Thursday, May 10, 2012

It’s a no brainer

Opinion: Land Value Tax – an old idea with lots of modern supporters

Politic support for LVT to replace council tax: How much money can it raise? Levied at a flat rate of between 0.5 per cent or 0.6 per cent it has the potential, based on the current value of land in the United Kingdom, which accounts for 38 per cent of our wealth, to raise between £30 billion and £35 billion. That’s enough to replace the council tax while also giving a tax cut to all those living in properties worth less than £350,000-£400,000.

Posted by stuartking @ 09:13 PM (2474 views)
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20 thoughts on “It’s a no brainer

  • Great idea! Do it!! This economy is never going to get any growth until the millstone of property is taken off everyones shoulders. Its worse than a religion for some!

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  • mark wadsworth says:

    Nah, the first priorities when LVT is phased in are to scrap all existing taxes that relate vaguely to land values, housing or wealth generally, i.e. council tax (£20 – £25 billion off), SDLT and Inheritance Tax, and why not capital gains tax, stamp duty and even TV licence fee and insurance premium tax, which raise about £40 – £45 billion. There’s aboslutely no reason to start funding tax cuts for lower value homes, it’s far better to cut VAT or something.

    Sure, the Homeys will argue that income tax on rental income should go, but sorry no, it’s only taxed at half rates anyway (there’s no national Insurance etc), so that’s for later on.

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  • mark wadsworth says:

    For clarity, council tax is £20 – £25 billion, and all the others put together are £20 billion odd.

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  • Mark, I thought what he was saying is that introducing LVT – and abolishing council tax – would mean people living in homes worth less would pay less under LVT than they currently pay in council tax. I would see that as a step in the right direction.

    He says: “How much money can it raise? Levied at a flat rate of between 0.5 per cent or 0.6 per cent it has the potential, based on the current value of land in the United Kingdom, which accounts for 38 per cent of our wealth, to raise between £30 billion and £35 billion. That’s enough to replace the council tax while also giving a tax cut to all those living in properties worth less than £350,000-£400,000.”

    Of course, I guess the “politics of the art of the possible” of the proposal might mean introducing a small per cent to begin with that could always be increased later as more taxes, such as income tax and VAT, were reduced/abolished

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  • Dear oh dear – the Libdems ARE getting desperate..

    Still, I suppose getting knocked into 4th place in the London mayoral vote, and being outvoted by a guy in a penguin suit in Scotland brings out the list of lost of lost causes…

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  • @4 UT — ok it’s on a Liberal website, but what about the merits of LVT itself? If it’s a replacement for Council Tax, etc, what’s wrong with that? OK, so it’s a different group who would pay it, and you are move from income to wealth as a source of tax. If the wealthy can more easily afford to pay why not do that?

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  • mark wadsworth says:

    Stuart, basic maths says that a flat tax of 0.x % on all housing which replaced Council Tax would reduce the bills for those at the bottom and increase them for those at the top – as illustrated by Northern Irish Domestic Rates (which is exactly such a tax). So a £50,000 flat pays £300 LVT instead of £600 Council Tax, and a £500,000 house pays £3,000 LVT instead of £2,000 council tax.

    Let’s assume that rate is about 0.6% (it is, I’ve checked).

    That’s seems a bit unfair to those at the top, so let’s get rid of Inheritance Tax next, which would require an additional 0.1% or something, which in turn is a bit unfair to those at the bottom again, so let’s get rid of the TV licence fee and up the rate by another 0.1%.

    Now, the idea is to encourage a bit of “right sizing” so that the Poor Widow In A Mansion trades places with the “family of four earners” in the small house round the corner, so it also is desirable to get rid of SDLT, which means upping the rate by about 0.2%.

    This rounds up nicely to 1% annually on all housing with no upper or lower limits, with a bit left over to get rid of CGT (or certainly get rid of CGT on land and buildings) and probably Insurance Premium Tax (a kind of wealth tax) as well, both of which raise even less than the TV licence fee.

    Job done.

    As a commenter at the Daily Mail said in connection with the Mansion Tax, what is the problem with a 1% flat tax? My house is worth about £150,000 and I pay about £1,500 a year in Council Tax and TV licence fee, so if this system is good enough for people in the middle (the best place to start), why should it be any different for those at the bottom or those at the top?

    UT, it’s not a lost cause. It’s a question of whether it is better to tax earned income and private wealth in lots of horrifically complicated ways to enable people to realise unearned windfall gains on three acres of Oxfordshire brownfield, or whether it is better to untax earned income and wealth and reclaim national wealth (i.e. rental values) for national expenditure. You prefer the former for purely selfish reasons, any sane economist who takes the wider view prefers the latter.

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  • mark wadsworth says:

    I can’t be bothered to sign up to comment at LDV, so here’s the comment I tried to post in response to the first slice of whiney moany drivel:
    ———————-
    I see that Julian dives straight in with the usual Home-Owner-Ist bilge,

    “That an elderly retired widow in a large house pays more than a family of four earners in a small house.”

    That’s a diagonal comparison. The fair comparison is to only change one variable:

    compare: a Poor Widow in a large house with a Poor Widow in a small house
    compare : a Poor Widow in a large house with a family of four earners in a large house

    Further, the article didn’t say scrap income tax and NIC and VAT and so on, so clearly the four earner family would still be paying fifty times as much tax as the Poor Widow. So Julian is being hysterical and totally unrealistic.

    “That people who do not own property but just rent it pay nothing. That it weakens the link between local expenditure and local taxation. ”

    Nobody is forced to be a landlord. If he’s unhappy about paying the tax, he just has to sell his homes (dropping the price if necessary) to somebody who is prepared to pay it. In any event, tenants will always be paying for the VALUE of local expenditure because it is included in the rent. Tenants are already paying LVT, it is just that the landlord is collecting and keeping it.

    “Who cares if Winston Churchill or John Stuart Mill thought it was a good idea? What did they know about property and the economy in the 21st century?”

    They would have been horrified at the fact that our whole economy now allegedly depends on house prices and banking and landlords, i.e. Home-Owner-Ism, things have got far worse since they were active, and exactly in the direction which they predicted.

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  • LVT might be a good idea but the worry of course is that people will assume it’s rubbish if the LibDems champion it.

    And I write as a frustrated Gladstonian!

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  • i remember the 90`s says:

    If its gold or lvt there is always nickers in a twist on this site ,although i can`t see this happening this version of lvt would be acceptable imo.

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  • @4 – It’s not just the LibDems. The Institute of Fiscal Studies and the OECD are also signed up:

    “Amid a flurry of microeconomic reform proposals, the Institute for Fiscal Studies has thrown its weight behind OECD proposals for a shift away from income taxes to consumption and wealth taxes.

    “In particular, the IFS said: “Replacing business rates with a land value tax would remove a damaging bias against property-intensive production.”

    http://www.guardian.co.uk/business/economics-blog/2012/feb/02/ifs-backs-land-value-tax

    It’s not difficult to see the interest LVT in countries like Estonia and Latvia. If there’s no LVT then more of property/land rental is available for paying interest to foreign mortgage bankers, who repatriate their earnings and create a balance of payments outflow.

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  • “but what about the merits of LVT itself?”

    As we’ve discussed many times before, radical tax reform is a sure-fire political graveyard. Why? Because there will always be winners and losers, and the losers take to the streets while the winners are ungrateful.

    Aside from that, any tax system based on the subjective and fluctuating value of an asset class is never going to be simple to administer.

    LVT will also fall most heavily on those with the most political influence – so forget it – it ain’t never gonna happen..

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  • The Duke of Westminster and the Earl of Cadogan taking to the streets?

    “any tax system based on the subjective and fluctuating value of an asset class is never going to be simple to administer”

    One suggestion for valuing land and administering LVT is at http//isslerhall.org/drupal/sites/default/files/Latvia_Renewed_2010.pdf (pages 100-104)

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  • mark wadsworth says:

    Uncle Tom, yes, point taken about winners and losers, so what? If we had LVT only and some nutcase suggested taxing incomes and subsidising land, there’d be an equal and opposite outcry. That proves nothing.

    “any tax system based on the subjective and fluctuating value of an asset class is never going to be simple to administer”

    I’m sorry, but that is an outright lie.

    We’ve had Business Rates more or less uninterrupted since 1601 and the entire legislation is two sections in the local government finance act. Northern Ireland did a Domestic Rates revaluation six years ago, everybody pays 0.7% of what their house was worth on 1/1/2005 and no back chat.

    Rents do not fluctuate wildly at all, they are very stable and Business Rates receipts can be predicted years in advance. The use of the word “subjective” is mere cant – any tax system can be said to be “subjective” because although we can calculate e.g. a company’s profits to within a reasonable degree of accuracy using normal accounting principles, the rate of tax itself (zero per cent in Dubai up to 50% in other countries) is entirely arbitrary i.e. subjective. And even if rents do fluctuate, so what? it is only relative and not absolute values which matter – i.e. big house A has a rental value of double the small house B next door, so house A pays twice as much tax.

    Assuming that receipts are a known figure to cover known spending, then in good years, the tax is 60% of the rental value and in bad years it is 80% – as long as the tax does not go over 100%, then absolutely nothing nasty happens.

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  • “The Duke of Westminster and the Earl of Cadogan taking to the streets?”

    No – they’ll just hike everyone’s rent to compensate, and let the tenants take to the streets…

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  • “they’ll just hike everyone’s rent to compensate, and let the tenants take to the streets” – by definition they can charge only the market rent, irrespective of their costs, and the tendency of LVT is to reduce land values and rents.

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  • mark wadsworth says:

    Icarus, the Homeys, masters of DoubleThink will advance two arguments against LVT, neither of which has any validity in real life and which directly contraditct each other anyway (so worst case, on of them is correct, and we can discuss the ramifications calmly and sensibly).

    Argument #1: Tenants won’t pay LVT so there will be pressure for the tax burden on hard pressed homeowners to be increased.

    Argument #2: Landlords will just add the LVT to the rent.

    They singularly fail to notice that they have just contradicted themselves, but no doubt you can spot it.

    I covered this today, bullet point 3 here.

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  • “by definition they can charge only the market rent, irrespective of their costs”

    If every landlord is suffering a tax imposition, the tenants are not pushed beyond their absolute limit of affordability, and there is not a large excess of supply; then the taxation will be passed on.

    Don’t delude yourself into believing that the landlords will take the hit.

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  • mark wadsworth says:

    Uncle Tom, even Adam Smith explained why you are quite utterly and completely wrong. No serious economist has ever disputed that taxes on land, being in fixed supply, are borne entirely 100% by the owner.

    If logic is too much for you, any study of “the real world” will also prove you to be wrong, for example, research carried out for HMRC itself which showed that business rates were swallowed 100% by landlords – they established this by comparing total rents (rent + business rates) for buildings in Enterprise Zones with comparable buildings just outside the zones.

    You don’t think that I haven’t checked this out do you? If it were true that such a tax is passed on 100%, or if there were any evidence at all to support that any of the tax is passed on at all, then I would be the first to say so, because I deal in facts, logic, the real world etc.

    You have presented no single logical argument and neither have your presented any real world evidence to support your contention and it is getting a bit wearisome.

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