Land Value Taxation Campaign

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Home Discussion Theory Increment taxes - the practical objections

Increment taxes - the practical objections

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There are some who argue for taxes on what is called the unearned increment in land. Even some who wish to capture the whole site rent, have been heard to make appreciative murmurs when increment is mentioned. This is a mistake. It is surely not necessary to repeat here the ethical argument, and the argument in economic theory, for collecting all of the Rent of Land and therefore against taxing only increments.

There are powerful practical objections to increment taxation.
  1. To advocate increment taxation in advance is a major compromise, on top of which it is quite likely that opponents and faint‑hearted supporters will pile other compromises. Something not too different from a dog's dinner might well emerge.
  2. The political effort required to carry what, at best, is a half measure, is at least as great as that for full LVT.
  3. The administration involved is in fact greater. The work in compiling the initial “datum line” valuation for increment taxes is the same as is required for full LVT. The basic preparatory costs are the same, so are the procedures, and so is the time‑scale. The half measure allows no initial saving.
  4. By definition, no payment demand can be issued until a pre‑determined period has passed and a second valuation is conducted, involving yet more start‑up cost.
  5. The gap between the valuations leaves a “carrying cost” against which there is no income and no tangible benefit for taxpayers who presumably continue to pay their taxes as before, on the old system LVT is intended to replace. Meanwhile the opposition is able to organise and campaign at leisure.
  6. Increment taxation is inherently unfair in application. At the first valuation after “datum line” day, two plots of land could be showing identical values. If one had not changed since the “datum line” valuation but the other had risen to attain equal value, the second would be taxed but the first would not. In the case of business properties, the user of the second site would be handicapped in meeting competition from the first. Although users of both sites would be in receipt of identical land value, one would be allowed to retain his in full (unjustly, it has to be said) whilst the other was required to surrender part of his. It is one of the claims made for LVT that collection of land value in full removes location value from business calculations, enabling labour and capital to form corporate bodies to compete on that famous “level playing field”. Increment taxes are a distortion of the LVT principle. Unfairness in the treatment of land holders is also wrong‑headed in itself and is a gift to opponents.
  7. The amount raised by increment taxes will be low at first, simply because most increments are likely to be small at that early point. This shortcoming will be exacerbated if the percentage levied on the increments is held down: there is no reason for it to be so, since these are, after all, increments, but anyone ill informed enough and timid enough to prefer increment taxes to proper LVT is unlikely to end his aberrant course here, and could well settle for a lot less than a 100% charge on the increment.
  8. Costs are higher than for proper LVT and the early yield is low. The small yield allows little abatement of existing taxes. The larger scale economic benefits from LVT scarcely begin to show.
  9. In the UK, and probably in other states which have not yet experienced LVT in any form, opponents will be able to deride the taxes as high‑cost, low‑yield monstrosities, fit only for repeal. The electorate will not have noticed any truly worthwhile benefit and will not rally to save the government (single party or coalition) which implemented them. The cause will have been set back further 50 years.

Conclusion

All land value is public, and none of it is private. The objective is not negotiable. The only question is how best to go from A to B. The route does not lie through the increment thicket.

David K. Mills
 


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