Land Tax and Citizens Income - further discussion...
26.07.08
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Again, I'm starting a new post to respond to some very interesting comments by Tim Carpenter. My inept attempt at a Drupal template means it's almost possible to follow a thread of comments and especially given this is going to be another long response I think it deserves an airing on its own.
For anyone coming new to this debate, it follows on from my original "three point plan" for equity and economic justice and some clarifications and responses I gave yesterday to comments on that original by Tim Carpenter, Head of Policy at the Libertarian Party UK.
Tim, thanks for taking the time to respond. However I think we are, as a colleague used to say to me "talking past each one another". Paul Lockett has put it all a deal more eloquently than myself , and for that, and if I have caused any confusion, apologies.
I am a geo-libertarian (of the "geo-mutualist" variety if you will). The main thing you seem not to have appreciated is that in calling for the "Single Tax" I mean just that - the community/state can only take economic rent on the land resources within its jurisdiction and has no call on incomes or trade. As I understand it this is the "purist Georgist" position.
The ideal 'state' would be limited to collecting the rent and distributing it all as a dividend to citizens for the reasons Paul outlined. "Commonwealth" - you are right, it's lazy, I should put a space between "common" and "wealth"! Economic rent from the finite natural resources we all require to share is "common wealth" and should be collected as such and distributed as fully as possible whilst every other tax is a tariff.
Tim: "1. When I say who defines the value of your land, you say "why does anyone need to decide", yet immediately go on to talk about collecting the tax! Someone DOES decide the taxable value and that affects the actual value. Can you not see that?"
No, the market sets a location's value. It does it all the time at the moment. And it will continue to do so in an LVT system. Even in a "100% LVT" system. If a location is appreciating in value, buyers will be prepared to pay a premium over last year's rent bill and vice versa, in a falling market sellers will effectively have to be prepared to pay someone to take the rent bill off them. The following year's rent bill will reflect that premium or discount by going up or down respectively.
Tim: "2. As you should know, we aim to eradicate income tax., so the comparison does not hold."
See above - I'm a single taxer. No income tax here either. It is a tariff on employment and trade. Though I would say that if a local community decided mutually to have a local tax on incomes or sales to finance some mutually agreed local project it would be doing so in competition with neighbouring communities that perhaps were not or were charging a different rate or a different tax. Tax competition is good, in itself, isn't it? Also I am aware of some "single" taxers who would justify retaining some income tax at least temporarily in order to try to address the "embedded" historical advantages of monopoly ownership. I don't.
Tim: "The problem comes when some local area under the influence of whomsoever, adjusts taxation on land they wish to gain access to because a new development is coming. So, building a road, whack up the value of land next to it. Farmer has no CAPITAL to develop it, so has to sell it for a knock-down price because he HAS to sell to meet the tax bill. If this does not concentrate land into a few hands, I do no know what would. This is just one example of the potential risks."
This appears to be Churchill's "market gardener" bogey, or, to others, the "poor widow" bogey. If you look at it under the current system, that same farmer, in similar circumstances is perfectly able, regardless of the squalor growing around, to sit on that land, not paying anything and watch its value "ripen" until the value, created merely by excluding others from what they need to use, is so great it becomes irrational not to sell. That process is outright extortion.
In fact, under an LVT system, land values at the margin would tend to move much more incrementally in any case. In the absence of other restrictions - zoning, green belts etc (it is your policy to remove those restrictions once an LVT system proves practical isn't it?) - you would not get these large leaps in hope value. I would actually retain green belts and such like for a while after LVT was implemented so that it can have its greatest effect in turning existing urban land to its most efficient use before going for sprawl. But I am prepared to be convinced on that. After all, we know that at relatively low densities compared with what planning guidance seeks nowadays, it would take up less than three quarters of one per cent of the non urbanized land in England to build the three million new homes predicted to be necessary over the next twenty years.
But once a point of equilibrium was reached between supply and demand rents at the margins of production would move slowly and via the democratic influence of the market. If that market and the community that makes up its participants eventually get as far as that farmer's land and all that remains to bring it in from the margin to profitable development is to develop a road, the farmer will have had plenty of opportunity to see it coming long before the tax bill becomes an issue for him.
Tim: "3. Living costs - if you have CBI as described you would still keep the most expensive parts of the Welfare bureaucracy - the entire means-testing apparatus. Housing benefit would probably remain in all but name."
I disagree. But I don't think what you understand me to have described is what I think I have! ie, in particular, that I am not paying for CBI out of income taxes, but out of the community collected rent on economic land. Land at the margins tends as I said towards a nil value. More people will be able to own their home because they will not be borrowing twice as much as the value of the capital good (the building) in order to pay the land value in up front capital. Renting a basic home at the margins ought to be achievable out of the Citizens Income.
With so many pulled out of poverty anyway by not having punitive benefits withdrawal regimes that reduce the marginal value of doing even the smallest amount of paid work and by the reduced costs of living owing to tariff eradication and the better off keeping more of their own money, the capacity of private charity or local mutualism to assist the much smaller number of people that would be needing top up hand outs above their CBI would be much increased.
Tim: "4. Income. You need to clarify here - are you saying that COMPANIES have 40% more or that wage earners do? Be under no illusions, if you have CBI, income tax will be enormous. I worked out once that if we went for CBI with no other tax changes but a cull of QANGOs, income tax would need to be about 64% flat from the very first penny (IT is currently £140bln, 7k x 50m = £350bln pa). A HUGE disincentive to working especially at the lower end. Result: black economy, unproductive citizens, more companies shutting down and a growth in imports (and do not say "cheap imports make us richer" because that only holds if we are simultaneously exporting a greater amount of higher value exports)."
I hope you'll agree that that objection is moot given I am not talking about income taxes at all. My calculation of the CBI cost at £5200 pa for adults and a decreasing proportion for under-18s to 20% for 2 year olds is around £285bn. £245bn if only the adults. I reckon there was about £200bn a year's worth of economic rent in residential land alone at the recent peak of the market. I don't think it is beyond belief that there's another £85bn in commercial, industrial, retail and, possibly, agricultural economic rents.
Tim: "5. Movement to low tax areas: A company will consider workforce supply as a prime consideration, not just rental costs. If that were not the case, expensive London would be empty. People pay top dollar for London rents because of a massive pool of labour - they can gain access to many cheap or more chance of snaring the best. To think LVT would make a company move out to a depressed area? Those places are already cheap. Why doesn't it happen now? Limited skilled labour pool. As you say the Government does it now and did it in the past (remember the Hillman Imp?) and it creates quasi-soviets. If LVT has an influence, it might IMHO move a few companies, deter some from even setting up where they need to and the rest of the companies will be bled paying higher rates just to keep near the labour pool they require. In the case of London, the move will be to New York or Hong Kong and we all lose out."
There are so many issues in this paragraph I can only assume again that I have failed adequately to have explained my position. At the moment businesses pay rents, yes? In an LVT system they will still pay rents. The only difference is that whereas currently the entire rent, that which accrues to both the building and the site or location goes to the current landowner, ie it is enclosed, privatized. Under an LVT system, the same rent is due (assuming they were paying the market rent originally), only the portion of it that accrues to the location goes to the community and that attributable to the building to the building owner. There's no corporation taxes, no more employee taxes. There's no increasing of rent or rates; there's no bleeding anyone. Except those, as landowners, who have bled the rest of us for centuries.
Areas of low land value will also be areas in which it is cheaper for employees to live (lower LVT for them too). For a business operating at the edge of profit it would seem to me to be quite an attractive move. But one that remains in London because their key skills are there is not penalised by that. Indeed, if sufficient other businesses do it who do not need to be in London for optimal profitability do move, costs will also likely fall for those left behind, increasing their profit, distributable to capital and labour.
I think there is, in particular, one form of LVT that could have a significant effect in this regard...the auctioning of air-space, via "landing slots" at airports. Making more efficient use of regional airports would draw business into those areas. I'm likely to propose this to our regional conference this autumn as part of an "anti third runway at Heathrow" motion. Interesting choices of examples though - Hong Kong of course is famous for having state owned land - everything except the Anglican Cathedral is leasehold and that has been used to raise revenue in a form of LVT and keep income taxes low. Modern valuation tracking and billing systems would make that far more efficient and not prone to some of the problems Hong Kong suffered by having too infrequent valuations.
In China before Mao took over, I understand that Chiang Kai Chek's regime looked into LVT as a way of staving off the rise of Mao's totalitarian collectivism. And in the former Soviet Union, Gorbachev I believe looked into LVT as a way of capturing the value of natural resources and in not implementing it allowed the so called "oligarchs" (really "kleptocrats" in my opinion) to enclose the revenue from that vast pool of common wealth.
I'm getting a bit tired here! I'm going to call it quite at this point and maybe think some more about the issue of mutualism. I think Paul answered the point about the "state as landlord" objections quite satisfactorily and there's no need for me to repeat it. But for fairness, other readers can read Tim's further points in the comments on the previous post.
Tim: "p.s. your page has a script that my browser asks me to kill due to risk of resource hogging."
Yes - I only notice this on older machines or slower network connections - I never experience the problem at home or at work. I think it must have been an advertising panel I have just removed, but if others still experience the problem let me know and I'll have another look.
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Comments
Jock,
"No, the market sets a location's value. It does it all the time at the moment."
No it doesn't.
Look, most people only know the value of their property if they actually come to sell it. OK, actual land will fluctuate in value less than any properties on it but, at the same time, the land also fluactuates in price outwith the land-owner's control.
How much a property is worth is based partially on the value of the land on which it stands, but really on whether it's a nice space, what condition it's in, etc. How much land is worth (under the Georgist system) depends on its location and the services connecting it to the community.
So, we come to the valuation. Do you know precisely how much your home is worth? Do you have an idea to the nearest £10,000? Is it worth more or less than this time last year?
Even the government don't actually know what your land or your property is worth. We are, after all, rather living in fear of the constantly threatened Council Tax re-evaluation. When I owned a flat in Edinburgh, I was in the £40 – £50,000 band (IIRC – it was band D anyway) but I bought the flat for just over £70,000 and sold it, six years later, for an awful lot more than that.
This is not an argument against LVT as such – I am simply pointing out that, whilst the market might actually dictate the price of land, most people do not know that price until they are either buying or selling. Further, the government does not know the price of it either and is unlikely to get it right.
My objection to LVT is more ideological – I severely dislike the idea that the state owns the very land upon which I walk. Oh, and there is nothing to stop a greedy, high-spending government simply raising land rents across the board whenever they run out of money. Sure, that applies to other taxes but there are ways to get around those (and thus demonstrating the truth of the Laffer curve): there is no way to avoid paying rent on the land on which you live.
DK
P.S. Further, land rent bears no relation to the services used. Take a block of flats and a single house occupying the same land area. The block of flats contains two hundred people, the house contains four. They have all of the usual services.
Should the house pay the same rent as the block of flats? If you say "yes", then you are ignoring the fact that it is the cost of services that should determine the rent – after all, two hundred people will throw out considerably more rubbish than four.
If you say "no", then it is no longer a pure land rent. It becomes, in effect, just like the Council Tax (although nearer the Poll Tax): the tax level is determined by the number of people as well as the value of the land.
Devil's Kitchen, I think that you have a reasonable point about it not being possible for the government to calculate land value with complete accuracy all of the time, but I think there is enough data to produce a valuation with a good degree of accuracy. One very simple valuation tool in a 100% land rent system is that identical houses should sell for the same amount wherever they are and whatever size plot they are on, which provides a good benchmark. The key for me is that the system should be transparent and open to scrutiny.
To address some of your other points:
"I severely dislike the idea that the state owns the very land upon which I walk."
I dislike the idea of the state owning the land too, but to me, land rent wouldn't reflect the fact that the state owns the land, but that nobody does. I believe that the nobody can rightfully claim the air, sea or land, as their private property, as nobody produced them. On that basis, if somebody wants to make exclusive use of a plot of land, it is reasonable to expect them to compensate everybody else for excluding them from that plot.
It's probably easier to explain the principle using the other example of broadcasting licences. None of us created the electromagnetic spectrum, so we all have an equal right to broadcast on any given frequency, just as we all have an equal right to talk or sing at a given frequency. However, for the broadcast spectrum to be useful, each frequency has to be used exclusively by one broadcaster at once. The fairest way to ensure that would seem to me to be to charge the broadcaster the market rate for a licence to make exclusive use a certain section of the spectrum and pay everybody else the revenue to compensate them for the fact that they are being denied the right to use that part of the spectrum.
In a completely anarcho-capitalist society, I believe you would end up with much the same result. If you accept that we all have an equal right to broadcast on any frequency, the only way anybody could gain exclusive rights to use a frequency would be to get everybody else to agree to freely enter a contract not to broadcast on that frequency. Broadcasters would still have to pay everybody else for exclusive rights, but the whole process would be far more convoluted than the Georgist approach.
"Oh, and there is nothing to stop a greedy, high-spending government simply raising land rents across the board whenever they run out of money. Sure, that applies to other taxes but there are ways to get around those (and thus demonstrating the truth of the Laffer curve): there is no way to avoid paying rent on the land on which you live."
But it is possible for people to move to a plot of land with lower rent. If the state tried to set the rent above the market rate, land would begin to go unused, as, amongst other things, businesses would cease trading and people would begin living at higher density by, for example, taking in lodgers or moving back in with parents. For that reason, land rent would probably behave roughly in line with the Laffer curve; set it at zero and it would yield no revenue, set if too high and people will begin living and working at high density and leaving the country, resulting in an expanse of unused land yielding no revenue.
"land rent bears no relation to the services used. Take a block of flats and a single house occupying the same land area. The block of flats contains two hundred people, the house contains four. They have all of the usual services. Should the house pay the same rent as the block of flats?"
If there are no planning restrictions preventing the land being used for either a house or flats, then my answer would be yes. The landholder would be paying for the privilege of having a monopoly on the use of the land, not for using it in a certain way. Also, as a Geo-libertarian, I would push for services such as rubbish collection to be provided by the private sector through user fees, with as much as possible of the land rent being paid out as a citizens' dividend.
DK said the same things to me recently.
It would be fairly easy to dissect them logically step by step and rebut them with graphs and calculations. But it would a) be laborious and b) it would never overcome the whole 'Victorian land owning aristocracy' mentality that has been drummed into people over the years. So I don't see why I should bother (although I will one day).
As to this 'difficulty with valuations', crikey, establishing average land values for each e.g. postcode sector on the basis of actual selling values minus rebuild costs per insurance quote divided by plot size is surely the easiest thing in the world.
This whole argument that if a plot of land is used for a block of flats, they should pay 200 times as much as the same plot of land with a bungalow on it, what a load of crap. Those 200 people are contributing 200 times as much to the overall wealth of society* and hence 200 times as much towards land values. So the bungalow owner is sitting on a massive unearned windfall gain. And, seeing as land values tend to rise with average wages over time, an LVT set at (6%) of CAPITAL values (rather than 100% of rental value) would merely skim off the capital gain element.
* Assuming they are working or living off proper investment income (shares and interest).
Thanks again Jock.
1. You CANNOT say the market sets the value, for the State is distorting the value by slapping a tax upon it. Any land that becomes valuable even by the work of others and not the state is re-rated and becomes an expense to hold and less valuable than the "market value" set by the State. Grief, it is bad enough when the State retrospectively taxes old cars.
2. So why did you raise it?
3. Why is it extortion? The Farmer has legal title unless you introduce your geo-lib mindset but that means you have a circular dependency. You also conveniently sweep under the carpet the problem when an Authority decides it wants to "do something" and so rezones an area for development and so the value of the land rises. Developments do not creep around unless you can in truth remove planning restrictions and return to organic growth and end "town planning" which has, with a few private exceptions, almost universally resulted in disaster.
4. CBI. You can disagree, but you did not provide an answer to the problem that CBI would be unlikely to cover all expenses and so millions will remain with means-tested benefits - remember, that those renting privately will have to pay more because the landowner will be passing on the LVT - and don't think they will not! I give you an indication of how much the original level will cost. Even at £100pw you will need to COLLECT an extra amount equivalent to 50-60% of TOTAL tax revenues just to redistribute it again. If it does not force individual urban home owners (mortgage holders) to have to sell up to pay the LVT, I would be very surprised. You also mention the rental income at the peak of the market. I bet you the State would not reduce LVT when the market dips because it will not have the income to pay for all that CBI.
5. You talk of 100% LVT now you speak of only a portion accruing to the State (and please do not use the term "community", it is NOT going to the people, but to the State).
I am still not convinced at all at the scenario you paint about companies moving. We already have vast differences in cost and it does not really make anyone want to shift to outlying areas in any great numbers.
In Hong Kong we are talking about leases bought up front, not retrospective and yearly taxes on land orginally held as freehold. The plots are sold at auction, also, not set by the State.
If Chang Kai-Shek looked into it, it is no advert, I am afraid - he was linked to all manner of gangland rackets. Further, LVT when selling State owned assets on is another game entirely to retrospectively applying it to privately held land as above. In fact I would prefer any land currently running as a Hospital or School and owned by the State to be leased and not sold to maintain some form of covenant over the use (and as such prevent asset stripping at the expense of us).
p.s. Paul did not properly answer the "state as landlord", question IMHO.
p.p.s. Maybe someone should make a new housing estate an "LVT zone" where the seller offers to pay all taxes in exchange for giving a CBI but charging LVT. Watch what happens when people have a choice to move in. See who moves in. See who does not. See if the operator makes money or loses money and what happens to those there and the decisions they make to stay or go. Maybe that is the way - no compulsion.
Tim: "You also conveniently sweep under the carpet the problem when an Authority decides it wants to "do something" and so rezones an area for development and so the value of the land rises."
The Libertarian Party policy states "Until a practical Land Value Taxation system can be devised, forms of zoning (such as Green Belts) will still be needed," which implies that under LP introduced LVT, zoning would be abolished and would no longer be an issue. Even if some level of planning were retained, the system could be amended so that only the landholder could apply for a change in permission.
I'm also a little confused by the way you consider 100% LVT to be an unacceptable form of nationalisation, but seem fairly comfortable with the idea of planning restrictions, which are effectively collectivised control over the use of privately held land.
That is partly the point I was making about the “state as landlord” issue. The “collect rent and pay dividend” approach would not give the state any greater power over the use of privately held land and could actually help to weaken its control.
"remember, that those renting privately will have to pay more because the landowner will be passing on the LVT- and don't think they will not! "
This is probably the most common error that gets made when discussing LVT, because it is intuitively correct, but in economic terms, it can’t work that way. The land owner cannot pass on the LVT for the simple reason that he will already be charging the market rent. If there was any scope for increasing rents, the majority of landlords would have already done it. That is Ricardo's Law of Rent. Adam Smith describes this effect in The Wealth of Nations far more eloquently than I ever could.
"Maybe that is the way - no compulsion"
The whole issue is that under the current system, the state enforces a private monopoly over land without requiring those who benefit from that state granted monopoly to compensate others.
Paul: The Libertarian Party policy states "Until a practical Land Value Taxation system can be devised, forms of zoning (such as Green Belts) will still be needed," which implies that under LP introduced LVT, zoning would be abolished and would no longer be an issue. Even if some level of planning were retained, the system could be amended so that only the landholder could apply for a change in permission.
I mean in practical terms, not administrative - rezones in terms of use and "value" in the mind of the State, rezones in terms of taxable value. A council now says land is of higher value because of planning gain due to some project or other.
Paul: I'm also a little confused by the way you consider 100% LVT to be an unacceptable form of nationalisation, but seem fairly comfortable with the idea of planning restrictions, which are effectively collectivised control over the use of privately held land.
We are not "fairly comfortable" at all. Further, most planning zones are extant and as such people know what they can or cannot do with land.
Paul: The “collect rent and pay dividend” approach would not give the state any greater power over the use of privately held land and could actually help to weaken its control.
What, by giving the State the ability to set value and collect taxes? I think that will give control, for it can force people to develop or sell land. As mentioned, in trying to remove the evil of land banks, you risk introducing a greater evil, AFAICT, or at best have no idea how things will turn out.
Paul: This is probably the most common error that gets made when discussing LVT, because it is intuitively correct, but in economic terms, it can’t work that way. The land owner cannot pass on the LVT for the simple reason that he will already be charging the market rent. If there was any scope for increasing rents, the majority of landlords would have already done it. That is Ricardo's Law of Rent. Adam Smith describes this effect in The Wealth of Nations far more eloquently than I ever could.
The point is the tenant will not see any reduction in rentals or cost of land, which is touted as an advantage, for the rents will remain as high as possible, just that if you rent land you pay the State and if you are a freeholder you also pay and if you are a mortgageholder the value of the land will only drop enough to bring your LVT+mortgage payments to about the same level as Income Tax + etc etc + mortgage payments. I
So the landowner becomes, dispossessed (forced to sell), beholden to the State by being forced to work the land to a level dictated by tax levels - a form of indentured servitude - OR landowners set about corrupting the State (again?) as I mentioned. I think the latter will occur, frankly. Too much arbitrary decisions to be made. If the landowner is forced to sell, they sell to those few people who have the capital to exploit the land to the level decided by the State, so to me it will promote greater, not lesser monopoly of landowning.
I am being intentionally doom-laden here as a Devils Advocate for we really do need to have a sound system that will not end up putting us into an even bigger mess. It also presumes being a single tax. One would then need to work out how on earth we migrate to that. A big bang is just teenage fantasy, so abolition of taxes such as Income Tax would be a start.
Paul: The whole issue is that under the current system, the state enforces a private monopoly over land without requiring those who benefit from that state granted monopoly to compensate others.
As I mentioned elsewhere, if you want to talk about enclosures that is one thing, but you are not. Land cleared and developed long before others arrived and then the clearer forced to "compensate" others for the fact that it was cleared and forced to pay EVEN MORE when they improve it or make it a desirable place for people nearby to improve it is bizarre and borderline envy politics. If I keep my property tidy, behave in a law abiding manner and my neighbours do too, our reward will be not cheaper council tax but higher LVT. That is just plain wrong.
Tim: "I mean in practical terms, not administrative - rezones in terms of use and "value" in the mind of the State, rezones in terms of taxable value."
The mind of the state would be irrelevant if the taxable value were set according to the systematic use of market data. Even if the system were imperfect, it would still be a better option than maintaining the current system of landholders enjoying an extensive state granted privilege. To me, maintaining a system of privilege because it might not be possible to resolve it perfectly is a little like saying we shouldn't try to catch murderers because we won't be able to catch them all, so it would be unfair to the ones we do catch.
"you risk introducing a greater evil, AFAICT, or at best have no idea how things will turn out."
I don't believe it would do, but uncertainty about how things might turn out is not, in my opinion, a good enough reason to maintain the status quo. In order to avoid the problems that would come with instantly zeroing land sale prices, the charge would have to be introduced gradually in any case, which would give plenty of time to iron out problems.
"As I mentioned elsewhere, if you want to talk about enclosures that is one thing, but you are not. Land cleared and developed long before others arrived and then the clearer forced to "compensate" others for the fact that it was cleared..."
If land is being held privately, it has at some point been enclosed. Nobody is suggesting that anybody should pay land rent because they've cleared land anymore than they would be charged more for building a house on the land. The reason that land rent would be levied would be reflect the fact that the holder is enjoying a state-granted monopoly over the land.
A link worth adding onto this discussion is to the Systemic Fiscal Reform blog, where you can find "The Great Tax Clawback Scam" (video on income tax vs LVT), and a growing body of information on a radical plan...
Paul: “The mind of the state would be irrelevant if the taxable value were set according to the systematic use of market data.”
What “market data”? How do you intend to collect reliable data when the price of land (the value to the owner) is being constantly devalued and distorted by LVT? As soon as prices might start to rise due to a market perception of a rise in value, land taxation increases, forcing it down (due to tax of holding the land). You will surely not get sensible prices because LVT aims to take the planning gain back from the landowner and into the State coffers, so surely land values (sale prices) would reflect that and so tend to post tax value, so making accurate tax value of that land harder to estimate. I refer back to the VED example. VED was retrospectively increased. The real loses will be the existing owners who a) have to pay more or b) try and sell, but can only sell at a price that already compensates for the tax increases for the remaining life of the car. The owner is stuffed either way. Maybe “geo-Libertarians” want to stuff landlowners till kingdom come, who knows.
Paul: “Even if the system were imperfect, it would still be a better option than maintaining the current system of landholders enjoying an extensive state granted privilege.”
Only if you hate landowners, perhaps. Many landowners paid for the land “privilege” already, even if it was to the wrong person. You need to address that if you are to have even a shred of respectability to the scheme.
Paul: “To me, maintaining a system of privilege because it might not be possible to resolve it perfectly is a little like saying we shouldn't try to catch murderers because we won't be able to catch them all, so it would be unfair to the ones we do catch.”
A strawman. Not even close. A good parallel is saying “well, we have not worked out a way of air traffic control, but hey, lets open the airport and see…”
Paul: “I don't believe it would do, but uncertainty about how things might turn out is not, in my opinion, a good enough reason to maintain the status quo.”
In a theoretical environment this is an attitude people feel they can take, but it is not one for a Government.
Paul: “In order to avoid the problems that would come with instantly zeroing land sale prices, the charge would have to be introduced gradually in any case, which would give plenty of time to iron out problems.”
So you want to zero land sale prices? So land becomes just a tenancy? Sounds like Communism to me. Putting that aside, the point about phasing in. Fine – so outline the process. This is part of my reservations re LVT as a single tax. Everyone talks about the end point and almost nothing done about how to get there sensibly without chaos or revolution or even real thought about how the mechanisms will persist over time.
Paul: “If land is being held privately, it has at some point been enclosed.”
Enclosures are not the same - the fencing off of the commons without consent from all.
Paul: “Nobody is suggesting that anybody should pay land rent because they've cleared land anymore than they would be charged more for building a house on the land. The reason that land rent would be levied would be reflect the fact that the holder is enjoying a state-granted monopoly over the land.”
Amounts to the same thing – tax for the value, development potential or actual development of land, even if the person has paid for it (you can argue it was paid to the right person or not, but how to fix that?). You cannot justify the tax on the reality of what is done and even what DETERMINES the tax level, yet you assert this “state granted monopoly” is a reason. Currently the State acts on my behalf to help defend my sovereignty over myself and my property. What you are in truth saying is land cannot be property, in effect, right? If it were like other property, the State would not be “granting” the monopoly (very Socialist/Statist mindset, the term “grant”, btw). It might seem like semantics, but it is a HUGE difference in mindset.
"How do you intend to collect reliable data when the price of land (the value to the owner) is being constantly devalued and distorted by LVT? As soon as prices might start to rise due to a market perception of a rise in value, land taxation increases, forcing it down"
I think that sort of answers the question. LVT would increase in response to price rises which were due to a market perception of a rise in value.
" I refer back to the VED example. VED was retrospectively increased. The real loses will be the existing owners who a) have to pay more or b) try and sell, but can only sell at a price that already compensates for the tax increases for the remaining life of the car. The owner is stuffed either way."
But VED was increased on the whim of the state, not by market forces. A more relevant example is the fact that a number of people are in the same position with their cars purely because oil prices have increased and it has become less attractive to run a large-engined car.
"Only if you hate landowners, perhaps. Many landowners paid for the land “privilege” already, even if it was to the wrong person. You need to address that if you are to have even a shred of respectability to the scheme."
Exactly the same argument was made about the abolition of slavery. Some argued that, even if the slaves had the right to be free, freeing them would violate the slave owners' property rights, as they had bought their slaves in good faith. It was a reasonable point, but I don't think it would have ever been enough to make retaining slavery correct. I don't hate landowners, but I don't view land ownership as a valid concept, just land holding.
"In a theoretical environment this is an attitude people feel they can take, but it is not one for a Government."
If you feel uncertainty about the outcome of change (which there will always be), is sufficient to reason to retain the status quo, it seems strange that you are active in an organisation which seeks to move away from the status quo quite substantially in a number of areas.
"So you want to zero land sale prices? So land becomes just a tenancy?"
In principle, I would like to see zero land sale prices, although in practice, I'd be quite comfortable with a rate set at, say, 90% of rental value, with the other 10% rolled up into a selling price.
"Putting that aside, the point about phasing in. Fine – so outline the process. This is part of my reservations re LVT as a single tax. Everyone talks about the end point and almost nothing done about how to get there sensibly without chaos or revolution or even real thought about how the mechanisms will persist over time."
Personally, I'd prefer to see it introduced gradually over a twenty year period. Given the amount of mortgage debt in the country, I don't think making the move too quickly would be sensible. I'd like to see the rate at 5% of rental value in the first year with all the revenue paid out as a citizens' dividend, so it is kept completely separate from other tax revenues and not seen as another tax grab by the state. The rate could be increased to 10% of rental value in the second year, then 15% in the third year and so on. As the citizens' dividend increased, it would allow the steady reduction of other taxes, as expenditure such as benefit payments could be fairly painlessly withdrawn.
"Enclosures are not the same - the fencing off of the commons without consent from all."
That is exactly what I consider the situation to be.
"What you are in truth saying is land cannot be property, in effect, right? If it were like other property, the State would not be “granting” the monopoly (very Socialist/Statist mindset, the term “grant”, btw). It might seem like semantics, but it is a HUGE difference in mindset."
Yes, I am saying that land cannot be property. Not of an individual, not of an organisation and not of the state.
Paul:I think that sort of answers the question. LVT would increase in response to price rises which were due to a market perception of a rise in value.
I am struggling with how to respond to this one as it is so non-sequitur, an inversion almost. LVT distorts and brings down the sale value, so how can the rise in that value be used to increase LVT? You have a negative feedback loop! You said you use market rates, actual sale values, NOT a “perception”, though I can say I think the State would fall back on its “perception” of “market value”. Rentals are not accurate until the planning gain has actually materialised, surely? Again, this will play merry hell with sales, prices and put even more value on knowing what future plans the government has, i.e. corruption.
Paul: But VED was increased on the whim of the state, not by market forces. A more relevant example is the fact that a number of people are in the same position with their cars purely because oil prices have increased and it has become less attractive to run a large-engined car.
No, Paul, No. Your LVT is not a “market force” but a tax imposed by the State, OK?
Paul: Exactly the same argument was made about the abolition of slavery. Some argued that, even if the slaves had the right to be free, freeing them would violate the slave owners' property rights, as they had bought their slaves in good faith. It was a reasonable point, but I don't think it would have ever been enough to make retaining slavery correct. I don't hate landowners, but I don't view land ownership as a valid concept, just land holding.
This, Paul, is another strawman. I cannot see how you can in all honesty compare owning land with owning a person!
Paul: If you feel uncertainty about the outcome of change (which there will always be), is sufficient to reason to retain the status quo, it seems strange that you are active in an organisation which seeks to move away from the status quo quite substantially in a number of areas.
Paul, please do not be disingenuous about views on uncertainty here. LVT would be an enormous upheaval and the mechanisms do not appear to be thought out let alone tried and tested elsewhere. LVT is to fundamentally alter a basic underlying concept in England – land ownership.
Paul: In principle, I would like to see zero land sale prices, although in practice, I'd be quite comfortable with a rate set at, say, 90% of rental value, with the other 10% rolled up into a selling price.
You need to explain what you mean by this. It seems you want to take 90% of the rental yield in taxation every year? Landowners then are not just tenants but indentured tax collectors!
Paul: Personally, I'd prefer to see it introduced gradually over a twenty year period. Given the amount of mortgage debt in the country, I don't think making the move too quickly would be sensible. I'd like to see the rate at 5% of rental value in the first year with all the revenue paid out as a citizens' dividend, so it is kept completely separate from other tax revenues and not seen as another tax grab by the state. The rate could be increased to 10% of rental value in the second year, then 15% in the third year and so on. As the citizens' dividend increased, it would allow the steady reduction of other taxes, as expenditure such as benefit payments could be fairly painlessly withdrawn.
So, a person owning their own home would pay the rental value in tax to the State and in return get “a share” via CBI. If rental rates do not alter much, the owner of a house will probably end up with a mortgage paid off but still paying to the State an LVT equivalent to their mortgage…for the rest of their working lives, the house and land would be worthless in sale terms and so they do not even get any retirement value from downsizing, just less tax. Oh joy. In the end I suppose they would have to find some cranny somewhere that charges less rent than CBI. Why bother, eh? All that effort just to have some choice over paint schemes and when to fit a new kitchen. As I have said before, LVT will probably do more to concentrate land ownership in the hands of the few (or the State) than the current system ever could.
Paul: That is exactly what I consider the situation to be.
Then you misunderstand what common land is/was and the difference to someone clearing uninhabited wilderness, or chose to conflate the two.
Paul: Yes, I am saying that land cannot be property. Not of an individual, not of an organisation and not of the state.
But the State is collecting and setting rates to the extent of reducing sale value to zero and forcing landowners to a) develop just to keep incomes up to match the demands by the State and b) become tax collectors.
Tim: "Again, this will play merry hell with sales, prices and put even more value on knowing what future plans the government has, i.e. corruption."
The value of knowing what the government plans to do is already huge. If you obtain land and for example, transport infrastructure is built near by, you stand to make a huge windfall gain. I don't see how introducing LVT would add more value to that knowledge. In fact it would reduce it, as that windfall gain would no longer be available
"Your LVT is not a “market force” but a tax imposed by the State, OK?"
As I've said previously, I don't agree. The calculation of land rental values with a high degree of accuracy is perfectly possible.
"This, Paul, is another strawman. I cannot see how you can in all honesty compare owning land with owning a person!"
This is not a strawman. In both cases, someone is claiming ownership over something which it is later decided they have no right of ownership over. I don't accept that anybody has a right to own a person, the land or the air around us. Whether one act is worse than the other doesn't change the underlying concept. The key difference is that slaveholders lost control of their slaves. Under LVT, freeholders would still retain secure tenure. As those freeholders would have been aware that the government exercises tax collecting powers when they obtained the freehold, the argument that they have had the rules of the game completely changed on them does not apply.
As an aside, when the slaves were freed in the US, many of them ended up worse off, because of an inability to access land. As they had no land to work or live on, they were still effectively reliant on the previous slave holders to give them access to it. The real downside was that, when the slaves were treated as property, the slave holders had reason to keep them healthy, as they were a valuable investment. Once they were freed, that incentive disappeared. An inability to exploit natural resources was in many respects just as bad for slaves as an inability to exercise their self-ownership.
"LVT would be an enormous upheaval and the mechanisms do not appear to be thought out let alone tried and tested elsewhere."
There are numerous examples of LVT working in practice. The only difference is that they haven't been enacted at higher rates.
"LVT is to fundamentally alter a basic underlying concept in England – land ownership."
There is no legal concept of land ownership in England. In law, all land in England is owned by the Crown. Freeholders have secure tenure, not absolute ownership.
"You need to explain what you mean by this. It seems you want to take 90% of the rental yield in taxation every year? Landowners then are not just tenants but indentured tax collectors!"
Yes, landholders would be paying 90% of the rental value of the land every year (if the rate were set at 90%). The word "indentured" is clearly wrong. Anybody holding less than the average value of land would receive more in dividend than they pay out, which is hardly a burden. If they are indentured, it is to a business of which they are an equal shareholder.
Compare that to the current situation where most people spend their working life paying off large amounts of mortgage debt and I know which looks more like indentured servitude to me.
"the house and land would be worthless in sale terms"
No, just the land. It would be a Land Value Tax. The house is private property and the full value would belong to the owner.
"In the end I suppose they would have to find some cranny somewhere that charges less rent than CBI. Why bother, eh?"
That's all down to personal choice. Somebody wanting to live a cheaper lifestyle may choose to live on a smaller cheaper plot of land. Somebody may be prepared to spend a bit more and pay out more than they receive in the dividend. I don't think this is any different to oil. It is a natural resource which can fluctuate in price too. People can either choose to drive a smaller car and use less of it, or splash out and pay more.
"As I have said before, LVT will probably do more to concentrate land ownership in the hands of the few (or the State) than the current system ever could."
Given the immense concentration of landholding already, I can't see that happening, but even if it did, it wouldn't be as much of an issue, because LVT would reduce or eliminate the scope for the landholder to profit from sitting on land.
Sorry for the late reply, a very busy time.
Paul: I don't see how introducing LVT would add more value to that knowledge. In fact it would reduce it, as that windfall gain would no longer be available
LVT is worse as it presumes value before it is capitalised. It is the State having first call. If you are a homeowner and the value of land goes up around you, LVT may well force you to sell up at a time not of your chosing. Can you not see how that is, frankly, an obscenity?
Paul: The calculation of land rental values with a high degree of accuracy is perfectly possible.
Then provide a mechanism to do it. The one you have provided is systemically dysfunctional for the reasons I have given.
Paul: This is not a strawman. In both cases, someone is claiming ownership over something which it is later decided they have no right of ownership over.
Land does not ask not to be bought and sold. Land is inanimate. A slave wants to be free and is denied freedom. You might as well say I only have secure tenure over my fridge.
Paul: Under LVT, freeholders would still retain secure tenure. As those freeholders would have been aware that the government exercises tax collecting powers when they obtained the freehold, the argument that they have had the rules of the game completely changed on them does not apply.
You are jumping into your worldview as if it is already running. How do you get from where we are now to that place? Incrementally cranking up LVT is “an answer” but does not solve the problems of implementation, but only alter the manner in which the upheaval will unfold.
Paul: As an aside, when the slaves were freed in the US, many of them ended up worse off
LVT as you describe will force land to be put up for rent, but the State will be taking 90% of the earning potential of that land. It is, in effect, when used in the way you describe, National Feudalism, where people work the land and the State Uber Landlord demands almost all the value of that land each year. People, especially little people, cannot hold land unless it is worked constantly AND constantly upgraded to yield almost as much as the surrounding plots.
Paul: There are numerous examples of LVT working in practice. The only difference is that they haven't been enacted at higher rates.
That is like saying that there are numerous examples of Income Tax working, so it is ok to charge 90%. LVT as a single tax? LVT as 90% of yield? LVT retrospectively applied to what was a mixed freeholding population?
Paul: Freeholders have secure tenure, not absolute ownership.
Sorry, could you repeat that please, for I could not quite hear it over the sound of hairs begin split. Answer - end the Crown ownership angle, not make it worse by replacing it with the State.
Paul: Yes, landholders would be paying 90% of the rental value of the land every year (if the rate were set at 90%). The word "indentured" is clearly wrong. Anybody holding less than the average value of land would receive more in dividend than they pay out, which is hardly a burden. If they are indentured, it is to a business of which they are an equal shareholder.
Indentured is not about equal ownership, but I do concede it is the wrong term. Nationalised Feudalism is a more appropriate phrase for the form of LVT you seem to be in support of. In fact, why don’t you just say you want to nationalise land instead of using LVT as a back-door mechanism? The whole cost and unintended consequences of the dividend is an entire conversation in itself.
I think it highly dangerous to liberty that people living in their prime residence will be subject to constant and ever changing and unpredictable demands for cash rental value upon that place by the State. Council Tax is obscene enough. LVT as you describe will make it far worse.
Paul: Compare that to the current situation where most people spend their working life paying off large amounts of mortgage debt and I know which looks more like indentured servitude to me.
Mortgages end. Your LVT will follow people to the grave.
Paul: No, just the land. It would be a Land Value Tax. The house is private property and the full value would belong to the owner.
Land value is high when surrounded by well built and maintained houses. It is fantasy to think that you can separate the two in a country like Britain where we value old buildings and the condition and nature of our neighbours and neighbourhood. In places like Asia, people always tear down properties and rebuild. Land is more of size and location and so LVT can be more effective. I know that from personal experience. In Britain it is far far more complex than just land value. I also know that from personal experience.
Paul: People can either choose to drive a smaller car and use less of it, or splash out and pay more.
Yes, but the analogy does not travel. People cannot uproot that house they call home but you say is not a factor in all this. People can change their car but that is no where near is disruptive as the need to change their very home, the kids school, furniture that no longer fits, leaving behind that new kitchen, their place of work even which might be necessary. It is also a matter of degrees. A new car lasts 10-15 years and one should in truth not be buying a new one without the idea that it could be lost, destroyed and most certainly not holding value.
Paul: LVT would reduce or eliminate the scope for the landholder to profit from sitting on land.
LVT as you portray it would reduce the scope for the little guy to retain land far more than the big guy. Think about that implication - it should not take very long. They would be forced to work it, justify it or develop it just to stand still. Retired people in a bungalow would not be able to sit there until they are happy to move or retire to sheltered accommodation and cash in, no, they would be forced due to high LVT to "sell up" to someone with the capital to convert that plot into something that could justify the LVT imposed, but sell up for what? Your version of the scheme is to render sale price marginal and not even factor in the bricks and mortar. This is why I see the mechanism moving towards State Landlord (de facto) and a form of National Feudalism that will concentrate landholding.
LVT on commercial property in respect to planning gain caused by public works is one thing, but as a means to end private landholding it is another.
Tim: "If you are a homeowner and the value of land goes up around you, LVT may well force you to sell up at a time not of your chosing. Can you not see how that is, frankly, an obscenity?"
No I don't. If the value of fossil fuels goes up, somebody living in a larger property may have to down size to reduce their bills. That is the effect of a free market in natural resources and I don't find is especially obscene.
"Land does not ask not to be bought and sold. Land is inanimate. A slave wants to be free and is denied freedom."
A freed slave would also want access to natural resources. Take his freedom or take his ability to access the natural world without paying tribute to somebody else - the result is much the same
"LVT as you describe will force land to be put up for rent, but the State will be taking 90% of the earning potential of that land"
No, as I described it, the value would be paid out to the electorate in equal shares. You seem to be throwing in the word "State" like a McCarthyite shout of "Communism" to invoke a sense of horror to mask the argument. I'm afraid that doesn't work for me; I'm not a complete anarchist. I'm perfectly happy to have a limited state which upholds the rule of law and basic rights, of which I consider equal rights to use natural resources to be one.
"Sorry, could you repeat that please, for I could not quite hear it over the sound of hairs begin split"
Freeholders have secure tenure, not absolute ownership. Hence freeholder, not owner.
"Answer - end the Crown ownership angle, not make it worse by replacing it with the State."
So your suggestion is to extinguish the legally recognised ownership of land in order to defend ownership of land?
"why don’t you just say you want to nationalise land instead of using LVT as a back-door mechanism?"
Because, from my perspective, nationalisation involves state control of a good or service. LVT would not increase the state's ability to control land in any way; in fact I'd like to see a weakening of that control through a scaling back of the planning system. One reflects an equal right to land, the other a collective right to land.
Mortgages end. Your LVT will follow people to the grave."
So does rent if you aren't able to buy. So for that matter do food costs, heating bills, transport costs, etc. Again, that's a free market for you.
"Land value is high when surrounded by well built and maintained houses. It is fantasy to think that you can separate the two in a country like Britain where we value old buildings and the condition and nature of our neighbours and neighbourhood"
Your original point was about somebody not be able to exploit the value of their own house. This point is about somebody having the ability to exploit the value of somebody else's house. The value of a plot of land is what that land would be worth with nothing on it. Hence, the value of the buildings on it would be ignored, but not the effect of buildings on plots of land around it (or for that matter, roads, schools, etc.).
"LVT as you portray it would reduce the scope for the little guy to retain land far more than the big guy. Think about that implication - it should not take very long"
I think that is completely wrong and with a little thought, I'm sure you'll see why. At present, the big guy just needs to gather enough capital to buy a plot and he can then sit on it and wait for the value to rise. With LVT, holding that land would be costly and would give no gain from increasing land values. Sitting on land and not using it would be money down the drain. The big guy would have to put the land to work, or pass it on to somebody who would. The little guy doesn't tend to be in a position to hold land just for speculative gain, he usual just hold lands that he has a use for. Think about it; who is more likely to off-load their land, Mr Average in his average house who would be paying the LVT but getting a chunk back, or the owners of Battersea Power Station, who have been sat on a valuable plot of land for years enjoying land value gains without facing significant costs and would suddenly be faced with paying the market rent for that land.
"but as a means to end private landholding it is another."
Complete straw man. Nobody is suggesting an end to private landholding. Anybody privately holding land would continue to be able to do so.
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If I could just supplement
If I could just supplement the London point; this is a case of drawing a false dichotomy between problems that may arise under an LVT system and current conditions that are assumed to be healthy.
Of course, they're not healthy - nor are they essentially behaving very differently to how an LVT system would work. The current trend for London is for the population to get older and richer and less likely to work in front-line service industries, as a result of a concentration of high incomes & property values. London is currently on course, reductio ad absurdam, to become a "dead" community that can't sustain itself.
Market adjustment will eventually deal with this (I'm off within the next year myself and I'm *from* London; I wasn't even a migrant originally), but an LVT system would deal with it much more quickly as a leveller, so far as I can see.