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Killer Arguments Against LVT, Not (336, 337)
I was given the opportunity to wheel out my usual talk recently i.e. we could replace a whole load of 'regressive', 'progressive'* and downright fiddly taxes on residential land and private wealth** etc with a flat tax of about 25% of site-only rental values (or 0.9% of current selling prices, as an approximation) and by and large and over a lifetime, most households would pay much the same.
One nay-sayer who was at least well-informed pointed out that s106 Agreements and the Community Infrastructe Levy (aka 'roof tax') raised about £4 billion a year.
I admitted that I didn't realise it was that much and that I hadn't added it to the list because I couldn't track down the total figure, which is indeed correct, £4.8 billion for 2011-12 according to the DCLG (if you including notional payments). That's a surprisingly large amount of money.
We also happen to know that the landbankers aka home builders have enough land for about 400,000 homes, divided one by t'other and the average annual tax per potential home is £12,000.
So the land bankers would actually come out on top if we scrapped all this s106/CIL nonsense and they just had to pay LVT from the day they get planning permission at the same rate as the LVT on each home when finished, i.e. on average about £2,000 per potential home per year.
But unlike s106/CIL, such a tax would encourage the land bankers to release more land for building, and it would encourage councils to grant more planning (to raise the same amount of money they'd have to grant five or six times as many building permits). But there would not be a flood of new construction because LVT encourages more efficient use of existing land and buildings so we would end up far closer to the optimum i.e. market clearing level, whatever that is.
Win-win!
* I don't really like these terms except in a strict mathematical sense, i.e. 'regressive' means that the tax rate on people with 'not much' is higher than the tax rate on people with 'a lot', although apart from straight poll taxes, people with 'a lot' pay more in absolute terms than those with 'not much'.
** The usual list: Council Tax, SDLT, Capital Gains Tax, TV licence fee, Inheritance Tax, Stamp Duty, Insurance Premium Tax, ATED, the non-dom levy etc. Total revenues £52 billion. The longer list includes s106 agreements and the Community Infrastucture levy, of course.
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Another KLN was that we didn't know what the 'distributional' aspects would be. Firstly, as I illustrated with diagrams and tables, it wouldn't be very much, but that is not the point.
The points are that
1. Collecting taxes from land values (rather than transactions in land or anything else) always makes things better for everybody overall. It's like taxes on pollution or any other user charges or price rationing. Does it matter if somebody pays £1,000 more tax a year, if as a result of the shift, his earnings increase by £2,000 and his cost of living goes down by £1,000?
2. Some people were squinting at the bottom end of the chart and saying “It looks to me as if people in £100,000 homes will be paying a couple of hundred quid more than now” and others were squinting the top end and saying “It looks to me as if people in £1 million homes will be paying a bit less than now”.
Well, whether that is true depends on how you set the rate or the nil rate band, but so what? As long as the tax on a £1 million home is about ten times as much as on a £100,000 home, that seems right and proper to me. The VAT on an £80,000 Range Rover is four times as much as the VAT on a £20,000 family saloon, nobody complains about that. And what about the one-third of adults who don't even own a £100,000 home? Under LVT, they pay nothing (directly) which also seems right and proper to me. Nobody mentioned them.
3. Of course there would be 'distributional impacts' but a) these would be surprisingly small and b) primarily the transfer would be from people in expensive homes with nothing in savings or with a big mortgage; to people in lower value homes with a lot of savings and other investments with a low or no mortgage. The tax encourages thrift and savings.
So it wouldn't be up- or downward redistribution, it would be sideways. The net transfers between these groups would only be a couple of billion either way as most people would pay the same overall.And simplicity is always good for everybody except for lawyers and accountants.
4. Just about everything the government does redistributes wealth somehow or other. They can increase teachers' pay or reduce it. They can increase VAT and cut Council Tax. They can run a modest surplus or massive deficits. They can subsidise banks or tax banks etc etc. So a modest sideways redistribution from the rentier economy to the productive economy can hardly be chalked up as a negative.
Source: http://markwadsworth.blogspot.com/2014/09/killer-arguments-against-lvt-not-336-337.html
