Wednesday, November 24, 2010

IFS sets out the case for Land Value Tax

Mirrlees Tax Review - Chapter 16

A bit wordy, and they make the whole valuation thing seem more complex than it really is, but hey. As to valuations, let's just base it on average (total selling prices in recent years ÷ size in square yards of land and buildings sold) for each smaller area (postcode sector, 3,000 addresses?) and have done with it. It'd be £30/sq yd in Burnley, £40 to £70 in most parts of the country and about £1,000 in Central London. There's no need to worry about "bricks and mortar allowance" because each household could also be paid a Citizen's Income that would more than cover the bricks and mortar cost (repairs, interest, depreciation, insurance, utilities etc). That'd do to replace income tax, VAT, Council Tax etc and the whole Welfare State.

Posted by mark wadsworth @ 02:09 PM (1542 views)
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14 thoughts on “IFS sets out the case for Land Value Tax

  • Not a good idea.

    Signed by the governments of

    Bermuda, Belize, Cayman Islands, Guernsey, Jersey, Isle of Man, Liechtenstein, Monaco etc.

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  • sibley's b'stard child says:

    Sorry MW, I can’t face wading through all that. I’ll take your word for it that it’s a good ‘un.

    “What’s that; you want my bank account details? Well you do put forward a convincing argument…”

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  • I think a land size tax would be simpler – closer to economic efficiency.

    I was fortunate enough to attend the Mirrlees report presentation recently.

    They stress that tax neutral changes are only delivered by the whole package – sorry guys, you’ve got a lot more reading to do.

    I was able to ask a few questions about the detail of the land value tax proposed.

    No discount for empty properties

    And they still need to figure who gets the new revenue that is raised – local or central government

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  • In fact the review wants a flat rate VAT (currntly 20%, but they give no recommendations on rates) with no exemptions.

    3 chapters on VAT here: http://www.ifs.org.uk/mirrleesReview/design
    No VAT on new house builds, but full VAT on financial services which are currently exempt

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  • I try to get my head around this land tax thing. Sorry I don’t have time to go through the document. I did scan through it and it sounds (in a nutshell) like they propose an annual tax based on the value of your land. It sounds like the land tax is something in addition to council tax to push people to make better use of their land, or to be able to extract more money from them if their land becomes worth more (e.g they put a hotel on the land, etc). In essence the rich who have lots of land would be taxed more which I think is a good thing.

    In The Netherlands they tax people every year based on the value of the assets they hold. So this includes both the land and the property. If the value of the land and property go up then their tax liability for that financial year will increase. Though I could never get an answer from people who I know who work in The Netherlands as to what happens when the value of the assets goes down. I am guessing that no tax is owed and so that’s where land tax would be a better idea because during the bad times the government would still get revenue.

    The bad thing about land tax (especially for businesses) is that you penalise people whose finances are on the edge. There might be one year when the tax could not be paid because business has been bad. That does not mean to say business wont pick up. So in that bad year the owner could be forced to sell the land to pay the land tax. I suppose the land tax owed should be negotiable on a local level (just like business rates are) and that would make it fairer.

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  • miken – the LVT would have taken the place of other taxes on the business (including income tax on its employees, which made the company’s gross wage bill higher), so the business would gain there. And in the bad year the business, in a non-LVT system, would still be paying rent (assuming it doesn’t own the land), which may well be higher than the rent it’s paying to the landlord to cover the LVT he/she/it has to pay. (There may be be a tendency for land values and rents to fall if LVT is introduced – reflecting less land speculation.)

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  • ….and the fall in land values is also a direct effect of the tax – the price is discounted because of the annual tax burden, i.e., the tax is amortised in a reduced market price for the land.

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  • um.. so we introduce the tax and land values fall, land values fall and loans secured on land default or breach of covenant, thus bring on next banking crisis.
    Someone will have to bail out banks or all savings (and currency) become worthless, huge banking and economic crisis. I think this needs to be thought through some more.
    These ideas have been around for over 100 years, currently supported by many such as Fred Harrisons LVT campaign, http://www.landvaluetax.org/, the ideas are very powerfull but have never been pratical enough for actual implementation.
    HM

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  • miken,

    In the UK, Business Rates are already a bit like land tax. Companies have to pay rates every year, even if they are on the edge or if business is slow. LVT is nothing new in that respect.

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  • Taxation is wrong.

    Experiment with “your own” land first. Why so big scale and coercive?

    If you are doing it with “your own” land – then it is just part of your private lease formula – and you will be able to demonstrate it’s success quickly enough. Then everybody will adopt it as part of their own private leasing arrangements no doubt.

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  • Miken, let me point out that I have met many other land value taxers on the internet (e.g. Icarus and Drewster above) and in real life (Labour Land Campaign, Lib Dems and a minority in UKIP) and ALL of us – whether Greens, Christians, socialists, free market liberals, Georgists, whoever – say that it would be a REPLACEMENT tax.

    We merely disagree on which taxes to replace first. Council Tax, Business Rates & SDLT are the obvious candidates for replacing (which is what Mirrlees says) but AFAIAC next in line are TV licence fee, capital gains tax, Inheritance Tax and Insurance Premium Tax (each of which raises about £3 bn, i.e. less than half as much as Council Tax, less than half as much as Business Rates, or about the same as Stamp Duty/SDLT).

    Having had enough grief on this, I have now come to the conclusion that we should scrap all taxes and replace ALL TAXES with LVT (apart from duties on fags, petrol, booze).

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  • Strong stuff for the IFS: “spineless government refusal to undertake a revaluation,” I wonder if that makes the final cut.
    N

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  • Thanks for the explanation. Sounds like it could be a huge change if implemented. An even bigger change than IDS’s welfare reforms, which I might add I think are a good idea.

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