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LVT



What is LVT?

This is land value tax. The idea is to tax land values, as this tends to rise mainly with positive externalities
E.G The value of your land has gone up, because public transport has been built recently nearby.

"Unearned" value


Since the person owning the land did nothing to earn this extra value, then there is an argument they should be taxed on this.
This is analogous to the Marxist view that profits are unearned.

 It is after all the same theory- in Marxism the Means Of Production is tools and factories, in Georgism it is the land itself. It’s intended as a recipe for Big Government, paid for by Other People.

If we take the view that government needs to sort out all unearned income, then government should administer all externalities so noe-one has anything unearned.

Value V's Valuation

LVT is not a land VALUE tax. It is a land VALUATION tax. 
  • This means the tax is based on guesswork and people could be overtaxed in situations when a property is sold for a value less than it as been valued at in the past.
  • This can also lead to abuse, when the state wishes to raise more money, they can just be more generous with the valuations.
  • No other form of tax, taxes you on what you could earn, or could own, rather than what you do.
  • How exactly would this valuation be done, on rental value, or on sale value, or other measure?
  • No two pieces of land are identical, it will still be the subjective opinion of bureaucrats as to how Piece A in 2014 compares in value with Piece B sold in 2012 and Piece C sold in 2009.
  • The land valuation is completely arbitrary: to an Amish farmer building a superhighway and strip mall nearby is not improving his land value

Proponents of LVT say...

Source - LVT Debate
  1. LVT stops speculating on land. 
  2. Tackles monopoly
  3. Makes land use more efficient
  4. In the U.K Freehold property is property held “of the Crown” in fee simple: it is not allodial title to the land, i.e., land held without reference to any superior lord. - so not really a tax.
  5. Income tax in invasive to our privacy
  6. Land ownership was gained from unjust means.
  7. Land is a common social resource -so not really a tax, but a levy.
  8. Land tax causes no deadweight economic loss
  9. Land cannot be moved - so hard to avoid tax on land
  10. Land tax can raise large revenues - so allows for a reduction in production, consumption and others taxes like inheritance tax.
  11. Land value increases are caused by social activity. Public outlay can be recaptured by taxing the increases in land value around it.
  12. There should be no exemptions except for public land
  13. The inital rate will be low
  14. Land cannot be owned so rents should not be charged on it

Response to those LVT arguments

In general the argument itself is very misleading and should focus on how to reduce government spending, not increase taxes. The tax is proposed to pay for public projects, but in general we should encourage private projects, therefore removing the need of this tax. Potentially this tax is really about how to erode property rights in general starting with a weak point.
  1. This assumes speculation is a bad thing? This has yet to be determined.
  2. No it removes the monopoly  o the state and away from you. Land is a natural monopoly, it can't be occupied by two people at the same time. Also it assumes monopoly is a bad thing. This also has yet to be determined.
  3. On balance this is probably true, sometimes it will and sometimes it won't. There is already a cost to owning land, it is not explicit like a tax, but each landowner experiences opportunity cost which should be incentive enough to make the land efficient. Some land like parks donated for the public to enjoy are efficient, but would not be exempt from this tax, hence would go bankrupt and allocated for reuse. Actual land owned by government will be given a subsidy in the form the tax won't be applied to them. This subsidy will mean land owned by the crown will be less efficient.
  4. The land is owned by the crown, but other arguments say that land cannot be owned. Also the crown surely did not acquire all this land justly. 
  5. This is true, and income tax should be abolished. But there is no guarantee that introducing LVT will remove income tax.
  6. Some land has been and some land has not been unjustly acquired. Disputing the right of free hold because of the Reformation or the Norman Conquest is not sensible. If it was originally gained unjustly then those who benefited are now dead and cannot be punished for their crimes. If the land was purchases justly, then removing the land value from them would be unjust in itself.
  7. Is land a common resource, please give me your thoughts?
  8. Land tax might give a dead-weight loss, if the LVT is incorrectly assessed it may misprice land as a good and lead to underinvestment
  9. Hard to avoid the tax if you want to invest domestically, but then more incentive to invest abroad. Investment and jobs will flow out of the country. Also we would want people to avoid taxes if they are unjust.
  10. Yes it would allow for a reduction in those taxes, but a hungry government is unlikely to remove an existing tax especially if they are running a deficit or big plans.
  11. This assumes that all the value increase in land comes from the public and not private outlay, which is unlikely, so why should the public get all of the value increase.
    A person can live in an area according to budget, the government can then decide to build transport enarby and wala, the LVT goes up for that property meaning that person has to move out though no fault of their own.
  12. This is effectively a subsidy and will distort the market. If a tax is good for the private sector, why not for the public sector?
  13. As with the introduction of the income and sales taxes, they always start out small affecting a small base, and as time grows they grow.
  14. If it cannot be owned, then it cannot be owned for governments to charge a levy on it. The fact the government want so charge implies a degree of ownership.
    What if an individual purchased land off the government who needed to raise money quickly, would they be able to own it then?

Critiquing LVT on document below


The prologue was absolute drivel and almost didn't read the rest because of it. But the article itself seems to be written by someone very informed and intelligent. So enjoyed spending several hours reading it. The author had some very interesting angles.
He makes a compelling case but I am not yet convinced. I have listed some holes below as I see it.

The basis of this article "Property is theft"

Land should/can not be owned by individuals. The author doesn't explain why this is the case properly, therfore undermining his argument severely.

Its an old idea, that no-one can truly own land and has been refuted in various books and articles and no doubt the debate will go on for centuries to come. 
  • One refutation is that if land cannot be owned a individual, then two individuals cannot own it, and if 40 individuals cannot own it, and by logical conclusion all individuals cannot own it. Basically how can a group of individuals legally do something that a single individual cannot?
  • Another refutation is the tragedy of the commons, which showed that having communal ownership could be detrimental.

The author talks about not confiscating land but

  • A tax is a confiscation on the benefits of land - almost the same thing.
  • Also the tax would decreases land prices, this is a form of confiscation as well.
  • In the end if the individual is allowed to own land, then governments have no right to tax them (otherwise the Government is established as the ultimate owner).


Author thinking like an economist rather than a politician.

  • He says that in good times the government will have a surplus to offset the bad times. However modern western governments do not have surpluses.
  • He says the LVT would be instead of other taxes. But in reality, no government removes a tax that brings in significant revenue, they would only risk backlash if it raised extra revenue for the government. Hence the LVT would be additional not instead of. This means the comparison that this is a fairer tax does not make sense as it is not a subsitute tax.

Authors economic errors

  • He ignores the international flows of capital. The land tax would have to be universal, otherwise capital would leave the country to invest in land without this tax.
  • The land tax would reduce the rates of return for savers and investors. This would be yet another tax on savers, that would further undermine the already damaged spending/saving balance in the economy .
  • Government expenditure is already about 50% of GDP in the U.K, he claims the tax will raise even more revenue. The first focus should be on cutting unnecessary spending rather than extra tax raising.
  • It seems one of the ideas of this document is that there should be no abnormal gains on investment. But this means than investment upsides are limited and risks are not taken into account. The goal is to undermine capitalism.
  • A tax on land would not end speculation, as some land would be worth more than other land still. Speculation will exist as long as there are price movements. Why is speculation bad anyway?
  • How does the government determine what the LVT tax rate should be, constantly changing it when people arrive or leave a city. They can't just have a flat rate, Scotland would need a lower rate than London. The administration costs would be huge, or the mispricing would be very destructive.
 

Dangerous paths

  • The author goes on to say anyone who earns anything abnormal because of the society they are in should be taxed for that as well.(i.e celebrity's) But this is a messy slippery slope. Effectively it turns things on its head. The state owns all property and labour, and allows you you keep some of it.
  • Have they thought about what happens if the public vote the land tax rate too high? Production will fall and unemployment will rise.
The very prolougue of this paper outlines that the purpose of land is for tax, so they have just written a paper to undermine the ownership of land in order to justify taxing the legal owners.
  • It argues that tax on land would bring unused sites into use, as owners would need the land to become productive. However there may a reason why land is not used, and as an owner of land it is your right not to use it. There is a counterargument, that tax, would stop some land being profitable at all, and that the tax on land would be passed on to the tenant, making their businesses less profiable.
  • It argues that housing and buildings would be cheaper, but with building owners having to pay tax, it will become less profitable to build new buildings. This will reduce supply and push up price till it reaches an equilibrium. The consequence of this is less home-builders employed, less people housed and less land owners spending money in shops. In return the government will spend the money on Quangos, overseas aid and other wasteful items.

Individual level

  • On an individual level, what if someone lost thier job and could not afford the yearly tax, would their family be kicked out of the home?
  • What about all the retirees that live off the money from renting their property, how will they cope with the loss of land values? What about the pension schemes that invest in properties?

References


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