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The LVTC blog, by Henry Law

The comments in the LVTC Blog are a personal view of our Hon. Secretary Henry Law and do not necessarily reflect the official policy of the Campaign.

This is a place for personal observations and comments on politics, economics, current affairs, on-going discussions on the potential for LVT to remedy some of the current ills, and the impact on Society of any of the above. 

Please read and enjoy, and feel free to respond to Henry if you have any thing you would like to add.


Fear of immigration

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The fear of immigration is explained by Ricardo's Law of Rent, which nobody understands any more. Incomers create a land shortage which tends towards higher rents and drives down wages. This is not a problem if a system of land value taxation (LVT) is in place, because

  1. the rising rents become buoyant source of public revenue to pay for infrastructure and services
  2. the immigrants add to the stock of wealth being produced.
  3. land and premises are always available at competitive rents, so that there is never a shortage of work opportunities or places to live.

Otherwise, immigration becomes a source of conflict, as the newcomers are competing for homes and jobs.

Here is a video which explains Ricardo's Law of Rent.

https://www.youtube.com/watch?v=yyv1xYDWAxk

The EU should have required both Freedom of Movement and LVT. The first without the second is a recipe for failure.

 

Responsorium 14 January #2

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I see a grain of truth in there, but this does not make it a valid or complete argument. In general, from an efficiency point of view one should tax those goods/service that respond the least (this, however, often clashes with equity considerations). Land, in an geographic sense, does not adjust.

Yes

However, in practice, there also a lot of margins of "productive land" that are affected by land taxes. For example, if my land produces less than the tax: I sell it to someone else, who then migrates, leaving the land without effective owner. And so, the land has no reverted back to no use (while it would have maybe produced marginally if I kept it). This is just to say that land is not necessarily so different....

A uniform land tax to pay for all government expenditure would drive agriculture to zero, and all landowners to bankruptcy. A geographically-varying land tax is really a tax of something else.

Land Value Tax is, as its name implies, a tax on the value of land. A uniform tax would be absurd. Land in Central London is worth thousands of times more, per unit area, than land in the Scottish Highlands. The substantive value of land is its annual rental value. The selling price is a derivative value. Selling price is indeed related to the rental value but depends on factors such as interest rates and expectations of changes in value and development possibilities. Land value tax, properly applied, is a tax on the annual rental value. The actual assessment is the gross annual rental value ie the market rental value plus any taxes payable on the property.

You are spot-on with your observation that tax cannot be more than the rental value of the land, otherwise the land will be abandoned. But this applies to all taxes payable – property taxes, income tax, corporation tax, fuel tax, VAT (the incidence is partly on the seller); you have to add them all together. That is why large tracts of most EU countries are now economic wastelands. The beauty of land value tax as a replacement for other taxes is that no tax is payable at the marginal site, so that production is optimised-.

Perhaps 3 centuries ago, a lot of productive land was in the hands of big landowners...

There is plenty of unused land today. Newcastle city centre, for example, is plastered with estate agents’ boards. Some of them have been there for many years. There are sites in the middle of Brighton which have been vacant for over thirty years, with planning consent for most of that time. You will find the same thing if you look around many industrial estates. You can see this for yourself if you take a walk round some of the more run-down areas where you live. Rents do not fall to market-clearing levels.

But perhaps the greatest argument against land tax is that is practically impossible to raise the amount of tax that is currently raised,  with land taxes alone. So, while on the margin one might consider raising taxes on land, it can never be the whole solution.

All taxes come out of land rent. This was first noted by the Physiocrats. It is a corollary of Ricardo’s Law of Rent. It has also been tested by studies such as those made for the Department of the Environment following the end of the 1980s Enterprise Zone scheme. In other words, if there is a reduction in tax, rents rise, in the aggregate, by about the same amount. So if all taxes were suddenly removed (for example, if a benevolent alien arrived from a distant planet and paid for all government expenditure), then total rents would rise by about the same amount as the tax that no longer had to be paid.

Because existing land values are depressed by taxation, you cannot project from these values and conclude that a land value tax could not raise sufficient revenue. On top of that is the issue that so much government expenditure consists of welfare payments needed to redress the collateral damage done by the tax system. It is not genuine expenditure, let alone investment. These are just transfer payments.

 

Responsorium 14 January #1

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Our economy is these days simply has very little land as a necessary input.

If land is not necessary these days, why are people willing to pay £100 per square foot rent for offices in London’s West End and £3 million an acre for industrial land in West London. Are they wasting their money? Do you know something the tenants and purchasers do not? http://www.colliers.com/en-gb/uk/insights/offices-rents-map

So, other taxes are needed, which ones do you propose? 

None, you have based your argument on a misconception.

-- I was more commenting on needless grand words. One can signal one's intellect to those who don't know by using fancy words; one signals one's intellect to those who know by saying difficult things in the simplest way.  What is your game? 

Which words are you complaining about? My syntax is simple. Sentences are mostly not more than about 15 words and I avoid using subordinate clauses. I always prefer to use the simpler word if there is one available, but the subject is a technical one, after all. I have not lived in the UK for many years and so do not get much opportunity to hear contemporary street English.

-- My argument is not that there is no VAT fraud, but that in relative terms it has an inbuilt anti-fraud mechanism absent in many other taxes. Of course, it can go wron g, especially when there is no domestic seller/buyer to provide countervailing incentives. Hence VAT fraud often happens with internaitonal transactions....

VAT is made for fraud. The obvious one is payment in cash, or part payment in cash. The other loophole is registration and reclaiming input payments. An architect, for example, will buy things like cars, computers and cameras, which are legitimate business tools, but also have their private uses, and where is the line to be drawn? How many tradesmen have offered you a lower price for payment in cash. Are you one of those rare birds who insisted on paying the full amount? Or do you contribute to the 10% of VAT revenue which disappears in fraud?

Which economically and politically realistic taxes (non-land) do you think are less prone to fraud, and satisfy your canon? 

There aren’t any. That was the conclusion of both Smith and George. It is not ‘my’ canon. It is common-sense.

--As I argued, land as input has lost so much relevance in today's production, it provides no solution. This might have worked in the economy 300 years ago, when the tax menu was sales or land taxes, but now we h ave think more...

Land has lost its relevance, but people are still willing to pay £3 million an acre for somewhere to put up a few industrial sheds. How do you work that out?

 

Taxed to dereliction

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Most proponents of land value tax these days do not appear to understand the theoretical background to what they are advocating. This is usually revealed when they talk about a wealth tax on land, or propose that the tax should be levied as a percentage (usually between 1% and 5%, of the selling price).

The primary value of land is its gross annual rental value. The point about gross value is that the rental value includes rent already taken in tax. This was at one time well understood; the old local authority rates were based on gross value. Gross annnual value (GAV) was the rateable value, comprising actual rents plus rates payable, the charge being a percentage of the GAV.

Land value tax (LVT), properly administered, is a percentage of the gross annual land value, ie the rental value, excluding any buildings or improvements. In the case of farmland, actual rental value is usually little more than the value of the land itself, the difference being improvements such as farm buildings, drainage works, boundary walls, etc, which must be ignored in the valuation. Marginal farmland, such as uplands sheep grazing, has a rental value close to zero.

The bulk of land value is of urban land, the most valuable being city centre land in the City of London and the West End, followed by land used for manufacturing, retail and warehousing. These values are constantly changing; for example, retail values are apparently falling due to the growth of internet shopping, which will raise the value of land which is suitable for distribution warehousing

There are large tracts of urban land which are worth next to nothing, mostly in the north and south-west of England, Wales and in Scotland apart from the main cities. This is of critical importance, because it applies not only to a tax on land values, but to all taxes. If the tax take exceeds the rental value, the land will eventually go out of use. The advantage of land value tax is that no tax is taken at marginal locations, they are, in effect, tax havens. All other taxes attempt to collect tax from business activities at the margin. This is of course impossible, and so potentially productive sites are taxed into dereliction. And there is the explanation for the UK's grotesque regional economic imbalance.

   

LVT, the virtual world and a missed opportunity?

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We regularly get told that land is no longer important in the world of the virtual economy, and that companies such as Apple and Google would get away with paying next to nothing.

Yet people are still living in real houses, consuming real food and real energy, wearing real clothes, driving real cars, travelling in real trains and aircraft, purchasing real electronic goods made in real factories using raw materials grown on the real surface of the planet or dug out of real holes in the ground. How does virtualisation change any of that?

There is another angle to this, too. I have been involved with land value tax campaign organisations for over forty years and am in contact with others, in particular in the USA. Apple has been around for most of that time; Google has been big for at least fifteen years.

The land value tax movement is not mainstream as it was in the years up to 1939, but it is not unknown, yet no organisation within the movement has ever been approached by these or any other technology companies. If it was to the advantage of Apple, Google, etc, they would have a vested interest in promoting what we are doing. Why, then, have they never come forward with offers of assistance?

It is also the case that there are some pretty smart people within the land value tax movement who would themselves have realised that, if LVT was so good for companies which operate in cyberspace, they would want to support our work; they would surely have tapped them for funds, which would certainly have been forthcoming. Have we all missed a trick?

 

A Georgist EU?

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What would a Georgist European Union look like?

  • Member countries raise the bulk of their public revenue from an ad valorem tax on the rental value of land.
  • Contributions to the EU central fund in proportion to each country's aggregate land rental value.
  • No tariffs charged on imports to or within the Single Market area.
  • No restrictions on imports to the Single Market area, subject only to the country of origin, and contents being clearly marked, unless there is a major issue of public safety.
  • No sales taxes within the Single Market area (with the possible exceptions of alcohol and tobacco).
  • CAP scrapped.
  • VAT scrapped.

I would settle for a ten year transition period.

 
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