This Sunday Essay at Coffee House, entitled How cutting corporate tax rates raises revenue, written by Matthew Sinclair of the Taxpayers’ Alliance is a reminder that however well libertarianism, free marketism, classical liberalism, whatever, may be doing – in the sense of increasing the number of individual libertarians, free marketeers, classical liberals, whateverists – public opinion about taxation, out there beyond the battles of the mere ideologists, seems to remain stubbornly unaltered. Taxes should be as high as we can afford, but no higher than we can afford. That’s what public opinion still seems to believe, and people like Matthew Sinclair cannot afford to challenge this opinion. The Taxpayers’ Alliance is, you could say, built on not challenging it. It is an alliance between those who want taxes cut, and cut, and cut, until they scarcely exist, and those who believe that, just for now, taxes are too high, and that public spending should be done better, so that public spending can be boosted rather than the very idea of it discredited.
Sinclair justifies lower tax rates, at any rate in this piece, entirely by pointing out that lower corporate tax rates will yield higher tax revenues. As they will. But could the same not be said for other taxes? By talking about lowering corporate taxes, Sinclair confirms the prejudice that tax cuts are only for a certain sort of person and a certain sort of institution. The libertarian political nearly-nirvana – a world in which politicians agree that taxes must be cut and cut and cut (see above) to the point where tax revenue, having done its predictable surge upwards, then starts instead to surge downwards again – but quarrel about exactly whose taxes should be cut first, and exactly whose benefits should be cut first and exactly which tyrannical bureaucracy should be shut first and exactly which costly laws and regulations should be repealed first, even as total tax revenue continues to go down, seems as far away as ever.
I still want to believe that under the radar – under the Laffer Curve, you might say – the change I really want may actually be happening. I want to believe, and I do actually think it makes some sense to believe, that the majority that favours high (as I would call it) taxes and high spending (just not too high) may be diminishing, and that the minority that wants taxes and spending both to be cut radically may be increasing. I also believe that the Taxpayers’ Alliance is doing more good than harm on this front. But Sinclair’s piece tells me little about that, one way or the other.
The Chief Executive of the Taxpayers’ Alliance, Matthew Elliott, is giving the after dinner speech on the Saturday of the Libertarian Alliance’s annual conference in October. He speech will be entitled “Reasons to be Optimistic: Why we are winning the battle for lower taxes”. Lower rather than low is the point there, I think.
(here is my email response to the TPA)
I am disappointed to see that you are flagging up a report saying that ‘Cutting corporation tax would boost revenue’, take it from me, it wouldn’t – the trick worked in Ireland because it is such a tiny economy – less than one tenth of the UK, so even if their domestic CT receipts fell by half, they can make up for it with approx. £2 bn of receipts from offshorers.
If the UK cut corp tax rates by half, we’d lose £20 revenues – even if all those offshorers moved operations to UK, we’d still be down £18 billion. And it would lead to massive evasion/distortions like the nil rate for the first £10,000 that we had a few years back.
The taxes that should be cut or scrapped first and foremost are Employer’s NIC (reduce employment levels, reduces profits and depresses wages) and VAT (increases prices, reduces income of UK plc and reduces output). Which between them raise THREE TIMES AS MUCH as corporation tax.
Furthermore, Employer’s NIC and VAT have to be paid whether a company is making a profit or not – in other words, they drive marginal businesses out of business.
Unlike corporation tax – if you’re not making profits, you don’t have to pay it.
I do not understand this right wing obsession with corporation tax. As a small gummint free market liberal (and tax advisor with twenty years international experience) I must reiterate, in the words of Milton Friedman, a flat rate corporation tax is the second least bad tax…
… all things being equal, lower income/corporation tax rates are A Good Thing, I have never disputed that, Matt’s study is probably correct.
But a VAT or NIC cut has much more immediate effects – even if prices didn’t adjust down (which they would) and wages didn’t adjust up (which they would), then 28% of the nominal cut comes straight back on the basis of higher corporate profits. Bung in a corresponding increase in output and employment (the short term gains will get competed away by new entrants); the fact that fewer businesses would fail, then I’d guess that the dynamic cost (taken over two or three years) would be less than half of the static cut.
In other words, VAT and Employer’s NI are always at the wrong end of the Laffer Curve – even a complete 100% reduction would only lead to a 50% fall in total tax revenues.
The ECB commissioned a report that said increasing VAT had a measurably more damaging effect than increasing income tax/corporation tax. So by reverse logic, the benefits of a VAT cut will always be much greater than a corresponding corporation tax cut.
Why exactly is boosting tax revenue a good thing? I want the state to have less money and do less things.
For me, the Laffer Curve is one of those disingenuous arguments used in place of one’s real point of view, to try and pander to people who are never going to agree with you anyway. It’s a bit like, say, “prostitution reduces rape” as an argument from prostitution legalisers. It probably doesn’t, and even if it does that’s not why the legalisers want it legalised anyway. It’s just trying to appeal to the other side, in that case feminists focussed on violence against women, and it’s not going to change their minds anyway so it’s a waste of time.
I’m dubious regarding arguments about different types of taxes and which is better and which is worse. Libertarians tend to be fanatically opposed to income tax. So far as I can tell that’s largely because of the record keeping required– but all taxes require record keeping and snooping into private transactions. A sales tax requires that the state know I bought a pint of milk at my local shop. A corporation tax requires that the state have records of that business’s dealings. If you’re going to have taxes, you’ll have records and snooping. And if we’re going to accept the government running at the very least defence and the courts, and probably the police, we’re going to have taxes.
And IMV however you describe them, you can only really tax two things; capital people have or trades they undertake. An income tax taxes the trading of labour. A corporation tax, or sales tax, tax the trading of other goods and services. A tarriff taxes the trading of goods and services across the national border. So they’re all income taxes of various types and all equally harmful to the free economy. The only other alternative is to tax capital, which sounds fine until you’re extorting money out of an old granny on a minor pension income in the house she bought with her late husband simply for the right to keep living in it, because it’s capital. Which is true of a land value tax as well. That’s supposed to encourage her to develop her land. What’s she supposed to do, run a crack house in the front parlour?
So, we’re stuck with only two taxes at our disposal, the first of whch in particular we can give many interesting and inventive names to- income tax, corporation tax, sales tax, value added tax, import duty, export duty, carbon tax, green tax… all trade taxes.
So, we may as well just abolish the distinction between corporations and individuals, since they’re all just traders in the economy, and it would encourage people to think of themselves as entrepreneurs who can make a bit here and a bit there, rather than being that artifical thing, “an employee” (or indeed “an employer”) with all the master/slave connotations that has, then hit everyone with a proprotional income tax, i.e. trade tax (with an allowance, probably) and be done with it. Everyone pays 10% of their profits, writes their accounts on a postcard and mails it to the Inland Revenue with a cheque. And bollocks to the Laffer Curve.
The absurdity of the current regime always strikes me when it’s accounts time. According to the state I’m three things- Ian B Ltd, a company which is treated as a person, Ian B, a director of Ian B Ltd, and Ian B, an employee of Ian B Ltd on minimum wage[1]. It’s insane.
[1] who hates Ian B, the director of Ian B Ltd, for being such a stingy bastard. I’m planning to form a union and take back the means of production.
From personal professional experience in both economies it has been obvious that the effects of taxation on business organizations conducted for profits (corporations, joint-stock companies, business trusts, limted partnerships, etc.) are substantially the same in the UK and US.
Taxes are a cost of business. Those costs must be recovered out of the production achieved or services rendered. Those costs are recovered in the charges made for goods and services, and are ultimately borne by the individual consumers or users in the form of prices paid.
Thus, corporations do not pay taxes.
Corporations, et al., function as conduits for the extraction of government revenues from the prices charged for goods and services and thus passed on into the general economy – basically disguised. These are hidden taxes.
If those revenues are required, the most efficient mode of collection would be a form of vat as the exclusive tax on operating flow of funds (other than licenses, rates, property taxes, et simil).
Through VAT, the tax falls directly on prices – paid and charged.
On the larger, and as Milton Friedman noted, more vital issue of levels of spending, rather than levels of overall taxation (regardless of how done), the late Colin Clark theorized from historic statistics that there is a limit to the proportion of the GDP (a term he originated as GNP) that can be assigned to, or consumed through, the “public sector” for any consistent period (which may vary – and in the UK is now very short) without first stagnating, then quickly eroding the general economy.
Because of the desire of the electorate for what is presented as services and benefits distributed politically (not economically) through the “public sector,” and by hiding substantial parts of the costs in the methods of taxation (plus the deferrals via borrowings) public resistance to spending and sensitivity to its impact is largely reduced until stagnation sets in or erosions begin.
Brian: You might be interested in re-reading
http://www.samizdata.net/blog/archives/2006/07/parasitism_and.html my article from several years ago.
RRS, you’ve missed the point. Of course all taxes are ultimately borne by individuals. That’s what Ian B said.
However VAT or sales taxes or turnover taxes PUT PEOPLE OUT OF BUSINESS, unlike corporation tax, which is not levied on reinvested profits and is only payable if the business is profitable.
I’m with Milton Friedman on this. The least bad tax is Land Value Tax (the old lady can roll up the tax to be repaid on death, if she can’t persuade her heirs to pay it for her) and the second least bad tax is a flat, low rate on income and profits.
The record keeping requirements for employees are done by employer anyway, and sensible businesses do proper accounts anyway. Multiplying the net profit by x% and sending off a cheque is not an administratively onerous task (unlike VAT or Employer’s NI which are bloody nightmares).
Why focus only on corporations? The same argument can be made for any actor in the economy. Think of employees paying income tax; treat each one as a little one-man business selling labour. They can only pay their taxes by raising the price of their labour to compensate. Taxes add costs to their business (selling labour) which have to be borne by the people buying it (their “employers”). So it’s the same thing. Which is why I (and I alone, so far as I can tell) think that a crucial element of a libertarian regimen would be the removal of the legal distinction between businesses and individuals. We’re all businesses.
Come to think of it, if it’s a profit tax rather than an income tax, it doesn’t need an allowance anyway, since poor people won’t be making a profit.
Ian B makes some strong points. He notes the forms of taxation as falling in what are called “Transactional Taxes,” and “Asset Taxes,” taxes on property (capital) or on the privilege of (rights to) its posession or use.
However, in our times (absent taxes paid in kind) all taxes have to be paid out of Net Revenues, even though some of those revenues must be generated by dispositions of part or all of the Assets taxed.
But, what is missing is the cause of taxation – basically the publically determined functions of governments (at the several levels) and the resulting politically (rather than economically) determined distribution of goods and services.
“Thus, corporations do not pay taxes” is absolutely correct, but RRS then erroneously goes on to assert that corporate taxes automatically find their way into higher prices. This leads to Ian B’s silly statement about treating employees as a “little one-man business selling labor.” The problem is that businesses cannot simply raise prices whenever they choose, just as employees cannot simply demand a higher wage; the market (or their employer) may not permit it. The truth is that the incidence of the corporate tax (i.e., where the burden ultimately falls) cannot be known with certainty and varies from industry to industry and from time to time. It is ultimately borne in some proportion by consumers (in the form of higher prices), labor (in the form of lower wages) or the owners of the company (in the form of a lower return on their capital).
That is why the corporate tax is the least sensible tax from an economic (although not political) perspective. Sales taxes raise prices; income taxes affect labor; capital taxes burden capital; but in each case the effect is knowable and transparent. It is only in the case of corporate taxes that the actual burden is unknowable. However, it is disguised, which makes it attractive from a political perspective.
Mark W may be correct that cutting the VAT or NIC would have more immediate effects, but he is absolutely wrong to state that cutting the corporate tax rate would cost revenues. He falls into the typical static analysis trap of assuming that everything else being equal, lower tax rates yield lower revenue. But everything else is never equal, and tax policies have real-world consequences. He (and others who fall into this trap) ignore the stimulative effect of lower marginal tax rates (and likewise ignore the depressive effect of rates which are too high). In the modern era there has never been a tax “cut” which failed to increase governmental revenues (once fully implemented).
And this is why I disagree with Brian’s apparent disapproval of advancing the “effecient tax” argument. Those who argue for increasing taxes, excepting the simply ignorant (not an insubstantial number, but they can be dealt with) are not doing so to raise governmental revenues; they know better. They are doing so purely for income redistribution purposes. They would rather have a smaller pie than permit some to have a larger share than others. It is thus a tactic for the advancement of socialism. This must be pointed out, loudly and often, in order to thwart their goals.
We can deal later with shrinking overall governmental spending. For now, sending the message that raising marginal tax rates reduces governmental revenues is a message that will resonate with the electorate. It might also help in getting the “right sort” of politicians elected.
Mr. Wadsworth:
What you note there is the “efficiency effect” of VAT as a transaction tax as opposed to “Income” tax. If the prices of the goods or services produced or delivered will not bear both the costs of the tax and the other basic costs, the business will fail – promptly! Whereas, under an income tax regime a business may have true losses in its operations, and continue until insolvency, or until it begins to fully recover all its costs. How is “income” to be defined? What are its determinants?
A great difficulty with “Income” as a base for taxation is in the determination of: “Is it Income? Whose income is it? Is it taxable income?” Those determinations are largely made through the political process.
If all “profits” (which Drucker described as a form of “costs!” that must be met) are “income” then, absent special credit provisions under most statutes, their “reinvestment” would not shelter them from taxation. However, that very impact has been reflected in codes of taxation in most Western nations.
Returning to the essence of the issues; the resulting politically determined distribution of goods and services is currently implemented through the various forms of taxation. Unless that process is mitigated, the rest of the discussions are largely academic.
I do miss points in my rush for self-expression and apologize for mis-spellings.
Laird, thanks for that. Perhaps you’d be so kind as to explain why it is “silly” to describe people selling their labour as “people selling their labour”.
As to the question of raising prices; what actually happens of course is they get forced out of business if taxes become too high. If not, taxes exert an upward pressure on labour prices, whether or not that can be absorbed by the businesses to which they are selling their labour. If it can’t, everybody ends up going out of business.
@ Laird, yes there is a Laffer Curve for corporation tax. The interesting question is, what is the rate at the top? I suspect that it is much higher for large countries (USA = 40%, China, India = about 33%) than it is for small countries like Ireland (12.5%). I would guess that our 28% is on the upward slope of Laffer Curve, as we are a pretty large economy which is 80% domestic anyway. It’s not like Tesco are thinking of shutting down their supermarkets and opening them up in Ireland instead, is it?
@ RRS, the profit per accounts is a pretty good measure of true profits, let’s not be too philosphical about this.
If you think that VAT is a good tax because it puts people out of business, we will have to differ.
Think about start-ups – if there were only corporation tax, the first tax payment wouldn’t kick in until they were properly established and profitable. As it stands, the founders have to fund not only running costs but VAT payments and Employer’s NI payments, thus the chances of that business succeeding are much lower and/or capital requirements are much higher.
If you’re thinking about sunset industries, why is it better for the tax system to speed up their demise, rather than give them a year or two extra to restructure, or to branch out into something different?
@ IanB, I agree that “people selling labour” is a good and sensible description for employees or the self-employed who provide services.
Mr. Wadsworth –
Despite a great attraction to (Moral) Philosposhy at this stage of life, having begun U S tax law practice in 1954 (back at that revision to the IRC – my mentor and “boss” [still active] became IRS Commissioner under Kennedy), I may delude myself that I am not philosophical about the fact that “Income” for taxation under the IRC is not the same as “profits” regardless of how accounted. Example: “Forgiveness of indebtedness income”
From much reading of legislative histories (required of practitioners) it is pretty clear that “income” for purposes of taxation is politically determined.
VAT is not necessarily a “good” tax for the reasons stated, but its is an efficient tax. Cf., tax loss carrybacks (and carry forwards) from mark to market “losses” of “profits.”
VAT (originally in 1954 “TVA”) event occurs on the transaction, and may generate credit costs pending recovery in a subsequent transaction. Most taxes based on business “income” may not do so.
Moving on from tax practice to Corporate Finance and Mergers & Acquisitions (much more logical and analytical areas) provided many non-philosophical perspectives of “true profits,” insofar as those can be approximated for specific business activities.
RRS, I’ve only been in tax for twenty years (in Germany and UK). So?
Can you explain why VAT is ‘efficient’, as it increases the price paid by the consumer, reduces the income of the producer (and can even push him into losses), reduces output and hence economic activity and employment? It is swinishly difficult to calculate, and getting the VAT wrong (in Europe, at least) can make the difference between a profitable transaction and a total disaster.
As against corporation tax that is based on profits per accounts (the least bad measure thereof, let’s not bicker about add backs, disallowances, carry backs etc that are different in each country) and hence not levied on profits that are reinvested in the business, is fairly easy to calculate, does by definition not put people out of business, does not distort business decisions (a good pre-tax decision is usually a good post-tax decision) etc.
What have I missed?
Surely our starting point should be not what we are paying in tax or whatever the particular tax is called but rather WHY we are paying it in the first place.
Those of us opposed to sitting back and accepting whatever tax increases or new taxes which are imposed – and that must be everyone – should be united in expressing that opposition and encouraging others to make it clear that the ballot box will be used to prevent government excesses.
No national or local tax increase above the rate of inflation should be allowed. We have to live within our means why shouldn’t governments have to do the same?
I’m with Mark Wadsworth and Milton Friedman on this one. Land Value Taxes are the only rational choice.
The old granny bogey goes out of the window once the tax has bedded in and the occupant is aware that she needs to pay a percentage of the market value of whatever land she occupies and has a working life free of dead weight taxes to save for retirement.
As the supply of land cannot vary with price, LVT causes no economic inefficiency, something that isn’t true of taxes on labour or capital.
Hmm, so with this Land Value Tax, what we’re saying here is that we nationalise all the land in the UK, and charge people rent to stay on it, and if they can’t pay that rent we evict them. That’s libertarians who believe in private property doing that, is it?
Let’s forget grannies and think about farmers. Farmers tend to have a lot of land and be rather dependent on it. So, if they have a bad harvest and can’t pay the LVT, it’s tough titties off to the workhouse for you Giles, I don’t care if it’s been in your family since the Norman Conquest, it’s ours now, cheerio, is it?
No, I remain to be convinced on that one, I have to say. I’m sticking with my universal corporation tax, me.
Ian B, I had intended that the word “silly” applied not to the concept of selling one’s services, but to the “one-man business” phrase. However, in retrospect I think I should not have used it, because your point is a serious one, and I apologize.
However, I still stand by my statement that the laborer can no more “demand” a wage increase than a manufacturer can force a price increase. Both are subject to market forces which are beyond anyone’s control. That is why I think the corporate tax is the worst form of taxation, because no one can forecast where its burden will fall (indeed, it may affect different “constituencies” [if I may use that term] at different times). It is taxation by luck rather than by design, which I find even more objectionable than taxation in general.
Be that as it may, this whole thread has drifted off topic into a discussion of which type of tax is most “efficient”. That was not the point of Brian’s original post, in which he was objecting to the Taxpayers’ Alliance focusing on governmental revenue enhancement rather than spending restraint. I have already stated my view (at 1:43 PM); is anyone else interested in the topic?
Ian B, I wouldn’t call LVT nationalisation as nationalisation implies to me a situation where the state is exercising control over an asset, not just taxing it. Having a planning system is more akin to nationalisation. LVT is nationalisation of land only to the extent that corporation tax is nationalisation of corporations or income tax is nationalisation of people. I don’t believe that land (and by the same token the air and the sea) can ever be absolute private property, but that is a separate issue.
Farmers are dependent on land. They are also dependent on diesel to fuel their machinery. If oil prices go up, they might have to get out of farming too. It’s unpleasant for the farmer, but that’s the effect of the free market.
Any tax has the potential to force weaker players out of business, so picking out of couple of specific examples where LVT would do that doesn’t really prove much. The key difference with LVT compared to other taxes is that, so long as the tax is set no higher than the market rent, it wouldn’t have any negative impact on the level of economic activity, as the supply of land cannot reduce in response to the tax.
Except a person forced off their land by a flat tax levy isn’t an effect of the free market, it’s an effect of taxation and the government demanding a rent on that which the individual supposedly owns. It’s no better than demanding a flat tribute payment of every citizen, except we’re being more unfair here because the LVT (if the sole tax as I think it is suggested it should be at least by some) shoves the tax burden entirely onto one class- the landowning class- while giving everyone else a free ride. Which means besides all else that everyone else will vote for higher taxes on the landowner. Which is a nice rent seeking opportunity.
I’ve read about LVT, but it seems to be predicated on a slightly antiquated worldview in which land possession was more significant in pre-industrial agrarian economies. Very few people work on the land or have to grow their own turnips these days. The correlation to wealth is very poor. A person can be an investment banker, live in a rented flat, and be as rich as Croesus. Or at least they could until last week, anyway.
A profit tax, like a corporation tax, OTOH can’t force anyone out of business, because if they’re only breaking even- or hanging on for dear life running down their savings- they won’t have to worry about the taxman, at least.
What Paul says.
Laird,
Isn’t IanB referring to “demand” as in “the law of supply and demand”? Although usually the labour market is looked at the other way round, and this would be classified as a shift in the supply curve for labour rather than demand for wages. The “demand” emerges from the workforce as a whole, and is expressed in difficulty with recruitment and retention.
To answer the original point, cutting taxes will never be a popular policy until the economic argument for it is familiar and people understand why it is to their advantage. I’ve found that when telling people about the economics, that it is so against their intuition about the way the world works that they simply cannot believe me. It sounds like obvious nonsense to them. You have to sit down with them for an hour or more, drawing graphs, before they can even understand how it could be possible.
The socialist economic world view is deeply embedded in the prevailing meta-context. I have seen no sign of that situation shifting – if anything, it’s getting worse. Education – in economics, statistics, science, liberty – is the problem.
Forgot to mention… I don’t see any reason why not driving businesses bankrupt with taxes is any more valid an argument than not doing the same to individuals. The reasoning seems to be redistributive, transferring from profitable companies to unprofitable, rather than from rich individuals to poor ones. If you want to encourage economic growth, shouldn’t you be arguing the reverse?
(And note, “profitable” doesn’t mean “big”, so this shouldn’t be a barrier to entry.)
I’m not actually proposing such a reversal (it was more of a question than a proposal), but it isn’t clear to me what function you all think the tax policy should serve. To maximise revenue, cost-benefit, business growth, or wealth generation. Or perhaps some concept of justice? What are we after?
Politicians are simple creatures.
We should point out the obvious logic-
IF lower taxes = more revenue, THEN zero taxes = infinite revenue!
You never know, they might fall for it!
Ian:
Yes, but his landlord is paying LVT, and is rolling the cost on to him, as well as his other tenants. Thus everyone ends up paying the LVT.
@ Pa A, explaining the merits of tax cuts to people is difficult. Or even persuading people which are the worst taxes, which are not so bad, and which are possibly beneficial. (see above)
What is easy is pointing out that in this country, the gummint spends an average of £10,000 per person. Tell people this simple verificable fact and then ask them whether their family is getting value for money.
@ Alisa – the merchant banker is ALREADY paying for the full rental value of the land (plus Council Tax, let’s assume). If Council Tax were scrapped and the freeholder asked to pay LVT, it is highly unlikely that our merchant banker’s total housing budget would change, i.e. his rent would increase by the same amount as his Council Tax used to be.
I’m always saddened that politicians et al have no apparent capacity to learn from history.
Pitt the Younger showed as long ago as the 1790s that cutting excise duty not only reduced smuggling (a serious problem in those days), but increased the amount of duty collected. Tax revenues went up, in other words.
Except a person forced off their land by a flat tax levy isn’t an effect of the free market, it’s an effect of taxation and the government demanding a rent on that which the individual supposedly owns.
The key factor is that it is a charge sent according to the market rent, so it is driven by the market. The issue of whether land can be absolutely owned is a separate matter, but I don’t think there is a convincing moral argument in favour of it and UK law doesn’t recognise it.
Which means besides all else that everyone else will vote for higher taxes on the landowner. Which is a nice rent seeking opportunity.
I’d say it’s the opposite. Landholding is possibly the biggest source of economic rent. LVT reduces or extinguishes it.
I’ve read about LVT, but it seems to be predicated on a slightly antiquated worldview in which land possession was more significant in pre-industrial agrarian economies.
Land possession is still arguably the largest driver of the UK economy, through the housing market. The downturn that is currently being driven by over-inflated house prices is good evidence of that. The difference between then and now is that urban land has increased in significance compared to rural land.
A profit tax, like a corporation tax, OTOH can’t force anyone out of business.
I believe it could. It presents a dead weight loss across the economy, which will reduce activity, it reduces the scope for re-investment in a business and in fluctuating businesses it reduces the scope for saving profits to cover for a downturn.
I can see an argument for a corporation tax, but only in the absence of a tax on individuals or partnerships. It could be argued that would be a charge for a benefit provided by the state; if it were possible to operate without paying tax, but people still chose to incorporate, it would be an indication that they consider the extra cost to be outweighed by the benefits they gain, such as limited liability.
Pa Annoyed said:
That is right on target.
It is a mistake think of tax policy as being separable from non-tax and non-revenue goals. All taxes have non-tax effects, and must be taken into consideration – to the point that in part they should be expressly aimed at. Since the proper ultimate goal is a no-tax no-regulation no-welfare society, the best tax regime is one that helps pay the bills in the short term while also doing its bit to further that long-term goal of eliminating the said bills. So, which actual tax will do the job is dependent on the present state and what is judged to be the best way to get from that state to the rightful end state. Discussion of whether cutting taxes lowers or increases revenues, or of some tax’s effects on employment or investment, is not sufficient alone to judge any tax or rate thereof. For all we know, a paperwork burden or deadweight loss in the near future may well be worth it if the tax that generates it helps advance its own eventual elimination in the further future.
At the same time, naturally that tax regime has to be combined with equally well-judged changes to other government programs and policies. Likewise, the particulars of those changes will themselves have to be judged in the context of the available funding over the course of the entire reform period. In other words, the entirety of policy, not just tax policy, will have to be considered and altered in an integrated fashion.
For instance, in addition to proper labour market reforms – which alone would be controversial because this would entail some jobs being paid less than they do now – a consumption tax combined with abolition of all income tax and capital gains taxes could see a major incentive towards more investment (I am aware of Rothbard’s critique). That increase in investment (if it occurred to a suitable degree) will increase the demand for labour, helping mitigate reductions in wages paid at the lower levels. In that way it would make labour market reform easier. It could also be integrated with other reforms, such as privatisation of pensions and unemployment insurance.
Maybe something like that would work for the UK, or maybe not, I don’t know, but I do know that an isolated “just lower this or that tax” attitude isn’t sufficient and that there is no one-size-fits-all recommendation to be made. I do not know enough about the state of the UK economy and regulatory regime to say anything more concrete, so I wont.
JJM
Well I personally believe that ownership of any type of property and possessions should be as near to absolute as possible. The right to say “Git orf MY land” is basic to freedom, I think. Englishman’s home, his castle, and all that. I don’t think there’s any moral reason to consider land any differently to any other possession, nor to presume that others have rights to it. You end up in that awful morass of leftie “stakeholderism”. Once a person owns land they should be as free as possible to do with it what they wish; leave it as wilderness, build a bungalow or a church or a mosque on it. If you’re worried about that land use affecting others, you can have very simple zoning laws regulating industrial use, there are the civil courts to control my pollution poisoning your land next door, and personally I’d like a contract system for land use change (you have to contract with your immediate neighbours, grossly simplified, but that’s getting into an entirely other issue so we’ll leave that there). Anyway, the basic fact of who owns the land should be indisputable and basically absolute, and I quail at the thought of the government being effectively the national landlord.
Which is fine until the area granny’s house is in gets a new rail link to the City and goes upmarket, and suddenly her LVT rent goes through the roof, turning an affordable tax into an unaffordable one. No doubt that’s okay, she can sell the house to a Tarquin and Jemima and spend the proceeds on living in a crumbly home that doesn’t reek too badly of piss, right?
Point is, its being a market-set tax makes it worse, since the payer has no direct control over its value. Your tax rate is set by everybody else. That is Not Good.
Those rents are market rents. We should leave them at that.
The reasons for the house price bubble are complex, but driven largely IMV by central banks’ need to pump out credit to increase the money supply, by severe restrictions on building &c. In otherwords state market manipulation. It’s not an argument for LVT.
That’s true of all taxes, they’re all a dead weight on the economy. If we’re to have taxes, let’s at least have taxes based on simple general principles and some kind of reasonable sharing of the burden, rather than hitting some people with them and leaving others whose wealth is just as great or greater completely outside them.
Indeed. I’m saying everyone would pay a “corporation tax” and that would be it. It would be effectively a tax on differential wealth increase. Which, like all taxes, would be sucky, but less sucky than having to pay tax on what you already have, every year, or on income.
Mark,
Yes. But having told them the government spends £10K a year per person, they then don’t have any idea what government services cost to be able to judge whether it’s good value. How much do the roads you actually use cost to build and maintain per year, for example? How much of that £10K gets spent on paying taxes straight back to government and would therefore not count in the hypothetical taxless world? And of course some pay more and some pay less, some get more and some get less, and value for money isn’t the issue anyway.
If you look at it from the point of what else you might (or would have to) spend that money on, given people’s intuitions about the (heavily taxed) price of things, actually £10K/person probably will seem like good value to many people. The problem is that this thinking involves the zero-sum fallacy – that you’re just shifting money about, that you have a fixed amount and you are just choosing what to spend it on. What it misses is the potential for wealth generation this money has. That you can raise the average wealth of society, and imagining what effect that would have.
It is easy to think of government as just another service provider, like any business, except that payment is compulsory. And then compare value for money with what a private company could offer currently. Looked at that way, the difference isn’t huge (or if it is, it would take some time and effort to prove it), because you are comparing generally similar activities. Its inefficiency trades off against its privileges.
But the primary issues I see with taxation are that the disconnect between what an individual pays and what they get distort the markets (which therefore provide the wrong things), and that wealth redistribution makes the country poorer. Both of those are highly unfamiliar concepts to the average man in the street, and not conveyed at all by the £10K/person figure.
People think capitalism is only good for greedy rich people, inequality is bad, and that there is a fixed national pot of money that we just have to choose how to spend/share. These are virtually axioms to many people, and you would have to be mad or evil to disagree.
People tell me Communism lost in 1989. I think the reports of its death have been greatly exaggerated.
Well I personally believe that ownership of any type of property and possessions should be as near to absolute as possible.
I agree, I just don’t think that land ever qualifies as private property. You should have the absolute right to the fruits of your labour or the fruits of other people’s labour which have been obtained by free exchange. Land is pre-existing, so, as far as I am concerned, it doesn’t qualify as legitimate private property. What approach would you take to the air? Is that something which you would consider should be privately owned?
Anyway, the basic fact of who owns the land should be indisputable and basically absolute.
In UK law, all land is the property of the Crown, so it is already held in trust for the benefit of the nation and as such LVT would fit fairly neatly into that framework.
If you’re worried about that land use affecting others, you can have very simple zoning laws regulating industrial use
I’m not especially. I don’t want LVT to be used to control land use. In fact LVT would reduce a number of those issues. If your actions make the land I am occupying less valuable, then I would pay less LVT. It would be an automatic system of compensation.
Point is, its being a market-set tax makes it worse, since the payer has no direct control over its value. Your tax rate is set by everybody else. That is Not Good.
So what if granny can’t afford the heating bills because of an increase in energy costs, which she also has no direct control over? Do we then cap and subsidise fuel to ensure granny doesn’t have to downsize? Your point is valid, but it is more anti-free market than anti-LVT.
That’s true of all taxes, they’re all a dead weight on the economy
It isn’t true of LVT, because it doesn’t reduce the supply of what is being taxed.
Indeed. I’m saying everyone would pay a “corporation tax” and that would be it.
That wasn’t what I suggested. I outlined a scenario where corporations would pay tax, but not individuals, because, as with landholders, they receive a specific benefit from the state.
Ian B “The reasons for the house price bubble are complex, but driven largely IMV by central banks’ need to pump out credit to increase the money supply, by severe restrictions on building &c. In otherwords state market manipulation. It’s not an argument for LVT.”
Low interest rates and low inflation are agreed to be A Good Thing. The problem is that low interest rates and easy credit get diverted into land price bubbles (and away from the productive economy).
Ergo, even if interest rates were ‘too low’ and we had LVT, land prices would stay low and all that cheap credit would go into making things, investing etc. And if land prices went up, well hooray, that’s more LVT (a non-distortionary tax) and so other taxes can be redued, preferably to nil, if you follow Paul’s logic to its ultimate conclusion.
Tax cuts are simply a way of allowing people to keep more of their own money. Why should we all pay the government loads more of our money to enable it to keep 800,000 extra public sector staff in good pay and superb pensions? We’ve not got anything for all this money so why shouldn’t we have kept it ourselves?
“I outlined a scenario where corporations would pay tax, but not individuals, because, as with landholders, they receive a specific benefit from the state.” – Paul
This ignores the simple fact that corporations do not pay taxes, only people do. Corporations are legal fictions, merely vehicles for the aggregation of capital and conduits for cash flows. It comes right back to the “incidence” argument I have been making throughout this thread. No one knows, no one can know, who ultimately bears the burden of that tax. Not a sound basis for tax policy.
Leaving aside the issue of how much of a nation’s wealth its government should control (I think we’re all pretty much agreed on that point, but it’s a separate matter), whatever spending there is must be funded somehow, and that means taxes. All forms of taxation are inherently less fair to some people than to others. Property taxes (or LVT) burden land; income taxes burden labor; sales and consumption taxes burden savings. There is merit to the idea of having a mix of all types, to (more or less) equalize the unfairness.
Laird – This ignores the simple fact that corporations do not pay taxes, only people do. Corporations are legal fictions, merely vehicles for the aggregation of capital and conduits for cash flows.
Agreed. The distinction I was trying to draw was between the people who operate as a corporation and those who operate as a sole trader or unlimited liability partnership.
Those who operate as a corporation enjoy specific benefits from the state (limited liability, etc.) which the sole traders and partnerships don’t. Perhaps it would have been clearer if I’d said that you could justify taxings corporations so long as you didn’t tax sole traders or partnerships.
The tax would then become a market based decision. The government would set the tax rate and it would be down to the individual to decide if the benefits of operating as a corporation outweigh the extra costs.
My apologies for the previous transgression of digression.
The point I was trying to make is that regardless of format, every form of taxation is politically structured for the politically determined functions of governments.
That results in economic perversions directly correlate with the social perversions (if one is of a libertarian bent).
“Rate Changes,” marginal or full, are meaningless outside the context of the total tax structure (investment allowances, depreciation rates, etc, etc.). In the end, it is the functions of governments that determine the requirements for funds and the structure of taxation and public borrowing.
Some forms of taxation may make these effects more transparent, obvious and directly burdensome to the electorates which is probably the only way to mitigate those functions of governments as instruments of intermediation in more and more ranges of human interactions – diminishing “Civil Society.”
Just for anybody who believes Paul Lockett is arguing for sound tax policy, he is actually arguing for something antithetical to most libertarians. His website indicates he is Geo-libertarian “leaning”. They believe that all land is collectively owned by the community and must be held as a commons with members of this collective paying rent if they want to use any part of it exclusively. In other words, any improvement you make and personal property you own is indefensible unless you pay ongoing rent on the underlying land to keep society at bay. Granny may ‘own’ the house but she is forbidden to exclude anybody unless she continues to pay rent to society. I stopped reading his comments after I realized where he is going with this.
I have absolutely zero room for any philosophy that denies a right of place in such a fundamental way.
From the wikipedia link: [my underscore]
That’s right. Ownership of capital goods is justified by the ‘owner’ using them for the good of others. The purpose of Geo-libertarianism is to pry land away from those not using it ‘correctly’ and assign it to someone who will remove maximum value from it. It punishes investment and rewards consumption. The same argument could be used to justify FDR taking everybody’s gold. For that matter, it is the reasoning behind central bank monetary policy – pry the money away from savers and lend it to people who will put it to ‘better’ use. Can you imagine the magnitude of the regulation that would be necessary to prevent the entire planet from turning into one giant churning mass of strip mined, toxic waste-abandoning plunderism when land is passed around for top dollar? Fannie Mae and Freddie Mac are pikers compared to the damage and subsequent remedial legislation that would ensue. Among other forces, that legislation would have to go into enforcible details of how people must not deliberately devalue land they are renting to lower the market value and hence, subsequent rents. ‘Poison pills’ would abound.
Without security of land ownership at some level, security of any property beyond what you can carry is impossible. You have to justify your right to your personal wealth by perpetually paying society rent to keep it somewhere. A simple act like stockpiling food for an emergency would require one to pay society for that privilege. Once you had a stockpile, the ‘free’ market could just bid you out of storage space to force you to dump it. To prevent that would require a board to fix the ‘fair’ price of rents. The very idea that I should pay extortion to society relative to how much it covets what I have is vile. Whenever you see a hyphenated anything, it is a pretty good guess that it is in fundamental opposition to whatever it modifies. What this Geo-libertarianism defines is not so very different from what was in the Soviet Union. How’d that work out? Geo-libertarianism actually shares its aims almost exactly with socialism. The society’s will is perpetually reassigning property to the society’s best interests. The only real difference is that Geo-libertarianism uses auctions to put a price on access to the collective’s property more efficiently than central planners can.
The government owning all the land, providing little harm or help to the people provided they pay their rents. Hasn’t this been tried before? But I think it had a different name. The old way it was administered by God’s anointed ruler on earth, this version substitutes “society’s” for “God’s”.
People almost universally take care of what they own. The do what they can to maximize its value to themselves. Geo-libertarianism is nothing more than covetous greed in a misleading wrapper.
Back to the topic (which I think is the goals and accomplishments of tax reduction advocacy), all taxes have an effect on the market and therefore, on society.
Taxes on things owned – investments of all kinds, will discourage saving and investing and encourage indiscriminate consumption. This will (has) lead to a very brittle economy.
Taxes on consumption will skew the balance between savings and investment versus consumption in the opposite direction and will lead to a fundamentally very liquid but lower velocity economy.
Taxes on assets and savings will skew the population towards insolvency and dependency, taxes on consumption will skew the population towards solvency and independence.
These consequences are the extremely important precursor to the long term goal of bringing about general receptiveness to policies of personal liberty and responsibility.
All taxes skew the economy away from real values. Since we must have taxes they should encourage savings and independence and build a liquid economy so we are not depending on central bankers to keep infusing more and more inflation in an effort to maintain liquidity.
And, psychologically speaking, putting the tax at the time and place of consumption helps the taxpayer to understand in a very personal way that government is competing with them to spend their own money. Taxes on consumption are always the most accurately perceived by those paying them. That is why so many taxes are deliberately designed to be incorporated into the cost of the product and not tacked onto it in a way that the consumer can measure.
Midwesterner, you are deliberately misquoting and twisting the whole Geolibertarian philosophy. I might as well say “Conservatives are all heartless” or “Libertarians encourage drug taking and prositution”. Under GeoL, you still have security of land tenure, you just have to pay for it. No different to being a tenant. The flip side of this is that there are NO other taxes, especially no taxes on income (which sets a natural upper limit to the size of the state!!).
Like I said, if Land Value Tax is good enough for Adam Smith, David Ricardo, Winston Churchill, Henry George and Milton Friedman, it is good enough for me.
Midwesterner, I don’t think there is much point trying to disagree with your belief that yours is the one true way of libertarianism, because that’s clearly a matter of opinion. Nor do I think there is much point discussing the underlined section in the wikipedia article, as what is said in that section is something I don’t agree with and for all I know it could have been put into the article as a poison pill. I will address some of your other points.
They believe that all land is collectively owned by the community and must be held as a commons
That statement is self-contradictory. I agree in part with what you say about common ownership, but not collective ownership. Personally, I view land as something which should be treated as unowned. It is something which we all have an equal right to access and the only way anybody should be able to gain exclusive rights to it is by getting everybody else to enter into a free contract to cede their right of access.
I have absolutely zero room for any philosophy that denies a right of place in such a fundamental way.
Geo-libertarianism doesn’t deny a right of place, it asserts a right of place. It acknowledges an equal right to a place to live and store property. Without that, the implication is that some can be denied a right of place by others.
The purpose of Geo-libertarianism is to pry land away from those not using it ‘correctly’ and assign it to someone who will remove maximum value from it
Completely untrue. There would be no requirement that the occupant removes maximum value from it, just that they pay market rent.
Geo-libertarianism actually shares its aims almost exactly with socialism. The society’s will is perpetually reassigning property to the society’s best interests.
It isn’t reassigning property, it is reassigning price. Your objection seems to be that the free market price mechanism represents the combined will of society. An objection to a market mechanism sounds far more like a socialist belief than my approach.
A simple act like stockpiling food for an emergency would require one to pay society for that privilege
If were able to get some free land to stockpile my food and other property where I could easily access it, land rent wouldn’t be an issue.
Fine. You’ve thrown down a glove. What did Mid say that was false?
We already have that. I already paid for my ownership of my land when I bought it from the previous owner.
Or, are you trying to claim that merely buying something and paying for it does not convey ownership and control? I can think of a term to describe such a philosophy, but the word I have in mind doesn’t rhyme with ‘libertarian.’
So, GeoL is like libertarianism, only without that insistence on a right to acquire, enjoy, and dispose of property without the assent of the rest of the community? I can think of another word for that, but my mom would have washed my mouth out with Dial for using it.
Mid, so you are saying that sales tax/VAT is preferable to other taxes?
I think that kind of ignores the fact that people buy land precisely because they don’t want to be tenants. Tenancy results in insecurity of land tenure, because as I said before, if you can’t keep paying the rent, then you’re out. People buy land specifically to avoid that insecurity, and geolibertarianism wants to remove that right from them. I fail to see how that can be classed as “libertarian” at all.
Or, are you trying to claim that merely buying something and paying for it does not convey ownership and control?
It depends on whether the person selling it to you owned it in the first place. I’m also not aware of any jurisdiction where landholding conveys absolute ownership. It certainly isn’t the case in the UK.
So, GeoL is like libertarianism…
I’d say it is libertarianism, but I wouldn’t claim to have the right define what libertarianism is. It’s a broad term that means different things to different people.
…only without that insistence on a right to acquire, enjoy, and dispose of property without the assent of the rest of the community?
But without the right to a share of land, there is no right to enjoy property at all. I don’t see how a state created monopoly over a location is an inherently libertarian principle.
Alisa,
I am not really family with the intricacies of VAT. My impression of it is that it tends to be invisible to the actual consumer of the finished product unless the amount is retained as a running total and disclosed at the point and time of sale of the finished consumer good or service. If I am correct about VAT, I consider it a ‘bad’ tax. Yes, I am saying that an itemized, point and time of sale sales tax is preferable to other taxes for very many reasons including both positive and negative moral incentives to the taxed and tactically, the pursuit of liberty.
Mid, thanks. You are right about the VAT, at least as it works in Israel.
@ IanB Tenancy results in insecurity of land tenure, because as I said before, if you can’t keep paying the rent, then you’re out. People buy land specifically to avoid that insecurity, and geolibertarianism wants to remove that right from them.
And people who buy a property with a mortgage have better security than a tenant? Worse, I would have thought, because they can end up in negative equity, unlike a tenant.
How is paying market rent for use of an asset worse than having random amounts of your income taken away in income tax, payroll taxes, corporation tax and sales taxes?
I was more from the Milton Friedman pragmatian school of thought than a Geolibertarian before we started this thread but I probably am tending more towards fundemantalist Geolibertarianism now.
Anyone who takes out a loan to buy anything puts themself at financial risk. The difference is that once you’ve paid the mortgage off, your land is yours. There is an end to the payments and then you own something. That is the security. Of course they’re at risk while they are paying the mortgage. And what of someone who can pay straight cash for the land? They’re never at risk.
Negative equity is neither here nor there. It’s a complainer’s euphemism for “I hoped to make a killing buying this house at an inflated price, now it’s worth less than I expected and I want sympathy for my speculative loss, and I won’t vote for politicians who won’t promise to reinflate the property bubble”. Whatever the land ends up being worth, it’s still yours. You pay the price you agreed to pay when you bought the house/land. It was your job at the time to decide whether it was a worthwhile deal. Negative equity only matters if you were planning to sell it at a profit later on.
The whole mortgage sytem is lunatic anyway, but that’s another matter.
Taxes are sucky in general, we all agree about that. But you’re being entirely disingenous. LVT isn’t a “market rent”. It’s a government rent on something you supposedly own outright, which effectively as a consequence nationalises all property and make the government the national landlord. That’s pure socialism. And frankly, the justifications I see here are no better than announcing a rent on chairs, because of the iniquity of “chair inequality”. Some people have more chairs than others, so it’s the government’s job to redistribute bums on seats.
Ian B- LVT isn’t a “market rent”. It’s a government rent on something you supposedly own outright
There may be some country I’m not aware of where there is a concept of outright land ownership, but it doesn’t apply in the UK, where legally, the land is the property of the Crown. We are all tenants already.
And frankly, the justifications I see here are no better than announcing a rent on chairs
The key difference being that you’ve made the chair or obtained it from the manufacturer through exchange. At the moment there is no way to increase the surface area of the earth and create new locations by your own actions.
That’s pure socialism
I just don’t see the reasoning. By the same token, I think the air around us should be a common asset to which we all have access and if someone wants to gain exclusive use of it, they should have to come to me and get my explicit consent before they can stop me breathing it. Do you consider that to be a socialist point of view? I ask in all seriousness, because I’m aware of some people that believe the air should be privatised and to them, I possibly am a socialist.
This makes no sense. The mechanism you propose is that the government claims jurisdiction over all land and then sells exclusive use of it for an agreed upon duration. We already have that. It is called a bill of sale.
If anybody challenges your place, you have to share or pay society a fee. By plan, all places are subject to rent or else share. The only way to get away from an annoying (or worse) enemy is to pay society some extortion money to let you keep them away from you. It is charging rent for privacy.
So let me get this right. Somebody rents a section of forest for a year. Removes all the lumber. Lets their rent lapse. There are no taxes. And this is a good thing why? How is this an improvement on ownership and the stewardship that people seeking a long term profitable enterprise exercise?
Wait a minute. How did renting turn into ‘free land’. I feel a Burton Cummings song coming on.
Or maybe The Five Man Electrical Band.
Ah, now we’re getting a little closer to what the underlying values are. Even lending is evil if ‘the man’ makes a profit.
Of course there is. I’m a native of Chicago and increasing the surface area of the earth is a high (literally) art form there.
The LVT has always been intended a tool of social engineering. Specifically it was intended to bankrupt those member of the English upper classes who refused to become middle class. When Lloyd George briefly passed one, no-one thought it would bring in any revenue (it didn’t), it was about power.
That many classical liberals advocated it is not an argument for it, but a hint you should, finally, take a more sceptical look at classical liberals.
Compare and contrast two situations:
Industrialist and Liberal Party Member I want to buy your land so I can stick a factory/mine on it.
Country squire Get lost townie.
**
Industrialist The value of your land has been re-assessed. You now owe in LVT significantly more that you get in rent. Sell, or I’ll crush you.
Squire OK
The purpose was class war. In slightly less pejorative terms it was using fiscal policy in order to increase economic “efficiency”. In Aristotelian terms, using the law to make private property serve public ends.
What they forgot (or rather never believed in) is that the ultimate purpose of economic policy should be to maintain conditions of freedom.
It all got swallowed up in the confusion surrounding WW1; one of the few unambiguously good things to emerge from that war.
The mechanism you propose is that the government claims jurisdiction over all land and then sells exclusive use of it for an agreed upon duration
The mechanism I propose is the government acting as an agent to collect market rent and distribute it per capita, after taking as little as possible to cover its costs. The ideal would be that each individual would negotiate with every other individual to cede their ability to access a given plot of land. That ideal might work in a hypothetical situation with a single digit population, but with a population of millions and more people to negotiate with being born every minute, it just wouldn’t be practical. The g-l approach is a practical way to achieve that result.
Somebody rents a section of forest for a year. Removes all the lumber. Lets their rent lapse. . And this is a good thing why?
If the forest was planted before they bought it, they would have paid a premium to the previous occupier above the value of the land. By stripping all the forest, and taking it down to bare soil, the premium would be reduced. If you exercise band stewardship of what is on the land, then you reduce the available sale price.
I’m a native of Chicago and increasing the surface area of the earth is a high (literally) art form there.
A building isn’t part of the surface area of the earth. It is something that sits on the surface of the earth.
Here’s what Rothbard said about Georgists.
I’m not putting it forward because I agree with all of it. But people may be interested in using or answering the specific arguments.
I have to say, it’s a new idea on me, and while it looks completely impractical and very likely to be based on incorrect economics to me (I can think of half a dozen problems without even trying), I also have to admit that I still can’t figure out precisely what it proposes, or precisely how they say it would be operated. Without understanding it, I can’t make a judgement.
It would appear that granny can’t be kicked out of her house if she doesn’t pay the rent, but that Farmer Jones can move his pigs in to her house to live with her if she doesn’t. Or something.
How does it handle the tragedy of the commons? Does it tax land or rent? (Many of the moral arguments made for it are against rent, which is not the same as land.) How is it not following the Marxist fallacy of assuming that only material manufacture counts as “productive labour”, that cannot be substituted? How is the tax calculated, without a market to set prices? When the excess (after government has been paid for) is returned, how is it distributed? To everyone in town, everyone in the country, everyone in the world? Does this not imply that people with less land than the average can get a permanent net income from those with more land? How do you deal with exclusive use of floors in multi-storey buildings? Or tunnels, or airspace? Is beauty in one’s surroundings a ‘natural resource’? Do you pay extra rent if you cast a shadow outside your boundaries, or make a smell, or are ugly or otherwise repulsive, and how is that measured? What stops people ignoring land ownership entirely and gaining exclusive use by other means? (Contractual, say, or by means of additions and ‘improvements’ built on the land.) Or paying for exclusive ownership of a 1 inch wide perimeter which others are forbidden to cross, but “allowing” free use of the land in the middle if people can teleport or tunnel there?
There are lots more questions, but it would take too long to go through them all. I hope regulars will pardon my taking the idea seriously, and potentially extending this argument. It’s off-topic I know, but I’d like to be sure of what this position is, and not judge a caricature.
Technically you are correct, but multistory buildings do increase the number of people that can share the same land area (although that number is finite), so for the purpose of this discussion it is part of the surface area.
Just to put this in perspective, if we posit a radically slashed government budget of 100bn, with the surface area of the UK being around 60M acres, the LVT would work out to a mean value of about £1600 per acre.
For the current budget, around 600bn, that’s 6 times that which is about £10,000 per acre. In the old money.
Technically you are correct, but multistory buildings do increase the number of people that can share the same land area (although that number is finite), so for the purpose of this discussion it is part of the surface area.
Alisa,
“multistory buildings do increase the number of people that can share the same land area (although that number is finite)”
Note that “exclusive use” of land is not confined just to the bit you actually stand on. Millions of shareholders can share the use of a factory, themselves living all over the world. But multi-storey buildings do effectively increase the land area, and allow distinct cases of “exclusive use” for each floor. You can also ask about overhangs – where the upper storeys are broader than the ground floor. Or even buildings on stilts, or with cellars that extend beyond their surface extent.
If you grant public access to one floor, is the rest rent-free?
But having built a building on land, which the builder unquestionably owns, how is it possible to grant public access to the land without granting access to the building? Development of land mixes ones own labour into it, so the two become inseparable. If you default on the rent on one, what happens to the other? This seems like a critical point to be answered.
While we’re all having a go…
I think this debate illustrates something I’ve a-musing on of late due to a debate or two in Another Place with those of the socialistic tendency. Libertarians are very focussed on economics. We spend a lot of effort trying to explain to an uncaring world about how efficient our proposed libertarian utopia would be. Well there’s nothing wrong with that at all; free markets are indeed the most efficient economic model. We’re all agreed on that. But it leads us to inadvertenly reverse cart and horse perhaps, and fall into an approach that it is the goal of society to be efficient, and that we support this or that policy because it will work towards that goal. “We should cut taxes so the economy will work better” kind of thing. I think that that tends to result in losing sight of what I would see as the more principled aspect of the thing.
We desire freedom for individuals because that is a Good Thing in itself. It allows them the right to freely trade, and to accumulate wealth, but they are not under an obligation to do so. Yes, in a libertarian society the basic requirement of self-sustainment would lead people to interact in economically advantageous ways, but there is no obligation to seek wealth or efficiency. A person is entirely free to allocate their time and resources as they wish; if they wish to only work enough to secure a basic lifestyle, and spend the rest of the time painting watercolours, walking the dog and watching TV, that is fine too. There would be no Liberty Police marching around berating citizens for not maximising their economic output. There is no social goal of increasing efficiency and wealth and economic output; that’s something that would simply just happen because folks are the way they are and tend to like accumulating stuff.
So this is why I would say we should be extremely suspicious of this Geolibertarianism. It is social engineering (as Gabriel said) and even if we ignore the class war roots of it, it is obligating citizens (in this case landowners) to maximise their output or Face The Consequences. In this case it is demanding that they maximise the output of a possession- land- but it is the same thing as making this unreasonable demand on any other of their resources, be they time or possessions. It is saying that a person who chooses to use their land as a garden, generating no wealth, rather than building another dwelling on it, or a jamjar factory, or whatever, will be penalised. And the justification for that penalty is The Good Of All.
It’s easy to caricature libertarians as being obsessed with trade and as if we would seek to stop people acting in other ways, such as giving gifts or collaborating for a common good (e.g. Open Source Software)- that we would demand them to slavishly follow market forces. But that isn’t true. Libertarianism is about allowing people to live as they wish, and their obligation is to themself. To force a person to maximally exploit their land is no better than forcing him to stop wasting his time typing rubbish on Samizdata and whip him until he draws another rude cartoon with economic value even if he’s not in the mood right now, “for the good of society”. To deny somebody the right to “waste” their land is no different to denying me the right to “waste” my time.
Ian B,
I think it’s worth being careful not to mix up the “public good” argument that has been made for GL with its entire justification. I was reading Mill’s take on it an hour or so ago, and he proposed something of the sort on the basis not of the public good, but on the basis that all taxes caused damage, and his question was what caused least damage. His argument was for taxing “unearned” income, as it would not affect the economy, and he classified land rent as such.
This is an error of economic thinking that we only corrected in fairly modern times, so I think I can forgive Mill for making it. But the fact that it is the same mistake the Marxists made doesn’t necessarily make the theory Marxist. There are several different moral arguments made – I just can’t disentangle which are still held and for what. Like most political movements, it seems to have evolved over time, and not all its advocates fully understand it.
And “efficiency” does not mean merely in material production. Leisure time is an economic good of considerable value, and producing it is one of the successes of our economic system. There is a market in it, as with all other goods. It was another of Marx’s errors, in his labour theory of value, to have not recognised this.
Pa, what I was saying is that anti-libertarians would characterise libertarians as being so hell-bent on economics that we’d build factories on every garden, so to speak, whereas in reality libertarianism doesn’t say that at all. If a garden has utility to somebody, if just its owner, that’s fine.
It seems to me the LVT does make that mistake by trying to force garden owners to build factories on them. If I create a garden it will probably have a low economic value. I may have some land, and create the garden for free use by the public, and only need a relatively small income to maintain it, which I may donate from my other economic activity or I may run a tip jar. Whatever. Once I’m slapped with LVT, I’m forced to look for more profitable uses for the land because my garden has become economically unviable. That is the fundamental stated purpose of the LVT so far as I can see.
Ian B,
Your garden is economically viable, because you’re getting leisure enjoyment out of it, which is of greater economic value to you than a factory. (If it wasn’t, you’d build a factory yourself.)
There is no shortage of land for factories. Their cost is mainly due to construction and infrastructure, and the price of land has more to do with road access and planning permissions than it has to do with raw area. The land tax would only cover the value of the bare land for a year, which will be a tiny fraction of the current price of land. (Since land prices effectively incorporate all future rental income discounted over time.) Someone would only build a factory here rather than there if there are other reasons to do so. You could afford to devote it to leisure rather than a factory as easily under such a proposal (if implemented as the theorists claim) as at present.
The problem is, I don’t think those theorists understand what they’re talking about, and don’t understand that the cost of unmodified land is trivial. Certainly not enough to sustain government. Most land rent is for the improvements. But I can’t nail down exactly what they are talking about.
I’ll try putting it another way. The alternative approach under this new scheme would be to take the money you would have paid to buy the land, and instead put it in an investment account, and use the interest on the account to pay the rent.
The investment goes into building the factory and reaping the profits that provides the economic ‘efficiency’. It measures the value of a factory built somewhere, which is exchangeable with the value of a hypothetical factory built here. Since you paid for the garden, rather than investing the money, you obviously gain more economically from the garden. This achieves the distribution of resources of an efficient market, exactly as buying right to the land in perpetuity would do.
This is my understanding of what the justifications GLs put forward would imply. Whether this is what they really mean or intend, I’m not sure. But there’s no use arguing against strawmen that aren’t their real position, or are only minor aspects of it, which is what I think some people are doing.
You’re missing the point. I’m not forced to build a factory on my garden at the moment. I’m not a robot seeing economic efficency, which was what I was trying to say. My pleasure in my roses doesn’t have much economic value to me or anyone else; I could certainly realise more money from my garden in other ways; even by growing vegetables rather than roses. Since my garden is fully owned by me, I am only obligated to be able to fund its existence somehow; in fact I subsidise it by my other work. I understand what you’re saying about leisure having economic value; indeed it does, but basically the LVT makes my leisure (in terms of my garden) much more expensive.
The LVT is designed to put pressure on landowners to maximise the economic output of their land by making its mere ownership (in fact they aren’t owners, mere tenants of a nationalised landscape) a constant ongoing tax cost. That’s the whole purpose of the LVT. They want to force landowners to sell land to people who can afford to rent it from the state by using it in a more economically productive manner.
What they’re talking about is charging the entire tax burden to landowners, proportionate to the market value of the land. As I said before, with current UK gov. spending that would be a mean tax of £10,000 per acre per year.
There’s no logical reason why there should be a Land Value Tax any more than an Anything Else Value Tax.* There is a concrete historical reason why the idea was mooted (class war) and a whole bunch of pseudo-justifications of varying coherence (Mill was of course a very, very clever man) that have accumulated for it.
It remember reading about the LVT many moons ago and realising – to my horror at the time – that I was probably a Tory.
(I can’t really understand the mentality of people who think the idle rich need to be co-erced into productive activity through fiscal policy. It’s as if the world would be better off had Montaigne’s father forced him to go into accountancy.)
*Imagine you inherit a gold ring as a family heirloom and then the government passes a Gold Ring Value Tax, which forces you to sell it. You’d say it was absurd and wicked. You’d be right.
And the justification for that penalty is The Good Of All.
My justification has nothing to do with The Good Of All. I believe it is justified because the exclusion of somebody from land without their consent violates the non-aggression principle.
So far as I can tell you still have to buy the land; except now you have a constant tax on it too.
No. No I don’t. I just like roses, and because I own the land the cost of maintaining a rose garden is trivial. I didn’t choose the rose garden because it makes me more money than a glue factory, I did it because I want roses outside my window, not a glue factory. The LVT is intended to price my rose garden out of the market and force me to sell the land to somebody who’ll build the factory. The garden doesn’t have an income but incurs the tax cost it didn’t before. What they’re proposing is a profound distortion of land use choices toward forcing profitability.
And the cherry on the cake is that – seeing as these valuations have to be done by someone – the person buying it will undoubtedly have political connections.
**
In terms of the ethical justifications for the LVT, it all partly comes down to Locke’s silly desire to justify property ownership by rational ownership. His argument is particularly ridiculous when it comes to land and plenty of people have figured that out.
The need to exclude tradition and common sense from political argument really is a psychosis.
So far as I can tell you still have to buy the land; except now you have a constant tax on it too
It depends at what level the tax is set. If the tax was set at the full market rent, there would be no capital outlay. If it were lower than that level, there would be a purchase price, but much lower than without LVT.
I own the land
That is assuming you are in a country which is unlike the UK, where you are never more than a tenant.
The LVT is intended to price my rose garden out of the market and force me to sell the land to somebody who’ll build the factory.
That implies that across the entire country (if you’re talking at the national level) the intention is that every patch of land will have a factory stuck on it, which I don’t see being a realistic prospect.
The actual outcome would depend on whether or not a planning system was retained. If it was, I would guess it would be unlikely that a rose garden would have permission to be used as a factory and LVT would only reflect the permitted use.
Take away the planning system and irrespective of whether or not there is LVT, land prices would level out, rather than having different rates reflecting permitted use. In that situation, the factories would be more likely to end up on land already being used for profit-making purposes.
Ian B,
“I didn’t choose the rose garden because it makes me more money than a glue factory…”
Economic value is not equal to money. Get that concept right out of your head! If you want the posh word for it, it’s “utility” (as in “utilitarianism”) but it basically means how much people want stuff.
The point of any trade is that both participants profit when it comes to utility. This was Karl Marx’s fundamental misunderstanding: he thought money was wealth/value, and that because the market set a single price for a good that its value was therefore well-defined, and so for anyone to make a profit except by adding value (through their labour) was tantamount to theft. The theory is wrong, because in any trade the purchaser has a higher utility for the goods than they do the money, and the seller has a higher utility for the money than they do the goods. There is no single well-defined ‘value’ for an item – the total utility after the trade is higher than it was before, and wealth has been created. Thus, both profit from every exchange – but only when you add up utilities, it doesn’t work if you do it using money.
Your garden has an economic value, and it’s higher than that for a glue factory. That’s why people build gardens instead of more factories at present. We already live in a (approximately) capitalist economy that produces whatever generates the most value, and the market has produced gardens. Glue factory builders wouldn’t want your garden – it’s too small, has no infrastructure, and is in the wrong place. They can get better/cheaper elsewhere. There are enough sites to satisfy their needs, to the point where the price has dropped to match that for other uses. Like gardens.
Land itself (the right to exclusive use) is very cheap, compared to all the things we add to it. It’s the added extras that make up most of its value.
The fundamental problem for this scheme is that while a libertarian might care deeply about the “aggression” of enforcing exclusive use, land is in good enough supply that most people don’t, and the actual market value for it is very low.
If the proposal instead is to lump the whole tax burden on to it anyway, then all their moral justifications go out of the window. By vastly overpricing it, they distort the market and do economic damage by creating inefficiency, and they wind up taxing the fruit of people’s labour instead of only the “God given” natural resources.
Whether that’s better or worse than other taxes is arguable, but on general principles I suspect the distortion of applying the whole force in one place would be worse.
But because there are no numbers, and there are multiple inconsistent arguments for it, I don’t know if they just haven’t added it up, or if they have some other justification for this approach to taxation in mind, or what. The idea is new to me, and I might be wrong myself. I haven’t seen any answers to the points Rothbard raised, or the questions I asked earlier. I really don’t see it as any sort of disguised class war thing – it’s just run-of-the-mill economic illiteracy combined with some new flavour of starry-eyed libertarian idealism. Unless someone can persuade me otherwise?
Pa: yes, a valid question. But I was merely addressing this point that Pal Lockett made:
Alisa, I don’t think that the presence of high rise buildings alters the fact that there is no way to increase the surface area of the earth.
Undoubtedly, a multi-story building does increase the use that can be made of the surface area it occupies, but that surface area is constant.
Alisa,
Yes, agreed. I was being pedantic. And there are several others ways to increase it, too.
Paul,
From the point of view of having exclusive access, or making economic use of land, multi-storey does increase the relevant area for the purposes of the argument.
(And there are other ways, like creating hills, or reclaiming land from the sea, that do change the actual land area.)
Can you just say what you would do about it? If the rent isn’t paid, does everyone lose exclusive access, or just one person? If one floor is open to the commons but the rest are exclusive, does it all go rent free?
Why?
Ian B,
Because land is unowned under this scheme. (Or held in common, or however you want to call it.) That’s the theory, anyway.
Pa, then we seem to have moved over from a tax to government allocation of nationalised land, so it’s not a Land Value Tax at all, it’s renting land from the government. Isn’t it?
In which case, there is no market! So how the feck do you know what the market value of the land is?
Pa Annoyed, I don’t see how multi-storey does increase the relevant area. If you (simplistically I know) view the earth as a sphere, the relevant area is the part of the sphere on which the building sits. No matter how efficiently that area is used, it doesn’t change its size.
In these terms, reclaiming land doesn’t increase the surface area, it just takes the water off it. Creating a hill is like putting a building on the surface of the sphere. I’m not really sure in what situation you’d want to do that, as it would generally make the land less useful.
Presumably, with a high rise building, the overall owner of the building would hold title to the land, so it would be that individual’s obligation to pay the rent and if it were not paid, all rights of exclusive access would be lost. In reality, I would be surprised if that would ever happen. The building itself would have a sale value which I would the expect the owner to cash in, rather than lose the right to the location and effectively be obliged to move the building.
The landholder would be paying for exclusive right to use the surface area, so, irrespective of how they use it (within the given planning restrictions) they would pay the market rent. I don’t think that choosing to leave one floor open to the public would change the rent in any way. The landholder pays the rent and what they do with the land is up to them.
Ian B,
Yes. That was one of the objections Murray Rothbard raised to it.
Paul,
Thanks for the answer.
Different people could own different storeys of the building. There would be no single owner.
I was sort of expecting that you would propose them sharing the ground rent, and that a defaulter would have to have their share made up by the others (with all sorts of complications, and people being made responsible for other people’s failures). Although I was prepared for the possibility that each would have to pay the whole amount separately, since they occupy the same horizontal area.
But since the claim was made that the rent is not for the use of the land, but for excluding everyone else, then if a floor is left free, there is free access to an area equal to the area being built on. The only way you could count the other exclusive floors is if you counted the total area to have increased, and to charge rent for each separately. Then leaving one floor free out of n floors would only same 1/n of the rent.
With the hills thing, I was just referring to the fact that the surface area of hills and valleys is greater than that of a flat plain. The vertical projection of area is constant, but that wasn’t what you had said.
“…rather than lose the right to the location and effectively be obliged to move the building”
Oh, Crikey! That puts a rather different complexion on it! If you’ve made modifications to the land, and you don’t pay the rent, you’re obliged to move (or lose?) your improvements anyway?
Does that apply generally? If you can’t move your improvements, you have to sell up? Isn’t that what was being said above, about granny being chucked out of her house?
Pa, so far as I’m following this, Granny doesn’t have a house, she just rents one from the government. Or rents the land it’s on, anyway, so she seems to get to build a house and then be denied access to it if she doesn’t pay the ground rent to the government.
I’m really now at a loss as to what Paul is discussing. It’s not a tax, certainly. I can’t see how this land is allocated, unless it’s by government fiat. Granny certainly can’t sell the land, since it has no market worth, and she doesn’t own it anyway. So I presume who gets to use land will simply be decided by applications to bureaucrats.
I fear we have wandered far away from a discussion of tax policy into a strange, dark wood.
Paul, to add to what Pa said: in Israel the apartment buildings normally don’t have single owners, but rather most people actually own their apartments. Even those who rent, rent from other owners of single apartments. I am not sure what is the legal status of the common areas, but I imagine that their ownership is shared by all the occupants of a building. It actually works quite well.
Ian B,
Granny owns the house, but not the land it’s built on. If she can’t afford the rent, she has to “effectively be obliged to move the building”. (!!!)
“I fear we have wandered … into a strange, dark wood.”
Yes, we’re waaaay off topic, for which I apologise again. I was just curious about this new (to me) idea.
Pa, I wasn’t referring to us being off topic- all threads do that. I meant that what we’re discussing is far, far weirder than what I thought we were disussing, which was a property tax.
So now we’ve ascertained that Granny must leave, dragging her house behind her, how does
the communitythe government decide who is next allowed to rent the land?Ian B & Midwesterner & Gabriel, if you’re quite finished with your straw man arguments, Land Value Tax is quite simple.
It is a tax on land values.
Not total property values, but net-of-improvements site-only land values. There is no hidden agenda, it is as simple as that. (I personally think it should be a replacement tax for Council Tax, Business Rates, Stamp Duty Land Tax and Inheritance Tax, but that is a different topic)
It might be helpful if I remind you what land values are in the UK:
At their peak last year, a square yard of Mayfair was worth £20,000-plus, or £100 million per acre, an average acre of residential land in England was £1.2 million and an average acre of farmland was £5,000.
And what is the main driver of land values? What makes up 99% of land values?
Planning permission. Without planning permission, even prime central London is nigh worthless (see recent case of Greenweb v LB Wandsworth). With planning permission, an acre of farmland jumps in value to £1.2 million.
So even if you legally own your land (and rightly so, I believe in a property owning democracy), 99% of the value derives from what the community (i.e. the local planning department, under pressure from NIMBYs and politicians etc) decides you can do with it.
If you are a farmer, are you prepared to pay £1 million to get planning permission for residential for one acre (whether as a tax, a s106 agreement or a straight bribe)? Yes of course, because your land value will go up in value by £1.2m.
And further, having obtained planning permission, 99% of the value of the land derives from it being close to things that the landowner does not provide or pay for, i.e. shops, places of work, a train station, roads, schools, a park or playground, a beautiful view etc.
Once you have understood these simple facts, go back to the start of this thread and start reading again.
Ian B,
I’m not sure. My original understanding of the scheme was that you only paid for exclusive use, and that you could apply for any land not already claimed. Granny could stay, (unless someone else applied for exclusive access,) but she couldn’t stop squatters moving in, or someone setting up shop in her front room. But this business of having to move the building has thrown me a bit, and I don’t know now.
I had a lot of questions in my earlier post (not to mention the Murray link), and we haven’t got many answers. I get the impression they’re not coming, either. So I’m going to give up for the time being, and go to bed.
Ian B & Midwesterner & Gabriel, if you’re quite finished with your straw man arguments, Land Value Tax is quite simple.
It is a tax on land values.
Not total property values, but net-of-improvements site-only land values. There is no hidden agenda, it is as simple as that. (I personally think it should be a replacement tax for Council Tax, Business Rates, Stamp Duty Land Tax and Inheritance Tax, but that is a different topic)
It might be helpful if I remind you what land values are in the UK:
At their peak last year, a square yard of Mayfair was worth £20,000-plus, or £100 million per acre, an average acre of residential land in England was £1.2 million and an average acre of farmland was £5,000.
And what is the main driver of land values? What makes up 99% of land values?
Planning permission. Without planning permission, even prime central London is nigh worthless (see recent case of Greenweb v LB Wandsworth). With planning permission, an acre of farmland jumps in value to £1.2 million.
So even if you legally own your land (and rightly so, I believe in a property owning democracy), 99% of the value derives from what the community (i.e. the local planning department, under pressure from NIMBYs and politicians etc) decides you can do with it.
If you are a farmer, are you prepared to pay £1 million to get planning permission for residential for one acre (whether as a tax, a s106 agreement or a straight bribe)? Yes of course, because your land value will go up in value by £1.2m.
And further, having obtained planning permission, 99% of the value of the land derives from it being close to things that the landowner does not provide or pay for, i.e. shops, places of work, a train station, roads, schools, a park or playground, a beautiful view etc.
Once you have understood these simple facts, go back to the start of this thread and start reading again.
@ Ian B, And this idea that Granny has to leave dragging her house behind her is ridiculous, frankly.
Any sensible LVT scheme envisages that pensioners can defer the tax to be repaid on death. Which is why Inheritance Tax and Stamp Duty Land Tax ought to be scrapped as a quid pro quo.
Or maybe Granny can ask her heirs to pay the LVT in exchange for inheriting the property? There’s a free-market solution to every problem.
Mark, what you are describing is what I thought we were discussing, but what Pa seems to have ascertained is that that’s not what Paul is discussing, and a bit of googling suggests that’s not what Georgists are after in general. They’re not talking about taxing private land, they’re talking about communal ownership of land rented out.
Personally I’d abolish planning permission as I mentioned some distance above, but that’s another issue entirely.
Yes, and 99% of the value of a corner shop’s business derives from it being close to residences containing people who buy newspapers, sweets and jazz mags. All value is based on value to others. My business only exists because of the existence of the inernets. On that reasoning everybody owes their profits to “the community” and the argument rapidly degenerates ad absurdam.
Mark,
I was going to give up, but I couldn’t resist that one. The local planning department now count as “the community”?!
In the local planning department’s dreams!
Any scheme in which such bureaucratic government regulation isn’t outlawed doesn’t count as “libertarian” in my book.
You’ve talked about land values, but those are under the current system, with outright ownership. What would the LVTs be? And on what basis are they calculated?
I’ve read in various GL discussions how the principle is based on the idea that the natural world isn’t owned, but all modifications that are the product of labour can and should be. Since, as you say, 99% of land values are not for the land itself but for the added bits, what is left to the LVT? Or will you tax the additions? And since the land prices are for possession in perpetuity, do you agree that possession for a fixed interval must be much cheaper?
It’s all too vague still!
Anyway, I really am giving up now. Thanks for a fascinating debate, though.
An historical account of the genesis of an idea is not a strawman. The LVT was intended, often perfectly explicitly, as a way of making tax policy serve the interests of one class against that of another. Similar to the Corn Laws, but in reverse. It’s secondary justification, particularly invoked for the mercifully short period when Britain actually had one, was to increase economic efficiency by forcing people to produce maximum economic value with their land.
That’s fact, do with it whatever the hell you will.
Pa – Different people could own different storeys of the building. There would be no single owner. I was sort of expecting that you would propose them sharing the ground rent, and that a defaulter would have to have their share made up by the others
It depends on what basis the land is held. Most multiple occupancy buildings have an overall freeholder of the land. The occupants of the building then have a management company which manages all the shared costs, such as lifts and other shared spaces in the building. The LVT would be the responsibility of the freeholder/management company.
Does that apply generally? If you can’t move your improvements, you have to sell up?
What you said in terms of somebody not being able to stop squatters is probably true also, but it’s a bit academic. I imagine that in all cases, if somebody no longer wished to pay the rent, they’d sell their house and move elsewhere, rather than live with an open house.
Ian B – I can’t see how this land is allocated, unless it’s by government fiat.
It doesn’t need to be allocated – it already is. There isn’t much land that isn’t privately held already.
If you cut taxes and revenue increases, you didn’t cut it enough.
Pa,
LVT works just as well with strict planning laws or with totally liberal planning laws. I’d prefer the latter but I don’t pontificate on that because nearly everybody in the UK is a NIMBY.
OK, let me rephrase “Land values are derived from planning permission and local amenities. So LVT is really a tax on the value of what planning permission you have and how good the local amenities are. For ease of calculation, it would be based on the site-only market value of the plot (assuming that there were no buildings on it)”.
Ian B – My business only exists because of the existence of the inernets. On that reasoning everybody owes their profits to “the community” and the argument rapidly degenerates ad absurdam.
I don’t see your reasoning there.
Firstly, we aren’t talking about owing profit, we are talking about owing a market rent. If we were talking about the community having a direct claim on profits, we’d be talking about the “corporation tax” you were saying was the best option at the start of the thread.
Secondly, if you need to obtain access to the internet for your business, the fee that you owe is to the person who provides the infrastructure that allows you to access it, not “the community.” If that is something which seems unacceptable to you then, as previously, your objection appears to be more generally anti-free market than anti-LVT.
Pa – You can also ask about overhangs – where the upper storeys are broader than the ground floor.
This is a slightly different issue which relates to land tenure rather than LVT.
At one point, the theory was that, as a freeholder, you had exclusive rights to the space an infinite distance above the surface. It is still the case that generally, you can prevent somebody else’s property overhanging into the space above land you have title to; for example, you can cut branches off your neighbour’s tree if they encroach into your garden, although you have to offer him the branches afterwards, as they are his property.
The infinite distance principle no longer exists though, as the advent of aviation presented the problem of airlines having to negotiate individually with the occupant of every house they planned to fly over.
Paul, what I was saying is that many assets only have value do to a wider context- the community. I do business exclusively on the internet. I can only do so because the infrastructure exists, and because other people provide web browsers and so on. My real estate is electronic. It has value because other people have “improved” their bits of that electronic real estate. This is the same thing as saying my land has value only because others have improved their land around it, constructed roads etc. If physical real estate thus owes its value to the wider community- and thus individual landowners have no right to it, which seems to be the Georgist position- then the same is true of my electronic real estate and, further, that reasoning destroys the right to people to profit from their improvements since those improvements only have value due to the wider community. E.g. a newsagent shop is a land improvement, but it only has value because it is surrounded by a town. So the argument either leads to total communism, since everything has value as a consequence of community improvements, or it shows the flaw in the argument regarding ground rents.
But the other point here is the presumption of land as a source of rents and thus “unfair wealth”. But a great deal of landowners don’t extract rents from their land, and the high value is a negative to them, not a positive. The high value has made their land expensive to buy, and then if all they wish to do is build a house on it and live in that house, or plant a rose garden, or build a church, or use that land for any personal purpose which does not generate money they are not benefitting from the high land value at all, so to charge them an eternal ground rent on it is fundamentally unfair.
IOW, you are presuming that all land is “business land”. But for many people land is simply and entirely a cost. Neither my home nor rose garden or the local church are businesses that generate money. They aren’t profiting from the price of the land, nor do they profit from an increase in its value. Even LVT in its “weak” form in which land is privately owned by eternally taxed, the tax becomes nothing but a dead loss to the owner.
You may say, “they will sell it one day and recoup the loss”. But firstly, there is no certainty of that. Land with a church on it may never, within in any reasonable timespan, be sold. A house could stay in the family for generations. And secondly, so far as I can tell a 100%LVT would be charging the cost of the land to its owner/resident every year, so if my land is worth £5000, I’d be paying £5000 every year and only be able to recoup one year’s LVT in the event of selling it.
There is a presumption then that all land is monetised, or should be, and that every square inch should be generating money equal to its sale value every year, which simply isn’t the case for private dwellings, rose gardens or churches. You are forcing the commercialisation of assets which people may have good reasons not to commercialise. Your tax would destroy private land use for non-profit. Even if some meaningful measure of land worth could survive the LVT, the fact that my garden would be worth £5000 if I sold it is meaningless to me while I’m using it, just as a family heirloom worth £5000 doesn’t make me any richer unless I choose to sell it; to tax me £5000 per year for keeping it would be entirely unjust.
Ian B – If physical real estate thus owes its value to the wider community- and thus individual landowners have no right to it, which seems to be the Georgist position – then the same is true of my electronic real estate
That is part of the way the economic benefits are promoted, but I don’t think it is the whole underlying justification (it certainly isn’t for me). The real difference is that the manufacturer of the infrastructure is gaining value from something they have created, whereas the value that comes from controlling a location comes from having exclusive control over something that was pre-exisiting. I work from the basis that the only legitimate way that one person can exclude another from a location is by mutual agreement. LVT achieves an equivalent result in a more practical way.
so far as I can tell a 100%LVT would be charging the cost of the land to its owner/resident every year, so if my land is worth £5000, I’d be paying £5000 every year and only be able to recoup one year’s LVT in the event of selling it.
The cost of the land in that sense would be the rental value, not the sale value. A £5000 sale price might equate to a £500 annual rental value, which would be the 100% LVT level.
There is a presumption then that all land is monetised, or should be, and that every square inch should be generating money equal to its sale value every year.
Not so much generating money as delivering value to the holder. Take the example of somebody renting a house or flat. That person isn’t making money by living there, but they obviously believe that they obtain value from their landlord which is at least equal to the rent they are paying. The principle with LVT is much the same; the land doesn’t have to be generating income, but it does have to be delivering value to the holder.