Congratulations to Bucko, whose comments here form the basis for the landmark episode 40 in the series:
He says that taxing income is preferable to taxing land values because "My house does not give me a lump sum at the end of each year from which I can pay my tax, however my job does."
For clarity: the idea behind LVT is not just to replace income tax, VAT, corporation tax, National Insurance etc (a worthy aim in itself), but to tax land rents at close to 100% and to dish out the proceeds as a Citizen's Dividend. So by definition, for an average household in an average house LVT = CD and they net off to plus/minus nothing (you just pay rent or mortgage on the bricks and mortar element of a couple of thousand pounds a year).
If you're worried about job security (which Bucko advances as an argument for taxing incomes - if you lose your job, at least you are not paying tax; but of course you would still have the rent or mortgage to pay), then you can always rent or buy a smaller or grottier house and the Citizen's Dividend will pay the whole of your rent/mortgage for you.
And yes, as the world's second best accountant, I am perfectly aware that a house does not generate a (cash) lump sum for the occupant, but it very much generates a lump sum for the landlord (if you are renting) or for the bank (if you are paying a mortgage). Somebody somewhere at the other end of the system is getting that lump sum. Even if you have paid off the mortgage, all the money you have paid over the lifetime of the mortgage will have ended up in somebody else's account and will be earning him "a lump sum" every month. Those are the cash flows which LVT would capture.
So instead of taking on a huge mortgage to pay for the land element, you'd take out a much smaller mortgage for the bricks and mortar, and the land element would cost you plus/minus nothing. When you've paid off the mortgage, the LVT and CD would still net off to plus/minus nothing. When you die, your kids inherit exactly the value of what you have paid for - the bricks and mortar.
Finally, of course, you wouldn't be paying any income tax at all. This, my friends, is as close to a "tax-free society" as you are ever going to get, once you accept that there is such a thing as privately collected taxes (primarily the rental value of land, but there are other examples).
A grim document
1 hour ago
19 comments:
... then you can always rent or buy a smaller or grottier house and the Citizen's Dividend will pay the whole of your rent/mortgage for you.
The flaw being, of course, presupposing the availability of accommodation and that is by no means a given in the UK today.
There is also the issue of how the dispossessed homeowner who paid through the nose for his mortgage for ten years or more, only to find himself without a house under this plan - how he is compensated for his loss.
Thanks, Im honoured.
"If you're worried about job security (which Bucko advances as an argument for taxing incomes -"
I dont recall mentioning job security. What I said was that income tax takes a portion of money already earned. Property tax bears no relevance to how much you have or have not earned.
"And yes, as the world's second best accountant, I am perfectly aware that a house does not generate a (cash) lump sum for the occupant, but it very much generates a lump sum for the landlord (if you are renting) or for the bank (if you are paying a mortgage)."
And as the worlds second worst accountant, I am well aware that the landlord or bank (as in my case) does not have to pay my council tax from their lump sum. My house does not generate any cash for me while I am simply living in it. Remember, it is me who pays the council tax. The bank manager makes money because he lent me the cash to buy the house and I am paying him interest on the loan.
"When you die, your kids inherit exactly the value of what you have paid for - the bricks and mortar."
Is that not what will happen now? I am paying for the house, not the land. That is what my kids will inherit and that is under the current system and that is what I am currently taxed on.
"Finally, of course, you wouldn't be paying any income tax at all. "
If we had a very limited government who only took a small percentage of income tax to cover the administration of the country, we would have no council tax.
Swings....
This is a component of LVT I'd not heard about before: Citizen's Dividend.
I am almost persuaded by this argument.
Am I correct in assuming then that the system would be defined such that CD = average LVT (median/mean left as a detail for the implementers)?
So then half (half being a convenient word for "some to-be-specified-proportion") of the population would be in net profit and half would be in net loss?
Of course we won't care about those in loss because they are rich and can afford to pay for that loss as an exchange for living in nice houses.
Effectively then, LVT would become a tax on "living better than the average".
Isn't there therefore a loop hole that would allow me to buy sufficient land that makes me a profit to offset the cost of land upon which I make a loss? Or worse: isn't there an incentive for $RICH_BLOKE to buy up all the below average land and just collect his profit while living where he likes?
Have I been dim? Is the idea that CD is per citizen, and LVT is per-hectare?
Bucko: Is that not what will happen now? I am paying for the house, not the land.
So who do you consider to be the owner of the land?
Paul - I dont know. The house is leasehold but I have never had to pay any ground rent on it. I beleive the same was true of the previous occupant.
JH: "There is also the issue of how the dispossessed homeowner who paid through the nose for his mortgage for ten years or more, only to find himself without a house under this plan - how he is compensated for his loss?"
Nobody is being dispossessed of anything. Your hero does not end up 'without a house', you keep saying that but it is simply not true. Instead of paying a whacking great income tax/VAT bill every year, our hero pays the LVT and receives the DC. So even if he has only paid off half his mortgage (and ends up in nequity for the time being), he still ends up better off in cash terms.
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Bucko: "I am paying for the house, not the land. That is what my kids will inherit and that is under the current system and that is what I am currently taxed on."
If you buy an average house for £160,000, half what you pay for is the bricks and mortar and half is for the land element/bubble element. Maybe house prices will plummet and you end up with £80,000 of bricks and mortar and a big fat nothing in terms of land/bubble value, who knows?
"If we had a very limited government who only took a small percentage of income tax to cover the administration of the country, we would have no council tax."
Correct. And that is a superficially attractive idea. But if you cut income tax, then the amount of privately collected taxes (land rents) just goes up to balance.
Think about it - Monaco is a tax haven, let's assume it only has 10% income tax; but rents are absolutely sky high (you pay for the tax you can save by living there). A person living in the South of France with anything but a sky high income cannot make himself better off by moving to Monaco, as the extra rent would more than wipe out the tax saving.
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Andy: " LVT [minus CD] would become a tax on "living better than the average"."
Sort of. Actually it's the price you pay for state-protected exclusive possession of somewhere 'better than the average', which 'the state' then uses to defray the cost of core functions of state (mainly defence and law'n'order and refuse collection) and dishes out the rest as a CD to compensate others for the fact that they are restricted in where they live and/or they are prepared to live in smaller houses or grottier areas.
"... isn't there an incentive for $RICH_BLOKE to buy up all the below average land and just collect his profit while living where he likes? Have I been dim? Is the idea that CD is per citizen, and LVT is per-hectare?"
LVT is per square yard and CD is per citizen. If high-earning bloke wants to save tax, he is welcome to move out of his luxury penthouse and into an ex-council flat.
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PL, ta for covering fire, as ever.
Mark - "Correct. And that is a superficially attractive idea. But if you cut income tax, then the amount of privately collected taxes (land rents) just goes up to balance."
I dont see the correlation. Surely if you cut spending then you can cut tax. Why would rent go up?
I thought I had a better than average knowledge of tax, finance and economics but I must admit, I just cant get my head round all this LVT Vs CD stuff. I think it would be best for me to go and buy a book, as I have probably contributed all I can to this discussion.
If you could bring your system in, do you think the average citizen would understand and embrace it?
My ideal has always been:
Small government spending only on admin costs of the country, eg.
Domestic defence
Roads
Emergency services
Private industry to take up other areas.
No council tax, car tax, VAT and other secondary taxes.
Set tax percentage take (10-20% say) from everyone over 18 earning.
(Put very simplisticly)
Bucko: "I dont see the correlation."
Which is why I gave the real life example of Monaco. Do you think that a waiter, taxi driver or shop assistant working and living in Monaco has a higher living standard, after paying rent, than a waiter, taxi driver or shop assistant living and working in Nice or Villefranche?
I geddit (I think).
Land/property is more expensive in Monaco, so after rent, living standard is no better even though tax is lower?
But the two aren't dictated by each other are they? Its not like a pie chart with tax on one side and rent on the other; increase or decrease one and the other moves accordingly. There is money in Monaco and that is why property is expensive. It is also small.
If the British government suddenly stopped spending money and dropped taxes to 10% (I wish), property value wouldnt suddenly shoot up.
I know rich people wouldnt start flocking to Nelson or Blackburn in order to save some tax money.
Bucko: Paul - I dont know. The house is leasehold but I have never had to pay any ground rent on it. I beleive the same was true of the previous occupant.
So you do hold title to the land then? As well as paying for the bricks and mortar, you paid for the legal entitlement to have them in a specific location?
Bucko: "If the British government suddenly stopped spending money and dropped taxes to 10% (I wish), property value wouldn't suddenly shoot up."
No, but they would do so over time as the economy picked up. My example with Monaco can be extended to Switzerland or Jersey - when The Badger introduced the 50p tax rate, all the "high flyers" wanted to move to S or J, because of the potential tax saving, ergo rents and house prices in those countries went up to soak up part of the tax saving.
Of course there is no absolute mathematical correlation that (rents + income tax) always adds up to the same figure, but we can safely say that net incomes after rents and taxes are fairly constant:
a) Between different parts of the UK (despite the large disparity in wages - look it up!);
b) between different countries (for example S of France vs Monaco) or
c) over time (if the economy grows, esp. if in tandem with income tax cuts, then rents just go up).
Mark - For now, my head is blagged and I need a pint. Maybe then I will go away and do a bit more research into all this.
Thanks for indulging me.
front page of guernsey press today "Stephen Lansdown" has quit uk because of 50% tax rate to move to guernsey. As a local (family traces back to year 900AD), and reading the "waiter" example above I would like to point out that places like Jersey or Monaco do not have low tax rates to boost the economy for the local population. It is by the rich, for the rich. Most locals in Guernsey are worse off than their counterparts 50 years ago. If they had the sense to understand LVT, they'd have the sense to tackle the politicians on why we have to be a tax haven.
Anon, being a tax haven is a great idea - you can get wealthy foreigners to hand over oodles of cash just for the pleasure of living somewhere with low or no income tax (via LVT*), and dish that out to the waiters, taxi-drivers and shop assistants etc.
* Proper tax havens used to allow companies to register there for a flat annual fee of a few hundred or a few thousand pounds. Those stinkers the OECD have clamped down on this, but I don't see how paying a few hundred pounds a year for the privilege of having your company name on a brass plate somewhere is any different to LVT.
so your point is that if LVT was introduced tax havens like gsy and jsy would be out of business?
Anon, that's another excellent point. I'll add it to the list.
As per an earlier post (I've been away), perhaps a better name for LVT is Land Registry Fee. If you pay a fee of 1% per annum, you have your land on the Land Registry, if you don't, then it is removed and you have to spend time and money in the courts proving title if someone else tries to register ownership (which undoubtedly they would). It sort of concentrates the mind as to what you are getting for your tax money.
MW - I know you aint fighting for the unvoting members of the channel islands public here - but on behalf of at least one of them (me!) I hope to god you can raise the awareness of LVT to the point that it is adopted. Would be fantastic to have live in an economy not based on theft and deception.
Anon, arguments in favour of LVT apply to every jurisdiction :-)
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