John McDonnell, the Shadow Chancellor, has indicated that he’s interested in a land value tax. Georgists everywhere celebrate and dance in the – publicly funded – streets. Except that’s not really what he’s saying at all. For the point about LVT is that it’s a more efficient method of raising the necessary revenue, not a method of raising more revenue. This is an important distinction:
A land tax, where a percentage of the value of the land is levied annually, is popular with some economists, who say it is a logical approach to taxing individual wealth.
No, that’s not the point at all – the point actually is that no one’s making land any more. Thus a tax upon land values is not distortionary. We don’t get less land because we tax it – unlike everything else, where the moment you tax incomes you get less incomes being made, tax wealth there’s less wealth, tax economic activity there will be less economic activity. That is, the act of taxing everything other than land makes us poorer in general as well as making those actually taxed poorer. Thus, if we tax land values, instead of taxing those other things, we’ll be richer in general and it will only be those coughing up the tax, rather than all, who are poorer.
Yes, obviously, at least some of the things taxes are spent upon also make us richer. The LVT argument is not, at least not necessarily, an anarchist or minarchist one. It’s one about the efficiency of revenue raising.
But that’s not what McDonnell is saying at all:
But McDonnell told the audience at the event organised by the Resolution Foundation, where he set out Labour’s plans to boost household incomes, that the crisis in the funding of local services may have opened a window of opportunity.
“I think we are at a stage where the decline in terms of funding to local government and the consequential effect on local services – many of them are in crisis – means, I think, that people are now willing to consider more radical solutions than they have in the past.”
He’s talking about raising more tax revenue from the economy by having a new tax. This is not the same thing at all.
An LVT is a good idea but it should be matched by a reduction in other more damaging forms of tax. Which isn’t what is being suggested now, is it?
But then who is surprised at John McDonnell arguing for “Moar Tax!” He does know Richard Murphy after all.
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Embrace the power of AND. He wants more tax AND that includes a land value tax
"Thus, if we tax land values, instead of taxing those other things, we'll be richer in general"
How does successfully generating more tax make us richer (in aggregate)? Given that we know the public sector, £ for £, tends to spend money far less efficiently than the private sector?
(Where is the preview button?)
Higher taxes on land are a liability. I do not believe that they will not affect the value of land.
LVT is a tax on wealth, not a tax on income. While it may have some advantages, it requires liquidity on the part of the wealthy (sic). A threat to some, especially pensioners.
It will especially appeal to cultural Marxists who despise the wealthy (sic).
And, since wealth accumulates exponentially, any tax on wealth, over a sufficient number of years, EXTINGUISHES more money than it collects.
LVT is a tax on income, as only income can (in the long run) pay the LVT. All an LVT does is redistribute property among the people in a way such that their individual income is sufficient to pay the LVT. Its still a tax on income - you can't sell 3% (or whatever rate it might be) of your house every year, nor would it be desirable to do so. So you'd end up living in a house that you could afford the 'rent' on. LVT is basically the State being your landlord and charging you rent to live in 'its' property, and you pay that rent out of your income.
LVT is not a tax on wealth. Yes at present wealth tends to be stashed into bricks and mortar because land is a safe and prosperous 'place' and LVT advocates are equivocal about how to introduce it without penalising those who have until now benefitted from and placed their assets in land. However, land is safe and prosperous for the very reason that it should be taxed: Land value is a result of public spending over generations, it is not the product of anything the landowner contributes to the economy, it is not public wealth and a 100% tax on it (ground rent to the state) would not be Marxist in any way but a necessary payment with which the state can raise an army to secure that land and pay the contractors to maintain and further develop the infrastructure that gives the land any value at all.
A serious error in the above, I perhaps made a Freudian slip when I typed 'it is not public wealth' when I think I should have said 'it is not private wealth but public'. Such is the strain of trying to edit text in a small text field on an antiquated blackberry.
If the immovable property of the wealthiest person in the UK, with the highest income didn't occupy a valuable location, then their LVT bill would be zero.
So not a tax on wealth, or anything to do with being envious of high incomes or high ownership of produced wealth.
The pic you're using of Semtex is not hi-res enough to use as a large image, which is how it appears on the home page...
Oh, it's a tax on income all right. How else are you going to pay it, tear off a piece of land and send that in?
You could already have the money. Or sell other assets, such as stock. You could be forced to take a loss on stock to come up with the cash. Taking a loss on stock is hardly income.
Thats only a short term solution. In the long run only income can pay a land value tax, because income is repeatable, year on year, wealth (especially when taxed annually) is finite.
If you live in an expensive house that attracts a high LVT bill, but don't have an income to match,then initially you might be able to pay it for a year or two out of savings, but thats not going to last too long, and who wants to see their savings disappearing into the taxman's maw anyway? So you'll sell the house, downsize to one that your actual income can pay the LVT on, and live there instead.
LVT will merely ensure the distribution of property values exactly matches the distribution of incomes throughout society, and that everyone lives in a house they can afford the LVT on from income.
"Thats only a short term solution. In the long run only income can pay a land value tax"
Bullshit. You pay it with what you have.
If you have a two million pound house and a pension how do you pay? Or do old widows get a pass? If we are happy that they are obliged to sell a house they love to pay a tax, or borrow on it, or defer the tax until the estate can pay it, fine. Otherwise income is required. In most cases income will be required so it is not bullshit to point it out.
Rent the land, for the tax will be directly proportionate to the rental value, and you get to keep all of the rent for the supply of buildings and anything else on the land. The land is 'real' estate. It is the very State itself. It is only in the hands of a freeholder through state license and so paying rent to the state (LVT) is the price to pay for the benefits that the state provides to service that land with a variety of basic functions that enables the landowner to profit from its use.
Local government is *already* funded by a land value tax. Ok, a crippled bastardised version of a land value tax, but it's horrifying how many national politicians who propose local government be funded by a tax on land and/or property values are completely oblivious to the fact that 12% of local government income is *already* funded by a tax on land and/or property values.
This cuts close to the real argument here: between at one end of the scale poll taxing which is regressive and lets the wealthy get a free run at capital investment and at the other end highly progressive non distortionary sources of revenue such as LVT. Capitalism (the basic principle of easy wealth accruel not the free market aspect) is propped up to a greater extent by regressive taxation and that is the corner from where LVT gets a hard time and from where progressive taxation such as LVT is resisted
But Tim Lest we forget he and Murphy are bitter enemies following Murphy's refusal of an advisory role in his team because he wanted to be the Chief economic advisor, not one among many....
Just wait till August, then we can see how he and Jezza celebrate the 50th anniversary of the Prague Spring
" Thus a tax upon land values is not distortionary." Are you sure it won't drive land value down? If so, is that not a distortion? It's not a panacea, or a good idea, it's just a tax. Just another bloody tax. They all come out of the same pockets however derived.
Something is distortionary because it distorts market allocation of goods and services.
Finding a better way to make a widget drives down the prices of widgets. That's obviously a good thing.
Also the LVT isn't technically a "tax", because it is based on market compensation of benefits received. So economically and morally it is exactly the same as paying wages or for goods and services. Which is why it is non distortionary.
Taxes, are a payment for benefits the payer may or may not receive ie income, capital and transaction taxes.
That's the kind of hair-splitting jargon and nomenclature that gets economists a bad name.
"Also the LVT isn't technically a "tax", because it is based on market compensation of benefits received."
"Taxes, are a payment for benefits the payer may or may not receive ie income, capital and transaction taxes."
I clearly missed something far too subtle there..
How is LVT or PAYE not a tax. Of course it's a bloody tax. In LVT's case, not even necessarily based on any (useful or practical) ability to pay.
Tomothy, i nknow other stuff is more important, but "please" give us a preview (the eye sight isn;t what it was).
It the State set up a chain of restaurants, you'd simply be paying for a meal, rather than a tax if you chose to eat there. So not every source of revenue the state receives is necessary a "tax" is it?
LVT and rent are economically the same thing. The only difference is who collects. If paying rent isn't a "tax" then neither can a LVT be. Despite the name.
Land value tax comes from the value of public services that gives the land its value in the first place. The land title holder is merely a conduit for that value that they gather through rents yet never create. The scottish campaign is called Annual Gound Rent which is to my mind a far better way to describe what LVT is: the State is the ultimate landlord the the land owner is in fact subletting it. If there where a 100% tax all that would mean is the landowner paying a yearly ground rent to the state, it is not a tax at all but a ticket paid to a location in the economy from which activity on the land can then proceed. At present the landowner gets all that activity for free.
Houses with much, much lower land value benefit from greater public services than we do, e.g. pavements alongside roads, more frequent street lighting, more reliable power supply, etc. We pay five times the average rate, twice what the people over the road pay, simply because we overlook the Coral Sea and Cumberland Islands Group.
It is utter garbage to suggest that difference in land values is determined by the level of public services in proximity to that land. And what the hell as that to do with national public expenditure such as defence? The fairest tax is people paying for the benefits they receive, but as not everyone can afford to do so, the burden has to be shared out less fairly. It is utterly ridiculous to suggest that people on high incomes living in low value properties should share less of the burden than those living in high value properties on lower incomes.
I strongly suspect that many who believe in an LVT do so solely because they will pay less tax and some other poor sod ends up subsidising the benefits they get fro the taxpayer.
Embrace the power of AND. He wants more tax AND that includes a land value tax