Why we should switch to Land Value Taxation, by Mark Wadsworth

Harrisburg, Pennsylvania USA - the "Georgist" town is an LVT success story.

There are plenty of articles explaining why taxes on the rental value of urban land/location* are the best kind of taxes, some of them start with the underlying moral arguments – that land is a free gift of nature or that 95% of location values are created by the whole of society (“Location, location, location”) – and some skip straight to the positive outcomes (more efficient use and allocation of land, no deadweight costs).

(* Please note that agriculture measured by farm gate prices is only one per cent of the UK economy and the rental value of all farmland, three quarters of the UK by area is only one per cent of the total rental value of urban/developed land. It is barely worthwhile collecting taxes on the value of farmland, this is a non-issuer).

Just for a change let’s start in the middle and look at this from a purely pragmatic point of view and compare and contrast three basic kinds of tax in terms of these five headings:

i)       assessability

ii)     collectability

iii)   dead weight costs

iv)   ability to pay

v)     willingness to pay

I’ll put numbers on all this in a later post – it is most illuminating if we assume that the government rolled all existing “taxes” (i.e. ignoring duties and rents in the narrower sense) into one single tax which would have to raise about £450 billion a year – this post is just to illustrate the principles.

Poll tax

i) These are easy to assess, it is simply the total tax revenue required divided by the number of adults obliged to pay it.

 ii) Collectability is appalling, as we well know.

 iii) Ignoring the enormous costs of chasing all the people who can’t afford to pay, poll taxes score well in terms of dead weight costs as they are not a tax on income, so they are an incentive to earn as much as you can rather than being a disincentive.

iv) They score appallingly on ability to pay, by definition, as there is no correlation between the tax and your assets or income.

v) Everybody hates paying tax. If the entire government were funded by a Poll Tax then the top third or quarter of people by assets or income would do well out of the system if everybody pays up, but they would have the same incentive to cheat as anybody else by e.g. claiming to be non-resident.

Further, there is no correlation between the amount you pay and the benefits you receive from society as a whole. S successful stockbroker who takes the subsidised train out to his four-bed detached house in the catchment area of a good state school in Surrey clearly receives far more benefits than an unemployed ex-steel worker in a council flat on Tyneside.

 Taxes in turnover, employment, profits and income

 These include Value Added Tax, National Insurance, corporation tax and income tax. Please note that VAT is not a harmless tax on “consumption”, it is a tax on gross profits of unfavoured productive businesses and is simply not applied to most profits derived from land ownership or banking.

 i) Assessability is not impossible, as we know, but most businesses have to cope with four layers of tax on income and split up their turnover, expenses and residual payments out into VAT-able and exempt turnover (or expenses); into payments to employees and the self-employed and into taxable and non-taxable profits (reinvested profits are by definition matched by capital spending or capital allowances). Individuals have to go through the same rigmarole.

 ii) Collectability. There is every incentive to avoid taxes. If it is simple evasion then economic activity still takes place, but the residual rates of tax have to be increased on those who are not in a position to hide their income (or who are just too honest for their own good). We know that even in the UK – which has quite a good record of compliance) there are huge amounts of evaded and unpaid taxes.

iii) Dead weight costs. These are enormous of course. These costs refer to the huge but invisible costs of all that economic activity which simply does not take place because of taxes. It is estimated that every 1% on VAT costs 100,000 jobs, for example, the impact of the other taxes in isolation is not quite as dramatic, but it all adds up. So businesses go out of business (or never get off the ground) and we end up with mass unemployment. The total deadweight costs are ten or fifteen per cent of GDP, i.e. between £100 and £200 billion a year (more than enough to eradicate our trade deficit and to turn it into a comfortable surplus).

iv) Ability to pay. These taxes score relatively well on that front, by definition. But remember that if you look at all these taxes in the round, the marginal rate for our median taxpayer (basic rate employee not entitled to tax credits working for a VATable business) is fifty per cent, with much higher rates for higher and additional rate taxpayers and the highest rates of all for those receiving means tested benefits. Again, the people who lose out most are those who pay little or nothing in cash terms – in other words all the failed businesses and the unemployed.

 v) Willingness to pay. Although most people comply, this is only grudgingly –they are too honest to cheat and there is a vague understanding that somebody has to pay for all the things the government does. But there is absolutely no correlation between the amount of tax you pay and the benefits you receive from the government. If anything there is a negative correlation because the highest earners receive nothing in cash benefits and are more likely to pay extra for private security, private health insurance or private education.

Taxes on the rental value of land

Land Value Tax in all its guises scores well on all fronts and seem to combine the best aspects of the other two types:

i)                   Assessability. Is easy. As a layman, you cannot begin to guess how many adults live in a particular home, how much they earn or what the turnover and profits or a particular business are – it requires the force of law to make people disclose all these things.

But working out the rental value of each site is very easy; all you need to do is to know selling prices and rental values of a reasonably large sample of residential and commercial premises in each smaller defined area. You then subtract the rental value of similar premises in the cheapest area and the balance is the “site premium”, i.e. the “location, location, location” value which is generated by society as a whole.

 

ii)                 Collectability is also a doddle. Whoever is registered as the owner at HM Land Registry has to pay the tax each year. If that owner does not pay, then the arrears can easily be registered as a charge and once two or three years’ arrears have been built up, the title is auctioned off and the arrears withheld from the sales proceeds. For sure, some land owners are not yet registered at HM Land Registry, but that is far from saying that the land itself is not registered and this has never been a hindrance to collecting Council Tax or Business Rates, which have the highest collection rates of all taxes at 98% or so.

 

iii)               Taxes on the rental value have zero dead weight costs – like a Poll Tax - as they are not related to private income or output. There is plenty of evidence to show that they tend to stimulate the economy because land and buildings will always be put to their most efficient use, in other words it would be too expensive to keep valuable urban sites out of use or to allow buildings to fall derelict. If taxes on land replace taxes on output and employment etc, then this would shed the economy of the existing dead weight costs.

iv)               The traditional main argument against taxes on the rental value of land is “ability to pay”, the Poor Widow Bogey. They say that the tax would hit the “asset rich, cash poor”. This is a non-argument in practical terms because it would be easy to give such people discounts, exemptions or even better, the opportunity to defer and roll up the tax to be repaid on death.

It is also only a transitional issue and does not apply to the working population (the “wealth creators”) anyway.  By and large, low-income people move into cheap houses and high-income people move into expensive houses. Each purchaser will take the tax into account when deciding which house he wants to buy and will reduce the amount he is prepared to take out as a mortgage accordingly, so in real terms, the tax costs him nothing. It is the same with business tenants – they work out how much premises are worth to them, subtract the Business Rates and pay the smaller balance as rent to the landlord.

v)                 Willingness to pay. Today’s land owners spit feathers about Business Rates and Council Tax, and we know that the banks and land owners (and their stooges in the press, Parliament and academia) have been are running a highly successful anti-LVT campaign for a century.

But look at in terms of tenants and the next generation of purchasers. Unlike taxes on income, there is a perfect correlation between what you pay and what you get. If you are willing and able to pay more, you get somewhere nicer, if you are unwilling or unable to pay, you get somewhere not so nice – but this is exactly the same allocation as under current rules whereby land/location values are collected privately by the current land owner when he rents or sells.

This is absolutely no different to owners of big cars paying much more in VAT on the new car, in fuel duty or road fund licence. If we go with the fiction that VAT is borne by the purchaser, does anybody complain that VAT on new cars is unfair, as it does not relate to “ability or willingness to pay”? Of course not – if you can afford a new BMW, you pay £10,000 in VAT and if you buy a run of the mill family saloon, you only pay £4,000 VAT. If you can only afford a second hand car, you pay little or nothing in VAT.

Summary

 

Land Value Tax has all the merits of a Poll Tax – it is easy to assess and has no dead weight costs, but beats it hands down in terms of collectability, ability and willingness to pay (there is a match between amount paid and benefits received).

Land Value Tax has all the merits of taxes on income as in the medium term as it relates to ability to pay (once everybody has “right sized”) but none of the disadvantages – it is easier to assess and collect and has no dead weight costs. It also beats it hands down in terms of “willingness to pay”.

So besides the moral or philosophical arguments and the fact that LVT leads to better outcomes (an LVT-only world works better than a world without government or taxes), it is quite simply the case that LVT beats all other forms of tax in a simple everyday pragmatic sense.

All original material is copyright of its author. Fair use permitted. Contact via comment. Unless indicated otherwise, all internet links accessed at time of writing. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

A rant

Richard Murphy grits his teeth at the Daily Mail, which is fighting a rearguard action on its criticisms of Miliband père and has started a counterattack on the Guardian's Snowden releases.

Richard has done sterling work on tracking offshore capital and tax avoidance, but has fallen into the trap of political and newspaper tribalism. What Dacre and Rusbridger say about themselves, each other and their respective publications will just be talking their brief. But the DM is something of a bullyrag to people of certain convictions, and it seems (I hope to be proved wrong) that they can't help but respond entirely predictably.

For example, a comment from "Philip" says, among other things, "The DM may not represent the ‘centre ground’ of establishment ideology but they do represent its worst excesses, its dregs, its most toxic sludge. They are its gutter. Gutter press in the truest sense."

So I say:

"Not sure the left vs right dichotomy is clear or helpful. On key issues both sides of Parliament appear to agree, e.g. on economic migration, though one suspects for different reasons (the Conservatives because importing cheap labour undercuts the working class' attempts to maintain and improve wage rates, New Labour because it "rubs the Right's nose in diversity" and - they hope - brings in fresh supporters for the Big State).

"The hegemony is that of coldly calculating careerist politicians and hangers-on who now know how to make the psephological machine work. Bear in mind that only one-third of MPs get 50%+ of the votes cast in a General Election (true in 2007 and 2010, for example), and look how they cooperated across the floor of the House to rubbish the Alternative Vote. Dum and Dee. I shall never forget seeing Cameron lead the applause for Blair as the latter parachuted out of Parliament and into the arms of JPM, and how only 4 MPs sat on their hands.

"I read the Daily Mail, just as Philip appears to read Karl Marx - critically (BTW - reference for the quotation, please?). This is something Radio 4 comedians and their obediently sniggering audiences don't seem to understand. When they slag off the DM, perhaps for the sake of balance they can remind their sycophantic listeners how the journalists in the Guardian newsroom watched the Twin Towers burn live on TV and said the Americans had it coming to them. As far as I'm concerned no paper and no TV station represents "pravda" or "izvestiya"."

And, by the way, as with Assange, I'm glad Snowden has made certain documents public. It's not the Russians that our lot want to hide it from, it's us. In recent years we've begun to understand what our own governments are like - they are, as Charles Lamb said, "as bad as they dare to be" (10 March 1798).

All original material is copyright of its author. Fair use permitted. Contact via comment. Unless indicated otherwise, all internet links accessed at time of writing. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Max Hastings' devastating revelation of right-wing American sexual practices!

"They want to reset the clock to around 1955, when... sex was kept in its proper place under the carpet." (In the Daily Mail today)

All original material is copyright of its author. Fair use permitted. Contact via comment. Unless indicated otherwise, all internet links accessed at time of writing. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Reporting Heath's Treason (2)

(Pic source)

The adjective "superb" is often awarded too easily, but in this case it is fully justified. Last week, Albert Burgess recounted how he was shown classified documents that proved Edward Heath and others committed treason when they took us into the Common Market in the 1970s, and how he went straight to a police station in Oxford to report the crime. In today's instalment, he discomfits successive levels of police hierarchy by reminding them of their sworn duty to uphold the law.

Whether Albert will ever succeed in his primary aim is uncertain to say the least, but he feels morally bound, and the police are professionally required, to try. The greater issue revealed in this process is, on what does power in this country stand? If it is our constitution, laws, truth and logic, it seems Albert must prevail; if not, we have the dreadful prospect - some would say, a present reality - of arbitrary rule by tyrants.

A few days later I received a letter from one Superintendent Trotman saying he was not going to investigate, his reasons being it would be difficult to obtain evidence as all the witnesses were dead (not true), R vs. Commissioner of the Metropolis exparte Blackburn 1968 gave the police the right to decide which crimes they investigate and which they don't, and he was not prepared to allocate his resources.

I wrote him and told him that treason required him to investigate as a priority, that Blackburn was nonsense and that a lot of the people who worked with Heath were not only not dead but readily available.

A couple of days later a woman police officer who was Superintendent Trotman’s assistant phoned me and said, "What exactly do you want?"

I said, "I want to turn on the six o'clock news and see Douglas Hurd in handcuffs being helped into the back of a police car, and 10 months later I want to see him and others on trial for his life at the old Bailey."

She said, "I will put this through to Special Branch."

I said, "Give me their number so I can talk to them."

She said, “Hold on, he's just walked past my door, I’ll get him."

After a few seconds a Detective Inspector from Special Branch came on the phone. He said, "I know about this, and have allocated a woman detective constable to it, but she is very busy and will not get to you for three weeks."

I said. "Give her my number and tell her if I have not heard from her in five days I will submit a formal allegation of neglect of duty against her."

The following morning she phoned to tell me she had a two hour window and could come and see me. We arranged for her to come about noon and I phoned David Barnby to see if he wanted to be there; he did and he arrived about half an hour before two detectives. I explained what Heath had done and what the crimes were and handed over another set of documents, and then they left.

After a number of letters Superintendent Trotman wrote to say he was not going to conduct the investigation. So I submitted a formal allegation against him for neglect of duty under the police discipline codes and for Misprision of Treason at Common Law.

Two weeks later I had a knock on my door and a Chief Inspector Howard from the complaints department and his Sergeant were there. I invited them in and DCI Howard told me they had cleared the Superintendent.

I said "Did you read the documents?" He said, "I glanced at them." I said, "Did you read them?" He said, "I glanced at them." I said, "Without reading them and studying the treason laws, how can you clear him or convict him?" He said, "Well, we have because we don't want the Chief Constable’s photo on the front page of every newspaper as the Chief Constable investigating the government for treason." I said, "She hasn't got to be Chief Constable without having her picture taken, and I am not asking her to go topless on page 3."

Then he confirmed what I had been hoping they would not notice when he said, "The real reason we are not going to do this, is that if we get a conviction against any of Heath's people, which we probably could on the evidence you have supplied, we would have to go out and arrest every government minister for the last 35 years, and that we are not prepared to do." I said, "You are not allowed to make the decision on those grounds, you have to follow the evidence where it leads you."

He got up to leave and I said, "How do you like knowing I know you are a liar?" He said, "What do you mean?" I said, "You took an oath to uphold the laws of this country without favour, fear, malice or ill will. You have just told me because it means arresting government ministers you are not going to do it. That makes you a liar."

He left in a huff.
 

All original material is copyright of its author. Fair use permitted. Contact via comment. Unless indicated otherwise, all internet links accessed at time of writing. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy.

Default Risk Zero

So the US government is having a little argument about the debt ceiling again. China and Japan have warned that a US default might be a little nasty and even the President himself has warned of financial Armageddon.

So why are the markets so sanguine? Where's the panic?

Well we all know there will be a last-minute deal, it's like those clichéd  cop dramas where you know the protagonist is in no real danger. If there was any doubt in your mind take a look at the appointment of über dove Janet Yellen to the chair of the Federal Reserve. A sure signal that they plan to print to infinity.

Back to sleep everyone, no story here.

However…

The US government have no option but default, the only question is when, but that my friend is another story.

All original material is copyright of its author. Fair use permitted. Contact via comment. Unless indicated otherwise, all internet links accessed at time of writing. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

A graphic tale

This is a wee story of days gone by, imparted to me in the seventies.

Once upon a time there was a small laboratory on the edge of the great unknown. Not too far from Birmingham to be more precise. This little laboratory carried out basic tests on waste water such as sewage effluent, including a test for ammonia.

A simple chemical test was used where a colour develops in the test cell, the intensity of colour indicating how much ammonia is present in the water sample. Light absorbed by the colour allows an ammonia concentration to be read off from a previously prepared calibration graph.

In this case the calibration graph was kept in a drawer where it had been stored for so long that it had become tatty and disreputable as laboratory paperwork usually did in those days. It had never been checked either, until that fatal day when some keen person decided to recalibrate the test and draw a brand new graph on a fresh sheet of graph paper.

Oh dear.

The old calibration graph turned out to be wrong by a factor of two. For years, ammonia concentrations in the effluent had been reported as twice what they actually were.

What to do?

During the following few months, the scientists concerned made a series of small adjustments to their calibration graph, eventually bringing it into line with reality. Nobody was any the wiser, although a welcome improvement in the ammonia levels of the effluent did not go unnoticed.

Not a typical episode in scientific history I should add. It took place in the sixties too. Not a reliable period, yet by analogy it provokes a question. Do climate modellers intend to do something similar if the climate continues to misbehave? Of course in a sense the Met Office already has.

All original material is copyright of its author. Fair use permitted. Contact via comment. Unless indicated otherwise, all internet links accessed at time of writing. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Dead Man's Fingers

Xylaria polymorpha or Dead Man's Fingers growing on a dead tree near Cromford in Derbyshire. Good name isn't it? 

All original material is copyright of its author. Fair use permitted. Contact via comment. Unless indicated otherwise, all internet links accessed at time of writing. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.