More objections to LVT

These by email from someone called Richard Davis, of a company called Praetorian Properties, so not exactly a disinterested party. One would have thought that a property professional would have a better grasp of the implication of LVT, but seemingly not in this case. I tried to reply but the email was returned.

LAND VALUE TAX – PRACTICAL CONCERNS

I have seen numerous comments on the Guardian website concerning LVT and this naturally drew me to your web page where the advantages of such a move are laid out in detail.  Although attractive in simplicity and a certain cure for property fluctuations and distortions I have some concerns over LVT as follows :-

Ignoring the giant issue of implementation without financial turmoil I have split my concerns into two groups….

SOCIETY

1) Replacing Income tax, Capital gains and Corporation tax with LVT is at the core of the idea but will society accept effectively lower taxation for the super rich?  As any tax will only be due on a property individuals occupy (either directly as owner or indirect as rental) a wealthy individual such as a hedge fund manager can choose the amount of tax he pays by his property choice irrespective of his income. If they choose a modest central home or a mansion in a remote location they could pay very little tax, certainly less than a large family. You may state that choice would be unlikely but they could purchase a lavish mansion abroad beyond the scope of LVT or simply retire early and take their largely untaxed earnings to an exotic foreign beach. Many wealthy high earning individuals may choose not to and instead continue to purchase central London mansions but if even if a few do not how will you justify this to the public as being fair?

2) There has long been a suspicion that the owners of private businesses are too slippery and have too many opportunities to avoid tax. If Income tax and Corporation tax are cancelled then effectively there would be no difference between company money and personal money allowing owners of businesses great purchasing power. If the business requires minor property space such as consulting or financial services then LVT will give a huge advantage over large manufacturers or the general public. Will people accept large profits from certain business models going untaxed just because they do not require land?

3) Currently the World’s financial crisis has brought a lot of attention to Tax havens either through their exceptionally low tax rates or secrecy. If LVT were the only tax in the UK what is to stop a company renting a broom cupboard in London and registering as a UK company just to benefit from zero percent tax. Would our European neighbours be delighted to see their companies register in the UK in order to shelter from tax just like any Tax haven? Will the general public allow worldwide companies to have a nominal HQ in London receiving Billions in profits and paying no tax while they pay for their family homes?

INDIVIDUALS

4) The concerns over Pensioners have been raised before but without any real solution. If LVT is to be adopted how will you persuade anyone near or at retirement? The idea that taxation will continue at the same amount or higher through annual increases while a person drops in income at retirement just strikes many as unfair. Forcing these pensioners to relocate out to smaller or more remote locations may solve some of the housing problems but is seen as cruel and unjust. The proposed solutions are vague and unpromising, deferring the tax will just eat at the equity until its gone and then what? Increasing pensions will need large increases in LVT from the other sections of the public that could unbalance society!

5) Social housing remains a challenging area where passions run deep as seen by the discussion over lifelong tenancies. If LVT were adopted then any social housing would be a loss to tax income compared to that property being in private hands. How could you assure those in need of such housing that there will not be a desire to minimise the numbers of social housing and move it to remote locations? If the numbers of such properties rise then the tax due on the rest will become higher, how will you deter people for applying for such housing knowing that they will pay no tax of any sort in occupation? Will LVT become due if a tenant earns beyond a certain amount? You may suggest that LVT will lower house prices or rentals to the point that many could afford the private sector but still many may apply for social housing especially if it comes with a lifelong exemption from any tax.

6) Many governments have seen fit in the past to make efforts to encourage people to have families and help with the costs involved through policies such as a marriage allowance or tax credits. Currently if a couple decide one partner will stop working to bring up the children then their tax bill falls with their income. Under LVT the tax due would remain the same if a partner stopped work through childrearing or even unemployment creating a strong disincentive to have children. Indeed many would be reluctant to move to a bigger family house knowing that a higher tax bill would come with it and therefore you would undoubtedly see children being brought up in cramped or unsuitable properties based solely on minimising tax. How would LVT accommodate concerns over the need for family houses or to survive periods of unemployment? Mortgages can be fixed five years in advance but LVT could increase yearly. It would seem that the central idea of land being efficiently used and taxed accordingly is in conflict with the need for children that bring in no additional income but only expenditure.

CONCLUSION

It is my opinion that many of those who comment positively on LVT are in fact confusing it with a focused form of wealth tax that appeals to left wing voters on the basis that it would target and punish greedy land owners (Duke of Westminster etc). When it is explained that it would replace other taxes their approval fades in the face of the new problems LVT raises over fairness and their general feeling that LVT should be purely punitive rather than balanced. I cannot see how LVT is to achieve wider approval when those on the left refuse the removal of current taxes and those on the right seek to protect their current wealth through property speculation. LVT is an interesting idea but as the Irish say I would not start from here….

Regards

Richard Davis

 

OBJECTIONS ANSWERED

I received this in response from an Andrew Hart, which seems a reasonable response to the original objections, though I would want to check it through more carefully before I could fully endorse what is said. I thought it was worth publishing anyway.

Most of Richard’s objections are based on the most fundamental misunderstanding most opponents to LVT have. They do not understand that they are already paying it. I don’t think this concept is mentioned enough in LVT advocacy because it destroys at a stroke most of the nonsense that people who would otherwise benefit from LVT throw up to try and prove it wrong.

In particular, he may be right about government’s unwillingness to lower other forms of tax, but LVT can be implemented without doing so (it would just be a really good idea), and immediately increase state revenue without any loss to the economy.

Once people understand that the LVT campaign is not about adding a new tax, but changing the recipient of an existing one (currently paid to very-long-term landowners and banks – and hereafter referred to as ET), I think a lot of the objections will lose their teeth.

To answer Richard’s enumerated issues:

1) Again, other taxes don’t have to be reduced, although they should, but the rich were already willing to pay the ET to have the property, so by definition they are willing to pay the price of living there. And if they ‘suddenly’ aren’t, well that frees up land to do something useful with, doesn’t it? How is any of that bad?

2) Is nonsensical.  Corporations are too evasive of income tax, so we musn’t replace it with a tax they can’t avoid….? Seriously? Incidentally what exactly does he think the businesses will do with the increased spending power he conjures up?

Again, however ultimately this concern vanishes because the situation he descibes is happening right now without ‘LVT’, because he forgets about the ET. Manufacturers are already at a disadvantage and they deal with it by being based in relatively remote (and therefore cheap) spots (town outskirts, small villages, the north!).

3) I’ve read and reread this but can’t find anything even remotely bad about this scenario. Every company wants to be based in the UK. Super! More jobs for us! And why would we suddenly start caring about what Europe thought? Europe had any sense, they would move to LVT as well! If we really want to be leaders in Europe, LVT is a brilliant way to do it.

4) The Pensioner question is just a specific form of the transition question. Society has structured itself around the getting the most individually from the current tax system. The question is how do you introduce the LVT in a way that people aren’t suddenly impoverished? It’s certainly not an intractable problem (we somehow muddle through with the ridiculous system we have now after all!) and once it’s done, society will have restructured itself to take account of it. For example, the pensioner question will just be part of normal pension planning (which will itself be much easier!).

5) Social housing is probably the best example of the ET principle. Right now as we speak, land rent is being appropriated by the title holders, not even from the tenants, but from the very people who are the rightful recipients of that land rent – the community (via government). The public coffers are getting robbed twice. Just stopping that money going to the landowner will be payment enough for now. We can worry about the tenants themselves when the economy-boosting effects of LVT kick in.

6) Again, this concern vanishes when you remember the ET. People are dealing with this question right now. LVT is already having it’s effects, changing who receives the rent cannot, by definiton, make it worse for the payer. Again, I think people need to understand that they are already paying LVT – to landowners, and so it is being paid to the wrong people and so government is having to find all these other crazy ways of funding the state.We, the people, can stop this madness.