LVT means a bigger cake

Wednesday, 29 October 2008 10:22

Some critics of LVT argue that it just shifts the money around a bit, and nothing more. This is not so. Replacing existing taxes by a land tax actually does result in increased production and wealth creation. It does this in two ways.

First, land and buildings are not held out of use because this is costly. I can show you valuable sites in the centre of the town where I live which have been vacant and derelict for nearly 20 years. Despite having planning consent for the development of shops and residential, all that has happened is that buddlieas have grown into massive shrubs. Meanwhile, the site has gone up in value. Land value tax going up with rising land values would have made it expensive and pointless to hold on to the site, which would have been developed and the buildings occupied by residents and businesses, and used for wealth creation.

Second, replacement of existing taxes by land value tax has a critical effect at the margin. Marginal locations are just that. Economic activity is only just viable. Typically, marginal locations are places remote from centres of population, or with poor access eg Cornwall, much of Scotland, the north of England and parts of Wales, as well as South-East London and East Kent. This is one reason for the undue concentration of Britain's population, with over 80% crammed into less than one-third of the land area.

If economic activity at marginal sites is subject to tax, then the sites go out of use and the production that could have taken place there is lost. But at marginal locations, land values are nil, and at those locations, under an LVT-only regime, economic activity is tax-free. The system, without further intervention, creates tax havens precisely where they are most needed.

Thus a shift from existing taxes to LVT results in the creation of more wealth. But it is not in itself a socialist measure. One could envisage a cradle-to-grave socialist welfare state funded only by LVT or a free market one with full LVT operating to ensure opportunity for all.


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