house? Has the house changed?
    Two or three centuries ago people were demanding “give us back our fifteen days” and the PM spoke “If I say that the date is a hundred years from now are and your children all dead?” [pendants, please correct the detail: I gave up History before ‘O’ level].
    Likewise the change in house prices makes NIL difference to reality – is there a single extra sausage or potato to eat?
    To say that wealth has increased because the same unchanged item has a different price-tag is insane.

  20. @ Gamecock, BiTiN, Rhoda Klapp
    We DO have property taxes in the UK which fund most disretionary expenditure by local government (towns, counties etc). However successive governments have messed things up so large chunks of local expenditure is funded out of income tax transferred from central government (using a formula designed to favour labour-supporting councils) and “business rates” (property taxes paid by businesses) are redistributed from wealthy areas to poorer areas.

  21. And Council Tax is just about the worst possible property tax you could invent. Assessed on the value of the property in 1991. Allocated into nation-wide bands that result in 90% of properties in one council being in one band, and 90% of properties in another council being in another band. And each band pays a fixed proportion of other bands.

    At least business rates has a modicum of sense about it: theoretical property value times multiplier. Full stop.

  22. @ jgh
    No, I can think of worse – but I choose to keep quiet because some bureaucrat might latch on to my idea.

  23. @ Abacab
    Well said!
    Ability to pay *should* be a key criterion for any tax – unless you are Hitler or Lenin, wishing to destroy a group – which is wny intelligent governments choose to tax income and expenditure.

  24. In Texas, $8000 property tax, 6% sales tax (that goes mostly to the state of Texas). Property tax net $6000 with tax deduction.

    Here, $3000ish council tax, 20% VAT.

    Probably broadly equivalent. And all paid out of income, obviously

  25. BlokeInTejasInNormandy

    Rhoda

    Apparently I can’t do simple arithmetic; yes, about 2%. About $9-10,000 property tax on about $500K ‘value’. 8% sales tax here. The property tax is assessed on estimated value, and various worthy bodies (like schools) set rates and get money. Of course, poor school districts don’t get enough money, so ‘rich areas’ are taxed more and the ‘surplus’ sent to poor areas.

  26. “Property tax is not the same as a land value tax as far as I am aware – what do they actually tax in the US?”

    They assess a value for real property and tax a percentage of that assessed value. I’m not seeing a distinction.

    Note also that U.S. property taxes are applied to personal property, as well as real property. Cars, trucks, boats, planes, motorcycles. Real property taxes and personal property taxes are different, i.e., different rates and based on different assessments.

    I still write checks to my county for all.

  27. And the state could always roll up the tax due, for those without income, against the value of the estate on death. Obviously safeguards are required.

    Obviously I advocate a dick tax, with reductions for the people more than 2 standard deviations above the mean

  28. “All your money are belong to us.”

    The state will take all the money they can. They find that the people will allow some property/land value tax, so they assess it.

  29. @ Gamecock
    Land Value Tax is levied on the value of “unimproved land” excluding buildings, the benefits of irrigation and/or drainage systems created by the farmer, the benefits of fertliser …
    It is a theoretically good system as it does not provide a disincentive to improve land.
    The slight problem is that the UK government annually spends a large multiple of the capital value of unimproved land in the UK (it may be a more modest multiple in the USA but it’s still more than 1) and the Empire State Building would pay no more than a building on the same footage in the Bronx.

  30. Almost all of this thread is wrong.

    Property taxes get capitalised into the value of the property. All that matters for property taxes is changes in the regime, not the actual regime.

    Take a property that is freehold, and an identical one which is 999 year leasehold with a 1000 p.a. ground rent increasing with inflation. When you buy the property the price you pay fully reflects the ground rent.

    If we already had a property tax then that would have been reflected in historic property trades and be “fair”. When you create a property tax it is a massive one-off wealth tax, that only counts property wealth, not pension or other savings.

    Take a property that costs £1m (to make the math simple), it would rent for 36k. The long run maintenance costs are about 1% – so 10k p.a. and the net income is 26k – 2.5% (real). So market value is 40x the net yield. Now create a property tax of 1%. The net yield drops to 15k and the value drops to 40×15=600k. Creating the tax is a one off 40% property wealth tax. Even worse if you were worth £1m before, your net worth is now 600k, to get back to your position before the wealth tax you need to earn not 400k but 800k (marginal income tax rates being 50%+). If you had a 70% ltv mortgage you are also now 100k in negative equity.

    Whoever buys a property _after_ the property tax is created will only pay 600k, and what they suffer in an increased ongoing tax is matched by the gain from a cheaper house. Again, the regime doesn’t matter, changes to the regime matter enormously.

    One way to look at it, is a property tax is like a portfolio of freehold rents which the government owns. Creating a property tax is to expropriate these freehold (interests) from the owners without compensation. Hands up if you like what the south african government is planning to do?

    Once you understand the above you can also see once you have a system it doesn’t matter what the tax is on each property. If for historic reasons property A is taxed at 1k and property B at 5k it doesn’t matter. That tax differential will have been reflected in historic trading.

    Council tax is a near perfect tax
    – administration costs are almost zero. Each property is tagged with a letter, no ongoing valuations are required
    – tags are constant, so there are no perverse economic incentives associated with changes in the value (a tax on value risks discouraging people from improving houses)
    – the regime is relatively static – fairness on property taxes is entirely in changes to the regime, not whatever regime you have
    – it is politically brilliant. You can vote in a local government that will spend more, and everyones council tax goes up. You can vote in one that will spend less, and everyones tax goes down. You can’t vote someone in who will shift the tax burden between people (which is a dysfunction in democratic systems)

  31. @ isp001
    You forget that those on means-tested benefits pay nil council tax,. so they have an incentive to vote for high-spending wasters if they get the tiniest benefit from that such as free entertainment for kids once a year.
    Your argument can be challenged – what if the property tax is 3% a year, so the net yield goes to -£4k? The property becomes worthless so no-one is willing to pay for maintenance and it progressively deteriorates until it falls down. So the level of tax *does* matter.

  32. Agreed on the council tax point and people who don’t pay. Also, since this tax ultimately hits property owners (rents should adjust down for higher council tax) there is an argument that renters will vote for higher spending councils. This is mitigated by most renters not realising that the council tax will ultimately hit landlords and not them.

    Agreed that if the tax is more than the net income then you have issues with neglect and abandonment. You see this in the US where failing munis see lower population, increase taxes, more people flee, and you get to the point where people just walk away. So with the caveat that taxes of <100% of net income, the level of tax does not matter, it is changes in the tax regime that matter – nad due to the capitalization effect matter enormously.

  33. @ isp001
    It is not *just* taxes in excess of net income that matter – it is taxes in excess of (net income in excess of that needed to live on) which is why income tax originally was only levied on unearned income in excess that needed to maintain a modest middle-class lifestyle.

    Capital taxes are *always* in excess of net income because anything less than that isn’t worth the effort of collecting.

  34. “Land Value Tax is levied on the value of “unimproved land” excluding buildings, the benefits of irrigation and/or drainage systems created by the farmer, the benefits of fertliser …
    It is a theoretically good system as it does not provide a disincentive to improve land.”

    10-4. In the U.S., you build a million dollar house and you are going to have a big annual tax bill.

    Additionally, since tax is based on improved valuation, one must get a permit to change anything on the property.

  35. We get economies of scale from the exploitation of agglomeration effects. That is, the spatial concentration of resources via networks. Thus high aggregated land rents go hand in hand with high aggregated wages and the high aggregated value of capital.

    It is how these factors are distributed throughout society that causes issues, not their high values.

    So long as we are all compensated for our loss of opportunities there will be a fair distribution, and no issues. This is why we pay wages and for goods and services. Not to do so bakes in excessive inequalities and resource misallocation.

    Unfortunately this logic isn’t extended to land. So we get the triple whammy of land gaining a selling price, lower disposable incomes for typical working households and misallocation and over consumption of immovable property.

    But the supply siders just won’t have it. It must be the fault of state imposed regulations.

  36. Sure thee are agglomeration effects. Just as there are regulatory costs. Mayfair is going to be expensive whatever we do. But having more of Surrey under golf courses than under housing is an example of the regulatory effect, no?

  37. Yes of course. The only problem with these regulatory costs are who enjoys the benefits.

    In the case of land, if those benefits are not equally shared, you get a net transfer of incomes that results in land gaining a selling price, lower disposable incomes of typical working households and the over consumption and misallocation of immovable property.

    That’s not the fault of the regulations. We wouldn’t say a policy was bad because it increased aggregated wages. That’s because we all get paid what we are owed. That doesn’t happen with land, hence all the problems.

Leave a Reply

Your email address will not be published. Required fields are marked *