LVT wouldn't work - people say

Friday, 02 January 2009 19:19

This is an extract from a discussion on the Guardian's "Comment is Free"

I'm not convinced by the argument.

To start with, you are describing a method of taxation. It's not clear why "poverty and unemployment; widening divisions between rich and poor; boom-slump cycles; housing shortages; inadequate infrastructure; and damage to the environment" will be alleviated by replacing income tax with a land valuation tax. It sounds like a magic pill to cure all ailments. Clarify this point and we can talk further.

Another troubling aspect is that "it would operate as an annual charge on the rental value of land, assuming that each site was in its optimum permitted use." So If I own land on the site of the proposed 3rd (or is it 4th?) runway at Heathrow, the tax will be prohibitively expensive should I wish to continue running a corner shop. And who would determine the optimum permitted use? It suggests a dictatorship of land values decided by bureaucrats.

Individual income and corporate profit are reliable indicators of current economic success, and a fair way to assess what we owe for the maintenance of a civilized society

Income tax is a system for soaking the poor. It has to be, otherwise it would only yield trivial amounts of money. Only it is worse than that. People will work for the least that they will accept. In countries with some kind of unemployment benefit, the minimum wage is set by benefit levels or minimum wage legislation, such that take home pay is equal to benefits. But for every £ that a worker receives in take-home, the employer must pay an extra and large amount to the government, made up of PAYE income tax, and "Employer's" and "Employees' " NI. This creates a situation of low pay and high labour costs. If the employer is in the public sector, the money is just churning. But the result it to price low-skill workers out of employment altogether. The tax you and I pay is then wasted in keeping people idle. Is that how you want your money spent.

The next evil with the tax system is that the same amount of taxation is payable per unit of added value regardless of whether a firm is operating in a marginal location say in the Hebrides or in the City of London. The effect here is to drive marginal sites out of use. Businesses that would be viable in the absence of the tax become non-viable if tax has to be paid, because all other costs are higher in the distant location. This is why the drift towards London and the south east is aggravated. This article explains the principle.

The combined effects of present taxes is a deadweight loss to the UK economy of over 12% of GNP. (Harrison, Institute of Economic Affairs). Under a land value taxation system this would not happen because labour is not taxed and there is no tax levied at marginal locations.

Land value taxation is, strictly speaking, not a tax at all. It is the collection of land rent for public revenue, instead of present taxes. This is a value created by the presence and activities of the community. As long as this income stream is privatised, landowners are free-riders on the backs of the rest of society. Land owners do not produce land - it is a gift of nature (or God). So why should they keep what they have not worked for?

The effect of privatising land rent is that land titles become valuable tradeable commodities. This corrupts the banking system when people purchase land titles using borrowed money, which they normally do. The dynamics of this leads to periodic speculative bubbles, followed by disastrous crashes such as the one we are just going through. That is another part of the price of allowing land rental value to stay in private hands.

Finally, to come to your question about the corner shop at the end of the runway - it is significant that you have had to postulate an absurd situation to make your point. Objectors to land value taxation normally do. If you look at the area around a major airport, you will immediately notice that it is occupied by warehouses, hotels, car parks and industrial buildings used by firms providing ancillary aviation services. There are no corner shops, any more than there are allotments next to the Stock Exchange in the City of London. And what an abuse of a valuable site it would be if there were. Interestingly, this kind of inefficient land use was a feature of the Soviet system.

But there is a more general point this raises. Infrastructure creates land value. The £3 billion Jubilee Line Extension added about £10 billion in land value to the areas served. That is public investment that ended up in private pockets on the basis of a public policy decision to build the line. Is is any wonder that the Treasury is not keen on these projects when there is nothing received in return? So we in the UK struggle under an inadequate and poorly maintained infrastructure which costs the country billions.


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