Thursday, February 2, 2012

Institute for Fiscal Studies talks sense on tax!

IFS backs land value tax

"The idea is to cut income and business taxes while introducing a land value tax to end our obsession with property and to encourage paid work". Inevitably, some Home-Owner-Ist wades in with the usual Poor Widow Bogey nonsense: "When a government imposes a land value tax, aka "property tax" the government becomes the real owner of the land with the "owner" who bought the land becoming the equivalent of a renter, and the tax represents their rent payment to the government. If the tax is not paid, the "owner" is evicted by the government... which has become the REAL owner of the land. Imposition of property / LVT is confiscation of wealth without compensation. In addition, imposing an LVT takes away land as a secure investment option for the lower classes. {blah blah blah]"

Posted by mark wadsworth @ 04:55 PM (5880 views)
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39 thoughts on “Institute for Fiscal Studies talks sense on tax!

  • Land Value Tax is NONSENSE.

    We need government to cut spending so that ALL TAXES can be slashed. We built this country in the Victorian period when government was 10% of the economy. We furnished the world. Had no income tax, no council tax, no carbon tax, no NI, No VAT, most of government was run on excise and import duties. Very little regulation, yet products then were higher quality than they are now. And no inflation because we were on a gold standard.

    We need a return to that model, not another stinking tax.

    When they bought in the VAT they were going to get rid of a basket of other taxes. THEY LIE. If you get a LVT, they will slap it on and not get rid of anything else.

    We have to get rid of the fundamental cause of inflation and taxation, which is, GOVERNMENT SPENDING.

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  • Not a bad piece, though it does cast LVT as a tax on wealth. Mark, where can I find some sensible discussion of the effects of LVT on smallholders (ie people who live off small plots of land, small farmers et.)? They are a conservative bunch and immediately feel threatened because of their status as landowners… My take is that they would not be much adversely affected, if at all, even if currently they don’t pay income tax, given that the price of agricultural land without planning permission is very low, but there may be some complications. Their land might also fall in value given the opportunity cost increases of hoarding land and so increase in land for sale… which stiffs them one way (the wealth effect) but benefits them in another (LV tax reducing).
    How has it worked in practice for this group in Hong Kong, New South Wales, Pennsylvania etc?
    Finally, another complication is that farmers will often be in debt with the land as collateral. If LVT lowers land values, and eats into prospective planning gain, more of their debt will become ‘unsecured.’
    Nick

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  • You have to exempt small holders because it would destroy them, but that never happens because corporations want that land to grow rape seed.

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  • Libertas
    A return to the work of Charles Dickens? No thanks. I prefer the Swedish or Finnish model if we are going to turn things around. Much bigger state than us, and much better off they are too. CAPITAL LETTERS ADD NOTHING TO AN ARGUMENT.
    N

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  • Mark, read your responses, you are completely correct, income tax, or wealth tax, both are confication by the government. The problem is going to be a transition from income tax to wealth tax. Young people who are starting their lives will generally not be affected much if the two taxes balance, however people who have spend a life time paying income tax and are approaching the end of their working lives, would be taxed again on their accumulated wealth. A transition to LVT would have to be very gradual to avoid significant winners and losers.

    I don’t however understand the fixation on LVT. why not a staight taxation on all wealth? Why is land special?

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  • Charles Dickens didn’t have internet, robots and computers. Didn’t have jet engines, nuclear power, etc. etc.

    So OF COURSE unless you have your head in the sand, we could have masses of wealth going back to small government. I do not want government STEALING 80% of my wealth as they have in Scandinavia.

    In addition, the main reason we had poverty was because the Bank of England and the government did to a certain extent inflate the currency and tax us to fund the Empire and the East India Company, etc.

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  • NickB,

    The social model in europe has failed. We are spending significantly more then we currently raise, and prob significantly more than we could raise with higher than swedish level taxes (haven’t done the maths). Using two small countries to argue for higher taxtion isn’t valid. They are very different to most of the rest of europe. Sweden has vast natural resources, and 20people/sq km. Here in the UK we have 255 people/sq km. that why they can afford they social model, well i say afford, but they are in the poo like everyone in europe.

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  • Indeed nod2glod. Europe is BANKRUPT.

    The solution is to liquidate the debt, default on national debts and slash taxes. The private sector will then work us out of this.

    All this nonsense about saving the economy with more tax. That is what got us here in the first place. Try running a business and employing people with all these charges and regulations. And since employers pay NI, don’t you think they would employ more people if they didn’t pay it? The whole thing doesn’t even make economic sense!

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  • I employ people for a large event each year. I employed about 15 people for a day last year. The National Insurance costs meant that about 1/3 of the cash I would have paid went to the government, and I had to pay hundreds to government and my accountant for payroll.

    This year I AM NOT EMPLOYING ANYBODY.

    That is where these taxes go. They go down the drain.

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  • @7 disagree.
    We’re not much more overcrowded than we used to be in the 70s when we had a much more social democratic system, and life was better, I’ll wager for most of the population. They are not so different from Norway, Denmark, or even France, for that matter, though the neoliberal rot has set in there too. I’m in favour of LVT by the way, the small state, large state issue is largely distinct IMHO.
    N

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  • @7
    Are they in the poo? Maybe, but it’s the financial crisis that got us there, and that means the deregulated credit bubble, not excessive government spending.
    N

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  • libertas,

    No. taxes go towards getting the government re-elected, or until the next lot get a better story on how to divide up the people’s income/wealth more fairly. what a great word fair is! we’re putting up your taxes to be fair, haha. It’s just human nature, much easier to take money (income/wealth tax) than to go out and produce.

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  • mark wadsworth says:

    @ Libertas, as usual you are either in complete denial or deliberately lying: We built this country in the Victorian period when government was 10% of the economy. We furnished the world. Had no income tax, no council tax, no carbon tax, no NI, No VAT, most of government was run on excise and import duties.”

    Nope, the largest chunk of government revenues was Agricultural, Domestic and Business Rates, next biggest was Beer Duty. Are you prepared to retract your preposterous counter-factual? And have you answered my question re Florida yet?

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  • @11 oh please. the financial crisis didn’t cause our massive deficits. over spening by government is documented throughout history. just in the last crisis, public spending on houses and cheap chinese [email protected] fueled by cheap credit, beat the government to it.

    The coming crisis, which is going to be much much bigger would have happened regardly of the 08 crisis caused by the real-estate/consumption boom.

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  • mark wadsworth says:

    @ NickB, what’s the big deal with farmers? It can’t be too difficult to work out what an average farming person pays in income tax/NIC/Council Tax (£5,000 a year?), let’s say and average of four workers on an average 200 acre farm = £20,000 tax, so as long as LVT on agricultural land is less than £100/acre, they are ahead of the game. And the LVT on an allotment sized plot would entirely depend on where it is.

    @ Nod2Glod, we already have too many wealth taxes (i.e. income tax on bank interest, income tax on dividends and so on, not to mention inheritance tax). LVT is not a tax on wealth in that sense because land (value) is not wealth, land is certainly not net wealth taking the nation as a whole. The value of land is merely the measure of by how much the owner benefits at everybody else’s expense. Plus, LVT is far more practicable as you cannot take land abroad, it doesn’t have any economic distortions or dead weight costs etc.

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  • land is owned, therefore it’s an asset, it has value as it can be sold, therefore it represents wealth. a tax on the ownership of land is a tax of wealth. I can see the arguement for LVT, although i believe there are significant draw backs too, so i’m not convinced. However saying LVT is not a wealth tax detracts from your arguement in my opinion. Whether or not people should gain from increases in the value of their land due to improvements paid for by the public purse or other private funded improvements is debatable. It comes down to should we allow speculation and private ownership? or should we socialise these things? and then who in society should benefit from this, the person who has lived all their life in a local area, or should that be extended to all new comers as well evenly?

    The issue is everyone wants to use the government to take from other poeple and give to themselves, whether the top or bottom of the pile. I think we should stop worring about what method of taxation of use as all taxation is unjust to a degree. instead we should focus on appling the choosen method of taxation equally under the law, and then reducing taxation as much as possible so capital can be applied most efficiently as possible, because the government does a piss poor job of that.

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  • “deregulated credit bubble”

    What nonsense. Government kept interest rates artificially low, and actively passed regulation legalising fraud that the justice system once dealt with harshly. They also bailed out the system allowing the credit bubble to continue.

    This ONLY happened because of GOVERNMENT INTERVENTION.

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  • Several years ago, I lived in the Maidenhead area when there was debate about a multi-million pound flood prevention scheme along the Thames between there and Windsor, which included creating a rowing lake for Eton College and a flood relief channel. Residents in some of the prime riverside spots, whose homes were at a lower value because of occasional flooding and had expense or difficult to get household insurance, were all for it. Others, mainly from the environmentalist school, IIRC, were against. Anyway it got built and all those properties are now protected from flooding and have enjoyed huge capital gains because of society’s investment in their infrastructure. I don’t see why they shouldn’t be taxed to take into account the value added to their homes through other taxpayers’ investment.
    As with the high-speed rail link, if you are going to ‘socialise’ losses by compensating those who lose out through public infrastructure investment, it’s only seems fair to me.
    What currently happens seems to be another case of ‘socialising’ losses and ‘privatising’ gains, similar to what’s happened in the banking industry over the past few years.

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  • @18, i completely agree. maybe government shouldn’t be involved in infrastucture projects like that. But large government projects don’t just effect the valuation of land. Roads, rail, communication networks, power, all help companiesan indivuals make money unevenly, funded by the taxpayer. government spending will always create winners and losers. your example is an extreme case, but it’s happening all the time. less government spending will reduce this across the board.

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  • @19 Wouldn’t a LVT to even out the discrepancies between those who benefit from society at large’s investment and those who are adversely affected? If so, seems like a good idea to me. Because something is ‘happening all the time’, doesn’t make it right. As for reducing government spending, why if it’s for the greater good of us all?

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  • Adam Smith Fan says:

    Libertas is right. We need to go back to the Victorian, or even better the Georgian, era when the only taxes were land taxes and excises. That funding model allowed us to build the world’s largest navy and to fund an Industrial revolution that made Britain the greatest country in the world. We don’t need the navy so much nowadays but we can still be the greatest again if we move to taxing 100% of Ground Rent and handing the surplus revenue back to the general public as a Citizen’s Dividend. That will ensure that the majority of farmers, renters and householders will end up living tax free and that Victorian/Georgian-style poverty will stay firmly in the past.

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  • mark wadsworth says:

    @ Nod2glod: “land is owned, therefore it’s an asset, it has value as it can be sold, therefore it represents wealth. a tax on the ownership of land is a tax of wealth.”

    Aha, this is what they want you to believe. As it happens, land is a natural thing like fresh air, it’s just there. So let’s imagine some evil Bond-type villain managed to suck all the oxygen out of the atmosphere and sold it off to people in oxygen tanks (like divers use) or else they will suffocate within seconds. Can he charge people money for this? Yes. So from his point of view it is “wealth”. But his income is merely the equal and opposite of the money that ‘everybody else’ has to pay him, so by taking all the oxygen and selling it back to people to whom it rightly belongs (everybody) he has not added to humanity’s net wealth at all.

    So land is quite different from other forms of wealth, like e.g. a car. If you go out and earn money and pay somebody to make a car for you, you have added to net wealth by doing what you do, and the people in the car factory have added to net wealth by making a car. The fact that you have worked and others have worked and you end up with a car is a big increase in humanity’s net wealth, and the fact that your customers or your employer end up benefitting from the services you provide and you end up with a car places no burden on anybody else whatsoever.

    So a car or a building or a painting or a pizza or anything is real wealth and should not be taxed (and neither should the incomes of people who make all these lovely things be taxed) whereas taxing the rental value of land merely levels the playing field.

    @ Stuart King: “Wouldn’t a LVT to even out the discrepancies between those who benefit from society at large’s investment and those who are adversely affected?”

    Correctamundo, that’s argument number 1,378 in favour. If there is a new railway line built from A to B passing near, but not stopping in, village C, then the land owners in A and B get the benefit but landowners in C end up slightly worse off because they have the noise. So LVT goes up a bit in A and B and down a bit in C. The net increase can then go towards financing the railway.

    Or in your case, the best source of funding for e.g. flood defences, is to work out what it costs and let all surrounding owners decide, by majority, whether they are happy to pay for the initial cost and the upkeep. Assuming they decide rationally – i.e. a one-off payment of £5,000 each plus annual maintenance costs of £250 each is either more than or less than the uplift in land value/rental value or it isn’t – then we end up with the optimum allocation of resources.

    If the flood defence merely serves to benefit ten houses rather than ten thousand, the cost to each home owner is £5 million and it is clearly not worth doing. End of.

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  • Mark,

    Well my clothes are also “just there”, as everything else tangable. And what does your referrence to something being natural have to do with anything? Land has been altered drastically from it’s natural state, which is one of the main reasons why it has value, just like the naturally grown cotton of my shirt. There are obviously different degree of alteration of a natural state, but i don’t see why this means a tax on something is or isnt a wealth tax. if i can private own something then tax on it is wealth tax. If i’m paying rent on the land then i don’t own it. Your LVT would socialise all private ownership of land. Now i’m not saying thats the worst thing, but you do need to decide, as i said: allow speculation and private ownership? or should we socialise these things? An honest conversation on LVT should be explicit about what LVT is, and what it’s not: a cure-all for the housing problems/society.

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  • mark wadsworth says:

    Nod: “Land has been altered drastically from its natural state”

    Correct. Which is why it is helpful to see LVT as “Location Value Tax” and not “Land Value Tax’. There are things which the owner has paid for, like the building itself which are not part of the value of the location, because the owner paid for them. The value of buildings themselves would not be taxed under purist LVT. But all the other stuff is provided “by the community”, i.e. the local schools, the job opportunities, the public park, the railway station, the roads, the police etc.

    So it seems perfectly fair for these things to be paid for out of LVT. Of course, the government shouldn’t be paying private employers to provide jobs, but we can also use LVT to reduce taxes on business or on incomes, comes to the same thing.

    “Your LVT would socialise all private ownership of land.” Not really, it would socialise the rental value of land or capital gains from land value increases. There’d still be private ownership, and with a sensible system of personal allowances or Citizen’s Income in place, about half of all homes would effectively be exempt.

    “you do need to decide, as i said: allow speculation and private ownership?” I’ve long decided, private speculation in community-created land values is a bad thing, it leads to credit bubbles and hence to recessions etc and the answer is “no”.

    “An honest conversation on LVT should be explicit about what LVT is” LVT is an annual tax on the site-only rental value of land, assuming optimum permitted use. That’s it. That’s the agreed definition among Georgists. What you do with the receipts, which taxes you replace and how you justify it are completely separate topics.

    “it’s not a cure-all for the housing problems/society.” I never said it was a cure-all. But there are few economic/social problems which replacing taxes on income with LVT wouldn’t help; LVT causes no problems of its own; and there are some ‘problems’ which are insoluble. We have to accept that some people will always be luckier or earn more than others, that’s just the way life is.

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  • LVT is advocated as a tax that has no deadweight loss (in fact it’s virtually impossible to find any arguments against it). Unfortunately this assumes accuracy in estimation of taxation values, efficiency in collection and minimal collection costs. How many people would trust their local authority to carry out this task (especially in the light of cutbacks) with optimal efficiency?
    In practice I think that if it were ever introduced (unlikely given political pressure by those that have influence), it would lead to more goverment bureacracy via another layer of taxation.

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  • I just can’t get excited about LVT – it just seems to be incredibly dull.

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  • Contenteddrone says:

    @7 I don’t think it’s true to say that Sweden is in the poo. Sweden has a strong economy and low debt-to-GDP ratio. Europe is a nuanced and complicated network of individual economies, not simply a doomed monolith.

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  • “I just can’t get excited about LVT – it just seems to be incredibly dull.”

    And so are it’s supporters who drone on about it’s supposed virtues.

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  • Mark Wadsworth is clearly a paid schill working with governments and corporations to bandy about the idea, to prepare the public for the next tax raping.

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  • mark wadsworth says:

    I’ve made the observation that people insulting me is a sign that I’m making progress, so thanks chaps!

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  • Keep up the good work MW! An understanding of Henry George and his LVT is unmissable if one wants to make sense of economics including house price bubbles, boom and bust, unemployment and growing inequality of wealth so the more exposure these ideas get the better.

    Libertas, your Austrian School small government solution would only result in greater wealth inequality because it would facilitate greater concentration of land ownership into fewer and fewer hands. The left will then continue to argue for higher taxes to avoid ameliorate the poverty of the underclass and we will all be worse off as a result, with the whole boring Libertarian vs Socialist arguement rumbling on.

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  • dohousescrashinthewoods says:

    I’ve chewed through most of the comments and I think LVT sounds good on balance. I’m sure there will be unintended consequences, but everything has consequences and they aren’t visible (or are just fuel for ranting argument, libertas) until you try it out in practice.

    I think a smaller state is imperative because the state is not value-creating, only “value-applying” (leaving aside conversations about inefficiency). I mean than someone made the “real” money, and the state collects it from them in order to applying it to the common good.

    I’ve heard it said the state now accounts for over 50% of our economy, which has to be mad – more than half of all work being done is done on the basis of collecting money from a dwindling number of value-creators. I guess that’s why wages are falling – no longer enough “real” economy to pay for the majority “recycled” economy.

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  • mark wadsworth says:

    Greenmind, ta for backup.

    Dohouses, also ta. “I’ve heard it said the state now accounts for over 50% of our economy” Yes, Tory spending plans are to spend approx half of GDP.

    But it’s not actually as bad as it seems; a quarter of government spending is pure theft or waste, we can get rid of that without the general public noticing. A tenth of government spending is irreducible minimum core functions of the state (law and order, public health, road repairs), we can’t touch that. A third is providing universal benefits (health, education) which could be done far better using taxpayer funded vouchers and competing providers. A quarter is old age pensionsm, and the remaining five or ten per cent is child/working age welfare payments, i.e. these are just transfer payments and not government spending in the narrow sense.

    To put it crudely, a shopkeeper may resent handing over half his turnover in various tax payments, but he gets a lot of it back when pensioners or public sector workers come into his shop to buy stuff.

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  • @MW: it is helpful to see LVT as “Location Value Tax” – like it. That is a helpful way of seeing it!

    @libertas – as MW says, insulting people does tend to imply that you’ve lost the argument, even though I agree that the last government are largely to blame for the mess we’re now in. You can’t blame anyone else for our huge government debt!

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  • @nod2glod said…
    So, kindly explain how bailing the banks out at a cost of dozens of billions has no effect on the deficit? Your assertion that it doesn’t is both absurd and contrary to demonstrable fact.
    @MarkW
    Kindly re-read my post and reply sensibly to the points raised. E.g. not every small farmer pays income tax because farm incomes are so low. So it is no sop to them that LVT would displace income tax. And other points you have overlooked.
    N

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  • mark wadsworth says:

    NickB, I re-read your comment at 2, you made some factual observations which all seem fair enough to me.

    I like answering questions, but can you give me an example, i.e. tell me how much your hypothetical small holder/farmer, is it one bloke or husband and wife, what he/they currently earn, what his Council Tax bill is, how much ag subsidies he gets, what the rental value of his land is, is he a tenant or a freeholder, does he have a mortgage if so how much and what interest rates and so on, and then we can work out what his likely LVT would be and whether he would be better or worse off.

    As it happens, I know a farmer from Scotland who has been saying for decades that he’d rather that farmers paid LVT than income tax and so on (and he doesn’t like the CAP subsidies) it is far better for farming employment, for farming, for output, for wildlife, makes it easier for people to set themselves up as farmers large or small, and so on. He is the expert, he knows all the facts and figures, I’ve checked most of them and it all stacks up as far as I can see.

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  • NickB,

    Maybe this thread is dead now… been away all day.

    The bank bailout are not counted in our deficit numbers, which is over 11%. so you comment:

    Are they in the poo? Maybe, but it’s the financial crisis that got us there, and that means the deregulated credit bubble, not excessive government spending.

    is complete BS. you sound like a labour politician, unable to face the fact the social model of spend spend spend has failed, instead blame it on the financial crisis. there is no more money left, as per the note labour left for the new administration.

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  • nod2glod said…The bank bailout are not counted in our deficit numbers, which is over 11%.

    What if they were though? What would the deficit figure be? Or rather what would UK national debt be?

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