Mark Wadsworth

This is a spare 'blog in case my main 'blog at markwadsworth.blogspot.com isn't working

Killer Arguments Against LVT, Not (148)

Just to show that the idiocy goes right to the top, here are two paragraphs from HM Treasury’s “Tax policy making: a new approach” as reported in Hansard:

11. In this inquiry, we received many submissions advocating radical change to the tax system, such as the imposition of a land value tax. (1) The supporters of such a tax consider that it would tax economic rent rather than economic activity and would meet the OECD criterion that recurrent taxes on immovable property were the least harmful tax. However, as the CBI notes, “the OECD acknowledges that it is politically difficult (2) for governments to shift the tax base onto property.” (3) The ICAEW warned “Our initial conclusion is that, even if such a move was desirable economically (4) and let alone whether it would be politically acceptable,(5) it would involve a major rebalancing of the UK tax system which would take time to achieve (6) and risks introducing considerable distortions and behavioural changes.” (7)

12. Not only are there political difficulties: practical matters, such as the way in which such values would be assessed and the extent to which such a tax should take account of the current or the potential use of land, would also need careful consideration. (8) We also note concerns that “While such a tax system would avoid distortions in economic behaviour, (9) it would be highly unlikely to yield sufficient revenues to fund socially useful expenditure (10) without producing substantial inequity.” (11)

1) Oops. I think I missed that one.

2) It is only “politically difficult” because the government and the powers that be generally have spent decades brainwashing people into thinking a) that taxing economic activity and wealth creation is a reasonable way of doing things and b) that house price rises are good for us.

3) I wish they’d say “land and buildings” to make it clear what they are talking about. In any event, the CBI ought to be speaking from the point of “British Industry” who are perfectly accustomed to paying Business Rates, which are so close to Land Value Tax as makes no difference.

4) It’s “were” not “was” and actually it “is” and they must know that.

5) See (2).

6) Everything takes time, it all depends which taxes you replace first. So let’s start by rolling all existing taxes which relate to residential land and buildings or ‘wealth’ generally into a flat tax on residential land values. The only real constraint on how quickly we did this is how quickly people can be de-brainwashed.

7) No! It’s the current system which creates “considerable distortions”, the fact that people would behave differently if there were no taxes on economic activity and only taxes on economic rent is an argument in favour of the latter.

8) They already have two models – Business Rates for commercial land and buildings and Domestic Rates in Northern Ireland. All the info we need is already held by HM Land Registry or on the Council Tax register after that it’s just a question of bunging in the [current tax rate + a percentage of current selling prices] in each defined area to get a fair approximation of the rental value of land in each area, you tot these up to give you the rental value of all residential land in the UK (the tax base, Y); you then decide a figure for how much tax you want to raise (X), divide X by Y to give you the tax rate, apply X/Y to [the local rate x size of each plot in each area] and we’re away.

It’ll never be scientifically perfect, but any over- or under-estimates will iron themselves out, but so what anyway? Does the rate of VAT automatically adjust itself down so that marginal businesses are kept afloat, does it automatically adjust itself up on businesses which appear to be making super-profits (banks, from 2000 to 2007 or thereabouts)? I think not. Would it not be better to have a tax which allows the markets to decide the rates?

9) That’s not what they said at (4), is it?

10) Wot? Do they not realise the circularity involved?

a) Even under current rules, the residual rental value of UK land is about £150 billion per annum. If we taxed that at 100% we could get rid of VAT and National Insurance and be left over with a flat income tax of about 20% – 25%. Would that not be “socially useful”?

b) Shifting from taxes on activity to taxes on rents gets rid of the dead weight costs caused by the former, and this extra growth goes £ for £ back into higher rental values, so it’s a virtuous circle.

c) Forecast total tax revenues for 2011-12 are £531 billion (excluding booze, fags and fuel duty), that works out at an average £20,000 per household (including taxes borne by ‘businesses’ which are indirectly borne by households). If the average household no longer has to pay £20,000 in income tax, VAT, NIC etc, there is no reason to assume that they wouldn’t be able to pay that much in LVT.

d) Then there is the invisible half of the Laffer Curve which few people talk about. Although income tax revenues would be zero if the income tax rate were zero per cent, by how much would the economy grow? A tenth? A fifth? A quarter? There’s only one way to find out! Most of that growth would go into higher land rental values, so in effect, the land value tax would pay for itself, and a household’s average net income would increase by something approaching £20,000 per annum.

11) Even if it’s only half that, well it’s not to be sniffed at, is it? Deliberately depriving every household of £10,000 or £20,000 income every year out of political cowardice seems like “substantial inequity” to me.

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