Georgism and Universal Basic Income
Not all people who support land value tax (LVT) also support the idea of Universal Basic Income (UBI); and most people who support UBI don’t also support LVT (if they’ve even considered it). Nonetheless, it seems to me (Mark Wadsworth) personally that LVT and UBI share the same basic principles.
1. The philosophical level
Putting practicalities to one side, the basic assumptions are:
a) Nobody created land, it’s just there, so land belongs to everybody and nobody. The same applies to mineral deposits, radio frequencies, the oceans and so on, which Georgists consider to be ‘land’ for these purposes.
b) Humans are all equal. We are all where we are by accident of birth, and no human has an inherent right to a disproportionate share of the natural world to the exclusion of others (unless he compensates those others for excluding them).
c) Slightly more prosaically, while all people are different (different luck, energy, intelligence, attractiveness etc), the government should treat all citizens equally – one adult one vote; same right to use NHS; same right to ‘free’ state education for all children; why shouldn’t the same apply to welfare payments?
2. The economic level
a) Physical land itself has little intrinsic value, apart from agricultural use. In the modern world, 99% of land value is in developed and urbanised areas. The value of any plot of land (as opposed to the value of the buildings thereon) has nothing to do with the efforts or ingenuity of the individual owner, it depends on where it is or what goes on around it, or ‘location, location, location’ as the estate agents like to say.
b) ‘What goes on around it’ depends on society as a whole – what government services and what jobs, transport and leisure opportunities are easily accessible from it. The number of people who create that value is so large that to all intents and purposes, it is everybody in the whole country, and they all have an equal right to the value (in the same way that they have an equal right to an equal share of the natural world, it is futile to try and distinguish the two).
c) Government services cost money and create and sustain land values. So it seems very reasonable to fund those services out of taxes on land values, it’s just a user charge for benefits received. If the government provides the right mix of services and leaves the private sector to do what it does best, the land value that is generated can be far in excess of the cost of those services. For example, if providing public transport in an area costs £10 million a year and boosts local rental values by £20 million a year, there is a surplus of £10 million.
d) To whom does that £10 million surplus belong? Surely it belongs equally to everybody in the whole country, who all have the same moral entitlement to the value of land in every part of the country?
3. The practical level
a) The UK, like all developed countries, collects nearly half of GDP in taxation. Most taxes are collected from earnings and the value of output. In the UK, only about one-tenth of tax revenues are from taxes that relate fairly directly to land and buildings – things like Council Tax, Business Rates, Stamp Duty Land Tax, Capital Gains Tax and Inheritance Tax. As a modest start, those taxes should be replaced with a single flat tax on the value of developed and urban land, which would mean an annual tax of approximately one percent on the current selling price of each house. This would be inherently fair between different regions; between those who move and those who stay put; between first time buyers and older owner-occupiers; or indeed between tenants/landlords and owner-occupiers.
b) Quite how far and how fast we could go in reducing taxes on earnings and output and collecting more in LVT is a purely political question. The further and faster the better, as far as Georgists are concerned, but we have to be realistic.
c) The UK, like most developed countries, has a welfare system which has developed piecemeal over the centuries. There is no real underlying principle to the system, each benefit has its own justification and there are different rules for different benefits. It is all sticking plasters on top of sticking plasters. The most widely claimed ‘benefit’ is the tax free allowance for income tax and National Insurance (NI), which is not even usually recognised as a benefit. But in reality, if you strip away the overlaps and lacunas and iron out the contradictions, it all adds up to something pretty close to a UBI.
d) If you trawl statistics published by HM Revenue and Customs (HMRC) and Department for Work and Pensions (DWP) and add up the number of claimants or beneficiaries in all the different categories, you end up with more people than the entire population. If you add up the total spending (including the notional amount of income tax and NI not collected on the first few thousand pounds of income) and reallocate some to priority categories (people with disabilities and pensioners), the pot left over is sufficient to pay every adult in the UK about £100 a week and every child about £50 a week. At this level, most people would break even and a few might be £10 a week better or worse off.
4. Common objections
a) “Why should I pay LVT on my house?”. Because somebody has to pay for all the govermnent services which create and sustain the value of housing in your area. We expect home-owners to pay for their own repairs, utilities and insurance, why should ‘somebody else’ be forced to have tax deducted from their earnings to pay for all those government services?
b) “What about the asset-rich, cash-poor? They wouldn’t be able to afford the LVT.” It is true that some single pensioners who own expensive homes would not be able to pay the LVT each year. Which is why all mainstream LVT-supporters agree that pensioners would be allowed to defer LVT payments. The debts would be rolled up and collected out of the sales proceeds after death, which is another reason for rolling Inheritance Tax into LVT (or else it would be a double-charge on housing).
c) “Why should rich people get a UBI?”. It is this sort of narrow thinking which led to people earning more than £100,000 a year losing the tax-free personal allowance (but not benefit of the NI lower earnings limit, another glaring inconsistency) and to Child Benefit being clawed back if one parent earns more than £50,000 a year. This is achieved by making them pay more tax; highlighting that benefit withdrawal and taxation are effectively the same thing.
The answer is, “Why not? There are several tax breaks which primarily benefit higher earners, in particular tax relief for pension savings and certain investments. Would it not make sense to give them their personal allowance (or UBI) and their Child Benefit and reduce the generosity of these tax breaks?”. For example, instead of giving somebody on a salary of £125,000 pension tax breaks worth £16,000 and making them pay £10,000 extra tax and repaying £4,000 Child Benefit, why not let them have the personal allowance and Child Benefit (or Child UBI) and not give them tax relief for pensions savings?
d) “UBI would be unaffordable”. Most adult UBI recipients would be people in full-time jobs, and paying them a UBI would not be an extra cost. The value of the income tax- and NIC-free allowances is similar to a UBI, and a cost-neutral UBI would replace those allowances. So people in a full-time job wouldn’t notice any difference. Their payslips will show about £5,000 more income tax and NIC deducted and an equal and opposite amount called ‘UBI’ added back, and their net pay would stay much the same.
5. Simple is good
a) LVT is cheap and easy to administer and collect. The tax with the highest collection rate and the lowest compliance costs is Business Rates (which is very close to LVT, except that Business Rates are based on the total rental value of the land and buildings, and LVT is just based on the location element). The Council Tax banding system could easily be changed to be based on average selling prices of each type of home (flat, terraced, semi-detached, detached) in each area, and the LVT on each home would be a small percentage of the average for that type of home in that area.
b) The benefits with the lowest administration costs and fraud/error and the highest take-up rates are Child Benefit (flat rate and not means-tested, if you ignore the claw back from higher earners) and the State Pension (which is not means-tested). At present, the UK State Pension system is moving towards a flat rate old-age UBI; the retirement age for men and women is being equalised; and under the new system, men will receive on average less and women will receive on average more than they used to do under the purely contributions-based system.
c) There would be no duplication between the welfare system and the tax system with the resulting high claw back rates. Lower earners claiming welfare payments (such as Working Tax Credits) are subjected to very high marginal clawback rates. The tax system takes 32% of what they earn, and their welfare payments are reduced by another arbitrary percentage of what they earn, resulting in high clawback rates of 70% or 80% (and the loss of free school meals etc.). This is a massive disincentive to work legally or a massive incentive to game the system by working cash-in-hand.
d) Simple is easy to monitor in terms of behavioural changes. If any of the doom-laden anti-LVT predictions are true, then we will notice quickly enough. Two other common arguments against UBI cancel each other out. One says that if people are paid an unconditional UBI with no requirement to seek work then they won’t unless employers offer higher wages; the other says that employers will use UBI as an excuse to pay lower wages (some people say that UBI is just a subsidy to corporations, which is already true for Working Tax Credits, of course). If all welfare paymnents were harmonised into a single flat rate, then we can easily monitor which effect outweighs the other by adusting the weekly UBI-rate up or down. There’s a trade-off between lifting people out of poverty and lifting them so far out of poverty that they work less and it can’t be difficult to strike a balance.
6. Final thought
The purpose of UBI is – partly – to reduce inquality and poverty, so there is no point trying to fund it out of taxes which themselves exacerbate inequality and poverty, such as business- and job-killers like Value Added tax or high NIC on employment. LVT has to be the best source of funding (by its very nature, LVT reduces inequality and poverty). The second best is income tax on personal annual incomes above (say) £50,000, because higher incomes include a significant ‘rental’ element (they largely depend on the efforts and skills of colleagues and subordinates and/or the market or political power of the organisation), not the individual effort and skill of the lucky department head or lucky CEO).