Sunday 28 August 2011

Killer Arguments Against LVT, Not (159)

Roger Helmer stepped up to the oche at ConservativeHome:

I was encouraged to see Eric Pickles’ robust rejection of the Lib Dems’ Mansion Tax in Saturday’s Telegraph, but rather surprised to see our own Tim Montgomerie, usually the soundest Conservative around, appearing to support the idea of such a tax... his big idea is a wealth tax, in the form of a mansion tax on homes over £1 million, and there I suspect that many Conservatives, and not just Eric Pickles, will disagree. Let me list just of the few reasons that led me to think “over my dead body”.

First, as a Conservative, the phrase “No new taxes” is burned into my DNA...


Correct. So let's take the opportunity to dump a load of stupid taxes - like Council Tax, SDLT, Inheritance Tax, Insurance Premium Tax and the TV licence fee - and replace them with the oldest tax there is, a tax on land values, or just harmonise the taxation of residential land and buildings with the taxation of commercial land and buildings (Business Rates).

Second, any attempt to soak the rich and to punish success cuts across Osborne’s laudable objective of making Britain an attractive place to invest and to do business. There is an excellent economic case for a flat tax, and part of the philosophy of the flat tax is to avoid itsy-bitsy targeted hits on small segments of society, in favour of a single, clear, simple tax rate that we can all understand -- with zero exceptions and allowances...

I completely agree that all taxes on income or profits or output - income tax, National Insurance, VAT and corporation tax - could and should be merged into a single flat tax on incomes with zero exceptions and allowances (with tax breaks for pension savings being the most expensive and damaging), at least that way people would realise what the real rate of tax is (somewhere in the region of 50%). Can he now explain how such a tax on incomes does not "soak the rich and punish success"?

But how about a flat tax on residential land values as well to replace the mish-mash of "itsy-bisty targeted hits" listed above? That's clear and simple and we can all understand it. That doesn't discourage people from making money in the slightest, it just directs spending from land values to more productive stuff.

Third, an impost on wealth and property comes very close to breaching the right to property, enshrined in various charters of rights. OK, we have Council Tax, but that is (at least in theory) a payment for services, not plain confiscation...

This is the nub of the matter, isn't it?

i. As things stand, most taxes are on wealth creation. i.e. incomes. 'Wealth' is just a by-product of wealth-creation, it's what is left over after taxes have been taken away. And notwithstanding that land or rental values might be a measure of the wealth of an economy as a whole, they are not in themselves 'wealth', they are just a measure of how much money is transferred from wealth-creators to land 'owners' . It's no different to a welfare saying that as he is entitled to £X,000 in benefits every year, the capitalised value of that is £[20 x X],000 and that he is therefore wealthy.

ii. People in their capacity as land 'owners' play little or no part in wealth creation. The fact that most people who consider themselves land 'owners' also happen to have a job, run a business etc is a separate issue, they'd still be doing those jobs or running those businesses if they were tenants.

iii. The eternal conflation of 'land values' with 'property' is infuriating as well. Why is somebody's income not considered his 'property'? Sure, the politicians get away with justifying income tax using the 'ability to pay' argument, but your income is your property nonetheless.

iv. Worse than that, each £1 tax raised from wealth creation has dead weight costs; however efficiently the government spends or redistributes it (and they don't), society as a whole ends up £2 poorer, and the potential income of land 'owners' falls by £2. If they collected that £1 from land rental values instead, there'd be no dead weight costs and land 'owners' (collectively) would end up £1 better off (it's that a slightly different group of people would be occupying the land, i.e. those willing and able to pay for the nicest bits).

v. The final insult is that the Home-Owner-Ists decry Land Value Tax (or Mansion Tax, or Domestic Rates or Council Tax or whatever you want to call it) as "an attack on wealth" while simultaneously wailing about "ability to pay". The fact that some people don't have enough money to pay the Council Tax (or whatever) is surely a sign that these people do not have any true 'wealth' at all, isn't it?

vi. Think about it: who is wealthier, a Poor Widow In A Mansion or a high-earning household in the mansion next door? If the proverbial Poor Widow In A Mansion were asked to pay the same amount in tax as the high-earning household, who is more able to pay it - the PWIAM or the truly wealthy household? So it's not really a tax on wealth at all is it, or else the "ability to pay" argument falls flat on its face.

vii. His comment about Council Tax being payment for services is laughable, Council Tax raises far less than the cost of all the services people receive, most of which are local, and certainly a lot less than the value of services which a home-owner receives, or else land values would be negligible. And income tax etc. is a 'payment for services' as well, isn't it? It's just that it is used to pay for services which benefit just about everybody but the payer.

12 comments:

chefdave said...

I'd have a bit more respect for Conservatives such as Helmer if they were honest about the real world implications of their beliefs.

If he wrote an article saying that taxes on wealth creation are prefereable to land taxes because land owners deserve unearned fortunes, and it's the responsibilty of the poor to pay for all this at least I'd know that he was honest. Instead we're treated to another nauseating bout of home-ownerist doublethink and guff about "wealth tax(es)" when LVT it's the complete opposite. It's a debt tax, it taxes people for trying to offload debt onto the succeeding generations. Surely That's A Good Thing?

Mark Wadsworth said...

CD "LVT is a tax on debt". That's a very good way of looking at it
:-)

The interests of 'people with cash in the bank' are more or less diametrically opposite to the interests of 'people who own land'. As things like inflation, low interest rates and tax on what little nominal interest you get are clearly a tax on 'wealth' (or 'positive money'), then shifting to taxes on land must be a tax on 'negative money' or 'debt'.

Anonymous said...

It's terrible to see the conservatives reject Capitalism and go for private taxation.

AC1

DNAse said...

No, the Tories have always been Rentiers rather than Capitalists.

Mark Wadsworth said...

AC1, DNA, which is why Helmer's claim that LVT is intended to "soak the rich and punish success" is so particularly nauseating.

It all depends on how you define "rich". Who is "richer" - a high-earning young household or a low-earning household which happens, by quirk of history, to 'own' a house which happens to be worth hundreds of thousands or even millions of pounds?

If I were the Lib Dems and wanted to push through LVT (or Mansion Tax or even a Council Tax rebanding as a fall back) I would gladly and willingly get rid of the 50p tax rate, inheritance tax, stamp duty or even capital gains tax as a quid pro quo. Plus regressive taxes like Council Tax or the TV licence fee.

DNAse said...

Trouble is there still seem to be a significant number of Lib Dems who would vote for a "local income tax" over council tax. It's sad to see them so far from the Liberal ideals of Lloyd George and indeed Churchill.

Anonymous said...

Who is "richer" - a high-earning young household or a low-earning household which happens, by quirk of history, to 'own' a house which happens to be worth hundreds of thousands or even millions of pounds?

I know you wanted this to be kind of a rhetorical question, but using my definition of rich: the high-earning household is potentially rich if their spending is below their income, and they are happy for it to stay that way; the mansion owners are potentially rich if they sell their house and save the money.

Anonymous said...

IS a country better off with
a) Lots of people earning decent wages.
b) Lots of unaffordable houses.

AC1

Bill said...

"Correct. So let's take the opportunity to dump a load of stupid taxes - like Council Tax, SDLT, Inheritance Tax, Insurance Premium Tax and the TV licence fee - and replace them with the oldest tax there is, a tax on land values,

I've read your various postings on LVT with interest and have been convinced. However, I have a worry that it will not be a case of LVT or other taxes, but LVT and the other "stupid taxes"!

Mark Wadsworth said...

DNA, yup, local income tax would be an easy mistake to make.

Anon1, surely the high earner couple are wealthy even if they spend every penny they earn?

AC1, b).

Bill, yes that is a worry, but if the govt insists on increasing taxes (and there is nothing to indicate that the current lot will reduce spending), I would rather they had LVT on top than merely hiking VAT, NIC or income tax every few years. I'm just assuming that the Tories will only concede on mansion tax etc if the Lib Dems agree that higher rate tax and inheritance tax can be scrapped.

Deniro said...

Taxing the use of residential land is a negative thing to do. The policy would encourage people to live in smaller houses, which is perverse as so much of the land of the British isles is left idle, and is against one of the purposes of LVT. I thought one purpose of LVT was to stop people living in cramped conditions next to huge swathes of unused land, which is the current situation in the UK.
How about a policy designating areas pre-approved for development and then selling the rights to developers, who pay once the have purchased the land from the current owners.

Mark Wadsworth said...

Den, before we worry about new construction, taxing resi land is the best kind of taxation as it encourages efficient use of existing housing and already used land (i.e. fewer second homes, fewer single pensioners rattling round in 3-bed semis).

Further, it would be a suitable punishment for Baby Boomer NIMBYs who would pay a disproportionate share of the tax until and unless they allow more houses to be built for young people.

Although the BBN's would not be trading down in absolute terms (I'm happy for them to stay put) they would be trading down in relative terms and the share of the tax that the BBN's pay would go down, and the people moving from small flats into the new houses would be paying relatively more.