Tuesday 28 September 2010

Killer arguments against LVT, not (69)

There was another fine article on Land Value Tax in The Guardian yesterday, which linked to an earlier article in The Spectator (of all places!), the comments sections of which provide us with a wealth of economic illiteracy to fisk at a later date.

But I'll pick up on these two from The Guardian anyway:

1. Peitha: "... the argument being advanced is that LVT represents a tax on (sometimes unearned) wealth but if the tenant is having to pay it when he does not himself own the asset then clearly it isn't a tax on wealth at all."

a) Epic fail, nope, neither nor. Pay attention at the back: Land Value Tax is a tax on 'consumption' of land and/or a user charge paid to [the government as democratically appointed representative of] society in general for respecting/protecting your right to exclusive possession of a scarce resource whose value is created entirely by that self-same society in general.

b) Never forget that tenants already pay Land Value Tax. It's just that the tax is collected privately by the landlord (who in turn pays a bit of income tax on it, fair enough).

2. Peitha (again): "LVT penalises anyone who stays in their property for an extended period... because the rate of rise in land values historically outstrips the rate of rise in wages over an extended period, so unless the % LVT is to fall to bring the two back into line the tax becomes increasingly onerous the longer you stay in the same property... Try running a few numbers."

a) That's factually correct - land prices rise slightly faster than wages over time, and no serious economist disputes that.

b) But the comment turns logic on its head: the land value taxers say, why should we allow landowners to collect an ever increasing share of an ever increasing GDP for absolutely no input on their part? Surely it is better to scrap existing publicly collected taxes (income tax, VAT etc) and collect the land rents that are currently privately collected? Economically, everybody would be a tenant, but everybody would also be a landlord (the bulk of government spending is redistribution in one form or another, whereby a Citizen's Dividend is the easiest and best way of doing it, together with paying off the National Debt).

c) Peitha's argument appears to be that it is better for people to pay ever larger amounts of income tax, VAT on their ever increasing pre-tax incomes as well as ever increasing land rents out of their post-tax incomes, which would have the observed result that most people's net disposable incomes after tax and housing costs, i.e. their living standards, rise much more slowly than GDP growth generally, possibly staying flat.

d) We ran the experiment in the 19th century of what would happen if we had very low income tax and phased out existing taxes on land values: of course the economy grew, but the gains to the huddled masses were minuscule compared to the gains to the landed gentry. So I'm afraid that's not really an option either.

8 comments:

AntiCitizenOne said...

I thin you should mention David Ricardos Law of Rent.

Mark Wadsworth said...

AC1, that is implicit is section 2a).

Scott Wright said...

Land value rises outstripping wages, are we talking gross or net wages?

Mark Wadsworth said...

SW, both, of course!

We can look at changes over time (assuming that economies grow) or compare house prices and wages in different regions of the UK as at today.

The house price to income is higher in high income regions and lower in low income regions.

So in (say) twenty years time, when wages in North West are the same as they are in London now (doubled), house prices in the North West will be the same as they are in London now (trebled), ergo, house prices in the North West will grow at a slightly faster rate than wages.

Scott Wright said...

I read through the guardian article this evening and the sheer idiocy in some of the comments was astounding.

The debate got onto banks creating money and people actually disputed it.... a complete lack of basic knowledge of fractional reserve banking.

A complete lack of knowledge of the value of agricultural land was also to be found.

I can certainly see why it provides material for your "killer arguments" series, we should hope that the debating continues, it may even bear some fruit if enough people can be convinced that its actually a really good idea unless you own half of London......

Mark Wadsworth said...

SW, aTao spouted a lot of drivel about farmland, but Physiocrat dealt with all that quite patiently and deftly, I thought.

The key to this is, let's make up a figure for Citizen's Dividend (say £3,500) a year; divide UK ag land (40 million acres) by the number of farmers and ag workers (400,000) = 100 acres/worker, and derive a figure of £35 tax per acre so that a normal farmer or ag worker is neither net taxpayer nor net recipient, job done.

It's got to be better than taxing the real farmers and workers (income tax) and subsidising the landowners (CAP payments), which probably nets off to very little as well.

Praguetory said...

Legend. Nice to see LVT getting discussed in more places.

Mark Wadsworth said...

PT, it's especially heartening to see it mentioned in The Telegraph or The Spectator. Even John Redwood has moved on from 'ignoring' to 'ridiculing' mode.