Land Value Taxation Campaign

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Land rent for public revenue

A dialogue of the deaf

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In response to an article on housing policy in the Observer, which needless to say did not mention LVT but came up with a list of tinkering measures


ME: There is no solution to the housing problem without land value taxation - that is a prerequisite.
Without LVT, all the measures listed in the article are just useless tinkering. With LVT, most of them would not be necessary

REPLY FROM Lune13: Zzzzzzz

ME: You do not conceal your towering intellect, do you?

Lune13: Not ever. You are a fanatic who believes an extremely minor single taxation change would have a huge impact. It won't. it is also comically out of line with how most new business generates wealth. Clue- it does not involve land.

ME Fanatic? What word describes someone who comments on something they obviously know absolutely nothing about? There is so much material around on the subject that I am not going to waste time explaining here.

Well, Mr Genius, perhaps you would care to explain why the price of it keeps on going up and up when nobody wants it or needs it any more?

Lune13: How much land do the following highly profitable companies use, and could you possibly tax them on it the same as CGT?

Shell; BP; All the banks; Vodafone; Google; Apple; Etc The answer is- you can't The only valuable thing that LVT can be applied to is peoples houses. The biggest vote losing proposition ever formulated.

  • ME: Shell; BP - Nearly all of their revenue consists of resource ie land rents. "Land" in economics means the entire natural world apart from man ie the surface of the earth, radio spectrum, minerals in the ground, fish in the sea, virgin forest.
  • All the banks - Banks own vast amounts of land through their secured mortgages. A mortgage is a device whereby the lender creates money at next to no cost for the purchase of real estate. The borrower is the bank's tenant for the duration of the loan. What is labelled "interest" is in reality "rent".
  • Vodafone - Redio spectrum is classified as "land" in economics
  • Google; Apple - Google and Apple cannot operate in locations where land values are low - although they do their best. They need well-serviced sites where labour with the right skills is available. In this case a lot of their revenue flow is from intellectual property rights ie like land, they are a monopoly granted by government, analogous to land titles. The first thing their highly-paid staff do is to purchase valuable real estate.
  • The only valuable thing that LVT can be applied to is peoples houses - In valuable central business districts like London and New York, more than 80% of the rent paid represents land value. The dukes who own most of central London are not living in penury by having to rely on the land value of their property.

Lune13: 80% of the land value of the UK is in residential property. You do know that, right? So, tell me again, how is LVT going to replace any other taxes.

ME: What is your source for this claim? Please show your calculations based on LAND RENTAL VALUE, not selling price, and allow for the fact that some land value is already collected through the UBR and Council Tax.

You have forgotten to take account of Ricardo's Law of Rent, from which it follows that all existing taxes are at the expense of land rental value ie a cut in tax of £1 billion will lead to an aggregate increase in land value of about the same amount. If you can disprove Ricardo then you will get a Nobel Prize in Economics. I will make the journey to Stockholm to congratulate you.

 

Incidence of property taxes

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I regularly get into arguments with people who think that property taxes are paid by tenants. Now it is true that tenants in the UK are nominally responsible for paying the property tax, be it Council Tax or business rate. But the tax cuts into the amount a landlord can charge in rent. In other words, the incidence of the tax is on the landlord. Yet so many people refuse to believe this and do not understand it. Thus we are constantly hearing about the need to "help business" by cutting the business rate. Now it may be that the business rate, on top of all other taxes, may mean that no business is viable in some locations, and this would help to explain why so many of the UK's high streets are lined with charity shops and boarded-up windows, but cutting the business rate will not help business.

If there are any doubts on this point, this "study of studies" should dispel them once and for all.

 

Economic effects of immigration

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The Campaign as such does not have a view on anything other than LVT, and certainly not something as sensitive and controversial as immigration. However, migration certainly has economic consequences. These underpin the whole question of how rent arises in the first place. In Progress and Poverty, Henry George devotes an entire chapter to the subject, under the title "The Unbounded Savannah".
 
In George's model, the first family to arrive settles on the best site. Subsequent arrivals are forced to occupy inferior sites, so that the better sites gain a rental value which is the productive advantage of those sites over and above the least productive site in use, ie the marginal site. However, the increase in population leads to increased production as all sorts of efficiencies become possible due to division of labour and the presence of people with increasingly specialist skills. All of these lead to a progressive growth in rental value.
Note that the savannah in the story is unbounded. Land is always freely available at the margin. The minimum wage is fixed by what can be earned at the margin. What if land is not freely available at the margin? Those without land are forced to work for others or pay rent to another, and wages fall to a lower value, as labour is willing to work for the least it will accept.
 
It is not difficult to see how this works out with an influx of immigrants. Wage levels fall. In a zone with free movement of labour such as the EU, people will move from the regions where they are lowest and will undercut the wages of existing workers in regions where pay is higher. Overall, wages will have a tendency to even out across the zone, which is what we are seeing. The lower wages will lead to higher profitability and this will tend to drive up rents. An influx of people will also drive up residential rents in response to increased demand.

This observation confirms the fears of the populist right though not for the reasons they give. The populist right, under slogans such as "British jobs for British workers", is working from the "lump of labour" theory - that there is only a fixed amount of work to go round. The curious thing is that the left wing parties, who claim to be acting in the interests of working people, are also the ones who favour free movement of people. Presumably they are acting out of some notion of the universal brotherhood of man. That is a worthy motive but it is not one that will appeal to the people who are suffering from the effects of the policy, primarily their own supporters. Seeing themselves abandoned, it is not difficult to understand the appeal of the populist right.

 

Begging according to Georgist principles

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Abour twenty years ago there was a man in Brighton who would go up to people in the street and ask them for ten pee. He cannot have been very successful as he later reduced his request to a pee. Perhaps he did not generate sufficient sympathy, being big, sturdy and obviously well-fed. Other beggars adopted different strategies. A popular one was to ask for the bus fare to Eastbourne as they had lost their return ticket, or, more daringly, the train fare to Southampton to see a dying mother. New Cross station in south London was a popular haunt. One beggar needed the fare to go to London Bridge for an appointment at Guy's Hospital; another lurked around the entrance, and, following a pace behind women with children in prams, ask people coming in the opposite direction for money to feed the child.

That sort of begging seems to have taken hold in the 1980s as the social fabric started to fray. In more recent times there has been a huge increase in beggars from Bulgaria and Romania, following their entry to the EU. This has brought begging into countries where it was unknown in modern times, including Germany and Scandinavia, where comprehensive welfare states had made it unnecessary.

People find it an irritation and embarrassment, and there is constant talk of doing something about it. But what? If people didn’t give, the beggars would go away, but obviously enough people are happy to drop a coin in their direction, for whatever reason. There are more who will buy them a sandwich or coffee. They can even perform a useful service, collecting empty bottles and claiming the deposits, or taking unwanted food sold as 3-for-the-price-of-2 offers. Others are a nuisance, when they come up to people in the street. There are rumours that they can act even more aggressively, for example, by escorting people to cashpointss and forcing them to take out money and hand it over.

There are claims that they operate as organised gangs, but these are disputed. It seems that they is some form of collaboration between the beggars – for example, in organising transport, and probably accommodation as well. More sinister is the probability that the best pitches - at the entrances to railway stations, shopping malls or next to busy bus stops, are controlled by heavies who take their cut of the takings. Therein lies a potential solution, because what they are doing is collecting a rental value.

What if Georgist principles were to be applied to bring the whole activity under control? All beggars within the city area would be required to purchase a license, valid for a month or two. They would get a badge with a photograph, registration number and expiry date, which they would have to display when at "work". There would be conditions which they would have to comply with – for example, they should not be allowed to approach people. If they broke the rules they would lose their licence.

What about those rental values? These arise in the busiest areas of the city. It would be necessary to designate zones where it was only permitted to beg at particular marked pitches. To use these sites, between, say, 8 am and 8 pm, an additional session permit would have to be purchased; these could be for an hour or two. Initially, the charges could be set as a rough-and-ready flat fee, but they would have to be reviewed regularly so that the charges more closely reflected the values of the different sites. Obviously a balance would have to be struck between optimising the charges and keeping the system as simple as possible. The permits might allow limited trading or other activities such as playing music.

In effect, the community would take over the role of protection currently provided by the criminal gangs, who would be forced out of business. This would be to the advantage of the beggars themselves. Given that the criminals obviously find it is worth the effort, the revenue should at least be sufficient to pay for a team of inspectors, and possibly a profit on top for the city’s coffers.

 

Land a bigger fish than the Mansion Tax minnow

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On 15th Sept. a colloquium on land value tax (LVT), held at the Westminster HQ of the Royal Institution of Chartered Surveyors (RICS), was presented with economic analysis suggesting that a single annual tax based on land values would be capable of producing potential revenue flows of £82 billion: sufficient to replace all existing property taxes.

Read more...
 


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