19 thoughts on “The case for a Land Value Tax”

  1. Posted 15/02/2016 at 15:38 | Permalink

    We can do without the IEA advocating new taxes. Thanks.

  2. Posted 15/02/2016 at 17:18 | Permalink

    Anonymous, Daran says several times that he wants LVT to be revenue-neutral, and that business rates, council tax and stamp duty should go.

  3. Posted 15/02/2016 at 17:22 | Permalink

    Well revenue neutral is not good enough. Want revenue reducing.

  4. Posted 15/02/2016 at 17:43 | Permalink

    there is an unfortunate paradox of tax systems in democracies in that it is likely that the better designed is a tax system from the economic welfare point of view, the higher taxes are likely to be because the growth effects of higher taxes will be more palatable. Of course, that should not be a reason to adopt bad tax systems.

  5. Posted 15/02/2016 at 18:11 | Permalink

    Lovely article, I will share this. As a medium target we ought to look at replacing all existing taxes on land and capital with straight LVT… Council tax, SDLT, stamp duty, CGT, iht, insurance premium tax and the TV licence. The more you replace, the fewer winners or losers.

  6. Posted 15/02/2016 at 19:31 | Permalink

    Land value tax should indeed be applied to all land, but home owners are spoiled by preferential tax rates, which have raised the prices of residential land. That is, it does not benefit the home buyer, but the home seller. In any case, the only way it is politically feasible to tax all land value regardless of use is to couple it with a per capita dividend. That way the aggregate cost to home owners can remain what it is now.

    The point is to avoid picking winners and losers and focus on economic benefits that accrue to everyone.

  7. Posted 15/02/2016 at 20:49 | Permalink

    Landowners would simply recover the tax from tenants. The tax incidence would be on tenants, not on landlords

  8. Posted 15/02/2016 at 22:34 | Permalink

    Yes its a good tax.

    But why business rates 1st – would it not make more sense to do residential 1st?

  9. Posted 16/02/2016 at 08:14 | Permalink

    I see we have our first Killer Argument by Anon on Mon: “Landowners would simply recover the tax from tenants. The tax incidence would be on tenants, not on landlords”

    Thats clearly not true, but assuming AOM believes it, can he please clarify whether he thinks this is a good or a bad thing?

  10. Posted 16/02/2016 at 16:17 | Permalink

    Let’s kill of existing taxes. We don’t need “better” ones. And as for a tax “seeding economic growth”, please someone tell me Daran was joking.

  11. Posted 16/02/2016 at 20:19 | Permalink

    The last thing the IEA should be doing is advocating another tax, no matter how well intentioned. We all know that the state only exists to grow and new tax revenue only allows it to increase its scope further.

    What you’re actually going to end up with is the Land Value Tax AND all the other taxes currently in place. All it takes is a Gordon Brown-like Chancellor (or should I say George Osborne-like) with the power to tax at his fingertips.

    There isn’t enough money in the world to pay for the unfunded liabilities in the various pension and healthcare systems and I’m afraid these are all going to be forced upon us eventually just as they are already trying to prepare us for negative interest rates (tax on bank deposits) in a cashless society.

  12. Posted 16/02/2016 at 22:08 | Permalink

    Landowners would *not* pass the tax on to tenants. To the contrary, it would lower rents. This is agreed upon by major economists, including conservatives like Samuelson and Friedman. The tax is most burdensome to holder of prime vacant land who have no tenants. The tax pushes them to put that land to use, giving tenants more options (i.e., increasing supply). Increased supply lowers rents.

    Meanwhile, the landlords with actual tenants are the ones who would see their building taxes reduced, so their total taxes would in many cases be lower. So they *can* lower rents because their own tax burdens are lower, and they *must* lower rents because other land is coming on the market.

    As for Peter Snow not believing in land value tax “seeding economic growth,” evidence that it does exactly that is overwhelming. Dozens of cities in Pennsylvania and hundreds in Australia have proven this beyond a shadow of a doubt. The real estate editor of Fortune wrote about it in his article, “Higher Taxes that Promote Development.”

    http://savingcommunities.org/docs/fortune/hightax.html

    Residential already gets massive tax advantages compared to business property. It is economically wrong to do this in a way that would further these advantages, and politically impossible to take those advantages away until the tax proves itself. However, it would be good to couple land value tax with per capita dividends, which would only increase taxes for people in the most posh neighborhoods or sitting on great estates.

  13. Posted 17/02/2016 at 11:25 | Permalink

    Take a leasehold block of flats. The leaseholders must pay to the landlord ground rent and service charge every year. Usually, the ground rent is token and is set by the lease agreement.

    Along comes LVT. The landlord must now pay to the governmentt each year an amount far in excess of the receivable ground rent. The choices open to the landlord are:

    1. Sell the freehold interest to a 3rd party. The transfer price is llkely to be at a hefty discount on the original purchase price, giving rise to a capital loss for the exiting landlord. This would appear to be an infeasible option because the incoming landlord wuld be acquiring a net liability – not a very attractive course of action.
    2. Sell the feehold interest to the tenants of the block. They would then become liable for their share of the LVT. The tax will have been passed to the tenants under this option. It also seems likely that the leases will need to be redrafted – an additional and significant cost to the tenants.
    3. Stay put and suffer the losses incurred by the introduction of LVT.

  14. Posted 17/02/2016 at 11:52 | Permalink

    I see that Anon is contradicting himself nicely. The likely outcome is that the tenants acquire the freehold at a discount in exchange for taking on the future tax liability. So they break even on the deal – the discount is equal and opposite to the future tax liability. Duh. So this is not a problem. The example is not even realistic – a sensible LVT system would apportion the LVT bill between long leaseholders (most of it) and the freehold (a small part of it – the LVT on the freehold would be no more than the ground rent income). Click my name for the “Killer Arguments Against LVT, Not” blog.

  15. Posted 17/02/2016 at 13:58 | Permalink

    @Mark Wadsworth

    OK, so LVT would enfranchise long leaseholders. Good, I am all for that. But the long leaseholders would also become the effective freeholders under enfranchisement and so become liable for the whole LVT, the exiting freeholder having transferred the freehold to the leaseholders so as to escape liability.

    Of course, the newly engranchised leasholders may offset their newly acquired additional liability by reducing the service charge previously due to the outgoing landlord. But it’s all “ifs” and “may”. The supposed benefits of LVT are far too speculative for it to be a serious runner.

  16. Posted 17/02/2016 at 19:58 | Permalink

    Anon, the merits of LVT are not in the slightest bit speculative. The UK has a quasi-LVT called Business Rates and used to have quasi-LVT called Domestic Rates replaced with a poll tax called council tax. PLus a thousand examples from other countries. The damaging effects of VAT, National Insurance and higher rate income tax are not speculative. Neither are the damaging effects of SDLT or the inherent unfairness of Inheritance Tax or the TV licence fee in any way speculative. These are all just measurable facts, whether you like it or not.

  17. Posted 18/02/2016 at 00:15 | Permalink

    The benefits are only speculative to those who are ignorant of the rich history of LVT applications.

  18. Posted 18/02/2016 at 17:54 | Permalink

    Common Law and the early stages of feudalism were based on land value tax. It was the “fee” (feu) that kept people from grabbing land they were not using. The class system was based on landlords pocketing those fees for themselves and making people pay taxes even if they had no land. Thus William Godwin wrote in “Enquiry Concerning Political Justice,”

    ‘First then, legislation is in almost every country grossly the favourer of the rich against the poor…. Thus in England the land tax at this moment produces half a million less than it did a century ago, while the taxes on consumption have experienced an addition of thirteen millions per annum during the same period. This is an attempt, whether effectual or no, to throw the burthen from the rich upon the poor, and as such is an exhibition of the spirit of legislation.”

  19. Posted 22/04/2016 at 09:46 | Permalink

    There are a few babyish objections to Land Value tax on here from free market apostles who clearly do not understand free market economics.

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