Opinion: Why Wealth Can’t be Taxed (except very occasionally)

Wealth tax is becoming, or has become?, a core Lib Dem policy. Nick Clegg shakes his head alongside his Cabinet colleague the Chancellor of the Exchequer announcing that the coalition government will not introduce a mansion tax. Vince Cable is back on the World at One the next day defending it.

There has been much discussion as to whether wealth and mansion taxes are fair. But fairness is a very subjective concept. Some think that wealth taxes appropriately ask the rich to shoulder relatively more of the financial burden imposed if we needlessly insist on the financial orthodoxy that the government budget must be balanced. Others think that very rich people can manipulate their affairs to artificially decrease their income and so should be taxed on their wealth. Yet others think that assets bought out of taxed income should not be double taxed.

But there is also the question of the practicability of wealth and mansion taxes. The only two points at which wealth can be taxed is at sale, or at the death of the owner. This already happens through stamp duty and inheritance tax. Otherwise it is possible to tax only income, not wealth. Wealth and mansion tax proposals in fact rely on the assumption that the value of someone’s house or asset is a surrogate measure of their income. This assumption is untrue, unkind, and unnecessary, thus failing the three great moral criteria. Income tax is the fairest progressive tax on individuals, since even sales taxes are notoriously regressive. But to remain fair it must also leave a fair proportion to the income earner.

The only other way a wealth holder or mansion owner can pay tax on their wealth or mansion is by a forced sale of their asset or house. This is a very illiberal idea, and would in any case have huge impact on the housing and other asset markets. Taxing their savings is the only other resort. We effectively do this anyway through low interest rates and a little inflation. But this returns us to the fundamental question : such tax proposals are in fact proposing a tax on the income of those who own certain assets above a certain value. It makes no sense. We can in fact only tax their income. We should therefore scrap all wealth taxes, including any mansion tax proposal, and Council tax, and rely on the classic mix of income, sales, inheritance, corporation etc taxes. Liberal politics should also eschew its growing tendency to slag off the rich. The vilification of any target group in society is illiberal and worrying, but sadly tends to characterise any society coping with difficulty.

Current wealth tax proposals are also driven by the obsession with balancing the government’s books. But the economy is suffering from a deficit of demand. The last thing we need is higher taxes : we need higher spending. Lib Dems who have escaped the mansion tax should get out and spend their savings. Vince could lead the way! Happy Christmas.

* Geoff Crocker is a professional economist whose book A Managerial Philosophy of Technology is published by Palgrave Macmillan.

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133 Comments

  • I cleave a little closer to Joe Chamberlain’s and Lloyd George’s views on the taxation of land (and wealth). The possessors of landed wealth are the lilies of field who toil not neither do they spin and yet benefit from their ownership of land and property. A land value tax is the means by which this may be achieved. Add in a substantial re-vamp of council tax with large upward extensions of the valuations with a removal of loopholes and second home concessions and we might begin to see what Chamberlain and Lloyd George sought.

  • The article does present the gut-reaction about wealth taxes that many of the public will feel, especially with regards to the subject of a mansion tax.

    Wealth taxes should be targetted towards unearned wealth (such as house price appreciation) in unhealthy markets (such as the monopoly of land ownership), should be a replacement for unhealthy taxes on labour and enterprise (such as income tax) and should be applied fairly and proportionately for all wealth. The mansion tax fails two of these criteria as it only applies above an arbitrary threshold, and is therefore a tax targetted at the rich, and there is no proposal to reduce income tax (or any other tax) in return, so is clearly an additional tax rather than a replacement tax. I would argue, therefore, that proposing a ‘mansion tax’ is detrimental to the already difficult task of persuading the general public of the benefits of land value taxation as a replacement for other forms of taxation.

  • Billy Boulton 13th Dec '12 - 10:21am

    Given that the article states that “the only two points at which wealth can be taxed is at sale, or the death of the owner” and yet we know Council Tax exists – I think this whole article same safely be disregarded as nonsense. Professional economist and published author? Not your best work I would suggest. Sorry.

  • Billy Boulton 13th Dec '12 - 10:22am

    “Can” not “same”. sorry for typo.

  • The problem we’re grappling with here is that there is a super rich class who view tax as something for the “little people”. Sorry Geoff, but we’ve tried income taxes and they simply don’t work in making the rich pay even a minimal amount to the state.

    The benefit of a Mansion Tax is very simple. The fact is that unlike income or other forms of asset, it can’t be hidden or taken abroad. The very fact that rich Tory donors have been queueing up to try and stop the idea is concrete demonstration that it would work.

    Until Geoff can come up with a similar tax that has the same advantages in making the rich actually pay something (not even a large proportion) towards the maintenance of societies that allows them to make money in the first place, then I think we should be sticking to our guns on this one.

  • The value of one’s house is only one aspect of ‘wealth’.
    The generous pension terms of senior MPs represent huge reserves of personal wealth that would be much simpler to tax.

  • @Steve
    “The article does present the gut-reaction about wealth taxes that many of the public will feel, especially with regards to the subject of a mansion tax.”

    The latest poll shows 73% support the Mansion Tax. It’s a great idea and I don’t really see any cogent arguments here against it.

  • You say we should keep VAT for goods and services, but that there should be no taxation at all of property. As a professional economist, why do you think one kind of consumption (housing) should get a tax break relative to everything else? This is especially crazy given that taxing land doesn’t result in there being less land – unlike the losses produced by most other taxes – and given the waste and danger of pouring investment into property bubbles.

    The IFS think council tax should be restructured to be essentially equivalent to VAT on the annual consumption of property, and that has a lot to commend it. Also, what of capital gains tax?

  • We constantly hear how the “poor” should not expect to live in Houses that they can not afford, So why shouldn’t the same rules apply to those living in mansions?

    The latest 2011 census, showed a huge increase in people having to rent from the “private sector” many of those people are charged extortionate rents and are reliant on HB to meet these costs. The government are reducing the amount of support by reducing the LHA. The governments position is, if you can’t afford to live there, move elsewhere cheaper.

    Surely the same standards should apply to those home owners living in properties worth £2 Million or more. If you have accumulated the property through inheritance or through any other means and cant afford the mansion tax, then sell up and move elsewhere.

    We should not have double standards in society where those wealthy home owners that own their home are able to regard the property as a “home”
    and the less well off that rely on social housing or Private renting have to regard the property as a “place to live”

  • @Geoff Crocker

    “Despite your claim to the contrary, we’ve now found someone – liberal or not I know not – who is advocating forced sales – see matt above who writes”

    To be fair, I don’t think Prateek Buch was referring to the ordinary man in the street, when he said “I am genuinely unaware of anybody – liberal or not – who is proposing forced sales” I would assume he was referring to a political party or such a person like an Individual MP.

    My comment was just a personal opinion from an ordinary individual whose not affiliated or a member of any political party or association and which carries absolutely zero political weight

  • Alex Marsh has effectively debunked the ‘it’s all the fault of the planning system’ argument (with a great link to speeches by Churchill when in his Liberal period) which points at land ownership as the biggest issue.

    http://www.alexsarchives.org/?p=4779

    The distinction between wealth and income is a fair one but of very limited relevance. If I own a large house but have insufficient income to pay a tax on it how then am I able to heat my house or maintain it? It’s a matter of priorities and in reality I probably can’t afford the house.

  • Richard Church 13th Dec '12 - 12:32pm

    This is semantics. Wealth earns income. Mansion tax or land value tax can be paid by the income earned on that wealth. Whether you call them wealth taxes or income-from-wealth taxes is neither here nor there. As long as the property is being put to good use there is no more need to sell it to pay the tax than there may be to pay the interest on the mortgage.

  • There is no reason why tax can’t be levied on wealth. If HMRC can cope with Self-Assesment Income Tax, it could cope with Self-Assessed Wealth Tax.

  • @Geoff Crocker

    If you going to make claims that, apart from existing stamp duty and inheritance taxes, “Otherwise it is possible to tax only income, not wealth”, the onus lies with you to prove this assertion, not on others to disprove it.

    Are you really trying to suggest you would be unable to fill out a Self-Assesment Wealth Tax form if Parliament/HMRC required you to do so? Perhaps your personal affairs really are that complicated but for most people they aren’t.

  • Richard Church 13th Dec '12 - 1:38pm

    Income tax applies to souces of income regardless as to whether they are earned through labour. Income from wealth (or wealth tax) is unearned, and it is entirely appropriate that it should be taxed in a different way from earned income. The best way to do so is by its source,eg wealth.

  • Geoff,

    The introduction to the Land and Property Section of the Mirrlees Tax review The Taxation of Land and Property has the following to say:

    Most taxes nowadays are levied on flows of income and of expenditure. But land and property have been taxed for centuries—certainly for longer than income—and they continue to form an important part of the tax base in
    most advanced economies. There are good economic reasons for this. The supply of property, and
    especially land, is not very responsive to its price, which means that it can be taxed without significantly distorting people’s behaviour. The ownership of land is also generally visible and easily established, which makes it relatively
    straightforward to identify who should be paying the tax. The fact that land and property have identifiable and unchangeable geographic locations also makes them natural tax bases for the financing of local government.
    But deciding exactly how to tax land and property is particularly complex, because they combine a number of characteristics that each suggest different tax treatments. Take a house. It sits on land, the value of which we might
    want to tax because the land is completely fixed and the return to it is an economic rent. But the house also provides services that are consumed by the occupier—just as a fridge or a car does. So it is natural to think that the
    value of this consumption should be subject to VAT. The house is also a valuable asset, whose value rises and fluctuates like those of stocks and shares. So we might see homeownership as a form of saving that should be
    taxed consistently with other savings. Also important is the distinction between owner-occupied and rented property. Ideally, we would want to treat these consistently. But, at present, their tax treatments are quite different in the UK, providing a clear bias towards owner-occupation.

    Business property also combines characteristics that suggest different tax treatments. We would ideally like to tax the commercial use of landconsistently with other uses, while treating the property built on it consistently with other inputs into the production process.To understand how to tax land and property, it is important to keep these
    issues and themes distinct. To be clear:
    • Land, whether used for business or residential property, can be taxed at an arbitrarily high rate on economic efficiency grounds.
    • Business property is an input into the production process and, on efficiency grounds, should not be taxed.
    • Owner-occupied housing combines the features of an investment and a consumption good, and we should consider its taxation from both these points of view.
    • Rental housing is an investment good from the point of view of the owner and a consumption good from the view of the renter. Overall, there is a presumption in favour of taxing it at a similar level to owner-occupied housing.

    In this chapter, we start with a discussion of the case for land value taxation and the practical difficulties that may pose. We contrast the strong case for taxing land values with the strong case against taxing business property. We go on to look at the taxation of the consumption value of housing and conclude that, in the UK context, council tax should be reformed so that it more closely resembles a genuine tax on the consumption value of housing. The asset-like properties of housing mean that it should also be brought into the savings tax regime outlined in Chapter 13. Finally, we consider stamp duty land tax, finding little to say in its defence.

    It is worth noting two further issues that are important in the taxation of land and property, though we do not pursue them further.
    First, taxes on land and property have strong historical ties to local taxation. This is, in part, due to the widespread view that such taxes are partly ‘benefit taxes’, a charge for the goods and services provided locally. It also reflects the immobility of property—it is clearly associated with the location. In the UK, council tax—an annual tax imperfectly related to the value of domestic property—is the main tax base for local government, though the majority of local government income comes directly from central government. A very complex system of ‘equalization’ exists, giving larger grants to those local authorities with a more limited tax base—where properties are less valuable—to try to ensure that, if all local authorities spent at the level judged appropriate by central government, they would all levy the
    same tax rate on properties of a given value. We do not explore these issues further. For the most part, the question of how to tax land and property can be separated from where the power to tax is located. For example, reforms to
    council tax could be accompanied by adjustments to grants that maintain the existing distribution of spending power across local governments.
    Second, land and property are hugely important socially and economically. Having enough housing available to accommodate the population comfortably matters. Decisions over whether to develop land for business or
    housing use contribute to the structure of the economy. The impact of the housing market on the macroeconomy is great enough both to have influenced the decision not to take the UK into the euro and to influence regular decisions over interest rate policy. Changes to the tax system aimed at increasing the availability of housing and of business land have been proposed, as have changes that, it is claimed, will reduce volatility in the housing market. We note these issues below in relevant sections, but they are not the focus of our considerations. Other policy choices, in particular over the planning regime—the desirable reform of which is well outside the scope of this review—are likely to be more important in this context.

  • Geoff,

    I would suggest consideration of two approches:

    1. Replacing higher rate and additional tax element of income tax with a form of property tax as outlined here; A mansion tax to replace higher rate tax

    2. Imputed taxation of the rental benefit of owned housing as outlined here: Reducing the Tax Favoritism for Housing

    It may be preferable to base taxation on Land Value only and exclude the rental value of built improvements.

    In the first case, we are seeking to replace higher rate income tax with a property tax on the top 15% of land and property owners as against the top 15% of earners. The two groups may be broadly the same, but for those earning below the higher rate threshold (the grannies) there would be no property tax to pay.

    In the second case, we are seeking to redistibute the tax burden more equitably and across the generations on the basis of ability to pay.

  • Tony Dawson 13th Dec '12 - 4:25pm

    @Simon McGrath:

    “According to HMRC the top 1% earn 10.8% of the income but pay 24.2% of the tax”

    That is the top 1 per cent of those who declare taxable income. Quite a lot of very rich people who effectively live here in the UK for as much of the year as they feel like pay nothing at all other than top rate Council Tax on one or two dwellings.

  • @Geoff Crocker

    Why Bother?

    Because Wealth and Income do not directly correlate to each other.

    A person can be very wealthy as a result of inheritance or capital gains (I..e. an IPO) which may or may not have been acquired while the person was tax resident in the UK. They could still be low income though (they are living on their wealth or have only a low paid job).

    Equally well a person can be low wealth (e.g. a young person from an extremely poor background) but high income (they have just started a surprisingly succesful new business or gotten a well paid job).

    If we can operate a Self Assesment Income Tax, we certainly can operate a Self Assesment Wealth Tax.

  • Staggering article.

  • Geoff,

    the issue of land/property taxation is principally one of economic efficiency, as Mirrlees observes in his review. Land Value tax has a long and distinguished pedigree.

    “Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground.”
    Adam Smith – Wealth of Nations (1776)

    Landlords grow rich in their sleep without working, risking or economizing. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title.
    John Stuart Mill – Political Economy (1848)

    The tax upon land values is, therefore, the most just and equal of all taxes. It is the taking by the community, for the use of the community, of that value which is the creation of the community.
    Henry George – Progress and Poverty (1879)

    Roads are made, streets are made, railway services are improved, …water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still… To not one of these improvements does the land monopolist contribute, and yet by every one of them the value of his land is sensibly enhanced.
    Winston Churchill – 1909 People’s budget

    Search out every problem, look into these questions thoroughly, and the more thoroughly you look into them you will find that the land is at the root of most of them. Housing, wages, food, health…
    David Lloyd George – Aberdeen, 29th November 1912

    If a tax were imposed equal to the annual use value of real property ex its improvement, so that it would now have no net earnings and hence no capital value of its own — progress would be orderly and its fruits would be equitably shared.
    John Kenneth Galbraith – The Affluent Society (1958)

    So the question is, which are the least bad taxes? In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.
    Milton Friedman – University of Chicago in 1978

    Land value taxation is a “no-brainer”…It is both fair and efficient. It should be adopted.
    Martin Wolf – Financial Times

    The taxation of future growth in land values “to eliminate the fever of land speculation that has ended up destabilising the entire global economy”… is what Labour should have done and should commit to in future.
    Polly Toynbee – 13th July 2010

    The wealth produced over the centuries by the efforts of the community is reflected in land values and is therefore a proper target for taxation.
    Vince Cable – In foreword to ‘The Case For A New People’s Budget’

    “The underlying intellectual argument for seeking to tax economic rents retains its force.”
    Mervyn King, in the standard textbook on the British tax system: Kay & King, 1990

  • Geoff,

    while LVT at present remains a niche concept, there is a nonetheless a wealth of published material on the basic economics of the idea, not least by the economists quoted above.

    Tony Vickers of ALTER – (Action for Land Taxation and Economic Reform) . recently published a short article in Liberator magazine (page 28) arguing that implementing land value taxation would kick-start growth: Time for Lo-Tax . The main elements of the proposal by Tony are:

    -Basing LVT on rental value not capital value, because property/land rents are much more stable than prices.
    -Using LVT not just for local government but mainly for national taxation.
    -Establishing that all land is eventually taxable, so a coherent and complete register of ownership and value can be undertaken.
    -Exemption for low-value land and small sites, also a tax-free element for owner-occupiers, linked to local land values, to encourage spread of ownership.
    -Make the ‘tax shift’ revenue neutral by law, thereby requiring offsetting reductions in others taxes for every budgeted increase in LVT.
    -Use of ‘precepting’ (as happens now with multi-tier local government) to enable the simplicity of a single national tax administration to be combined with full autonomy for every elected council (and devolved governments) in rate setting: local billing authorities would be abolished.
    -Treating owner-occupiers as having notional rent paid to themselves (what they would earn if their home/business-site was rented), so that LVT can be subsumed within the income and corporation tax systems.
    -Allowing LVT liability of owner-occupier pensioners and other claimants to be ‘rolled up’ and only paid (with interest) upon death, sale or re-mortgage of property.

  • Staggering becaused the forced sale argument is fallacious. An asset rich but cash poor mansion owner occupier may be forced to downsize for any number of reasons, ranging from not being abke to afford a heating bill for their mansion to not being able to afford to replace a leaky roof. Why would these reasons be moral and fair but a sale to pay a wealth tax unfair? A lot of these people would not be enduring double taxation but merely single taxation, having accumulated wealth by for example, flipping their primary residence to dodge capital gains.

  • Personally, I favour income tax over land value tax. Its hard to see how you can keep taxing people on the value of their land if their income doesn’t cover it. What happens if the property and land value rises in an area because for various reasons that area becomes more desirable. Wealth Tax I have less of a problem with. That fact is there are families who have been sitting on unearned inherited assets for hundreds of years and there’s no reason that just because some distant ancestor bopped the right person over the head around the time of the Norman Conquest that this accumulated wealth should continue to remain in the same family in perpetuity. To me the answer to this is increased inheritance taxation

  • Fair points Geoff,

    The rationale for LVT and tax reform generally should be economic efficiency, not a quick fix to balance the nation’s deficit or a populous measure for bashing the rich.

    Capitalism like democracy has its flaws but is better than any of the alternatives that have been tried. Inherent in capitalism is a level of inequality and indeed there is nothing to fear in people prospering from their own efforts or even a fair dose of good fortune in being the beneficiary of an inheritance or being born in the right place at the right time.

    However, to preserve Capitalism and economic order we do need to guard against extreme ineinequalities of wealth and income. As a society, we have to provide a means by which all can earn a living and support themselves. Many feudal societies have gone through a process of Land reform and redistribution to peasant farmers as an attempt at achieving this. In our modern developed society giving everyone a few acres of land to farm would not do much for us. Recognising Land as a common public good that can generate tax revenues to contribute towards the shared costs of defence, law and order, health, education, welfare and local services has the same implicit moral basis as Land reform.

    Personally, I think the prospect of replacing all or most taxes with LVT is somewhat Utopian and have never seen a worked through plan that could deliver that equitably. Economically, I have longed been persuaded of the Labour Theories of Value of Smith, Ricardo and that great admirer of capitalism Karl Marx. I therefore see value added as the primary basis for taxation in the modern state. So, I would agree with your contention that we should principally rely on the classic mix of income, sales, inheritance, corporation etc taxes

    There is nonetheless, in my opinion, a very good argument to be made for capturing economic rents in the tax base, not only from Land but in other common goods such as the broadcasting spectrum and airport landing slots. Not a wealth tax, as an individuals wealth should not be the basis for taxation, but a Land Value Tax as proposed by Tony Vickers in his Liberator article.

    So, I would agree with your contention

  • What’s so difficult about exempting private family homes with no land except a garden – one per “household”, held in no more than two personal names? Slap a heavier tax on second homes, homes with associated land that could produce an income, homes owned by 3 or 4 legal owners and all houses owned by companies, charities or trust corporations.

  • Matthew Huntbach 14th Dec '12 - 8:23am

    Geoff Crocker

    But there is also the question of the practicability of wealth and mansion taxes. The only two points at which wealth can be taxed is at sale, or at the death of the owner. This already happens through stamp duty and inheritance tax. Otherwise it is possible to tax only income, not wealth. Wealth and mansion tax proposals in fact rely on the assumption that the value of someone’s house or asset is a surrogate measure of their income.

    No, it is based on the idea that a society in which wealth differences are maintained forever over the generations is one which will become increasingly divided and reduce the liberties of those who have not inherited wealth. We are already seeing this with the decline in home ownership and those who for whatever reason have been shut out of inheritance have no chance of ever owning their own home – and their children, grandchildren, great-grandchildren for ever will be similarly shut out.

    Wealth tax can be paid by rolling it up and making it payable upon death. This is fairer than inheritance tax – the issue of someone who dies leaving a large property to someone who dies fairly shortly afterwards is a fair point to criticise inheritance tax. Wealth tax also ends the way inheritance tax can be avoided by giving the property before death, and the various tax avoidance schemes that work around that.

    It would seem sensible that there is a needs-based tax allowance on any tax on housing, so that it would come in only on occupation above what might be regarded as reasonable family need. In that way, if the heirs do have a direct need for the housing because they live in it they will not be adversely affected.

    I appreciate that for sentimental reasons proposals like this are hard to push forward. We seem happy to load young people with nominal loans for the payment of higher education, or at least we have done this against their protests, but not so happy about this nominal building up of debt by older people. However, as I wrote above, the consequences of not doing it are dire.

  • Geoff, you misrepresent me. I have absolutely no issue with people owning mansions or multiple properties. I just would prefer an annual tax on residential property above a certain value instead of stamp duty and largely in place of inheritance tax, and it should be paid by the owner, whether that be a trust a company or an individual. I might even make one residential property per person exempt from inheritance tax. You are against forced sales but there are many forced sales under the current system, eg when a child looks after their ageing parent but has to move. The reality is that wealthy people avoid most of the current taxes using Trusts and other mechanisms. The current tax regime is not fit for purpose.

  • Geoff.
    Thanks for the reply, I broadly agree with not taxing lifetime earnings taxed twice at a very high rate. To me the problem is that you need some kind of mechanism to stop wealth being endlessly being passed down from generation to generation, otherwise you end up replacing one kind of aristocracy with another. Maybe a form of death duty that increases the further away you get from the original earner?

  • LVT is not really a tax anyway, and certainly not a wealth tax.

    I define a tax as a levy on something you own. As the value from a location is a natural resource not generated by a landowner, it cannot be properly defined as private property.

    LVT is better described as a location benefit fee. A fee being a charge for the use of something you don’t or cannot own.

    The benefit obtained from a property sited on a valuable location is a consumption. A consumption of a natural resource. It is as ludicrous to describe this as a wealth tax as it would be to describe the auctioning of 3G bandwidth as a wealth tax, or the levy imposed on North Sea oil companies for excess profits from the intrinsic value of oil as a wealth tax.

    Property owners are currently not paying the full ammount for the consumption of location values. Yet these values are not made or sustained by property owners. They are by Government expenditure and wider economic activity.

    By not paying for this, property owners are in effect helping themselves to the product of some else’s labour without compensation ie theft or slavery.

    Who are the professional thieves? the parasites, the slavers? Banks, landlords and property companies. They are the only ones who stand to lose from the collection of these resource rents/incomes aka unearned income. Everyone else who goes to work and pays tax gains hugely.

  • Stephen Robinson 14th Dec '12 - 2:49pm

    Geoff

    You say
    “If one person has £2m in the bank and another buys a £2m house, why should only the second be taxed? ”

    If someone has £2m in the bank earning 2.5% they will earn £50,000 interest on which they will pay £10,000 income tax p.a. And hopefully the bank will do something useful with some or all of the £2m.

    If they buy a £2m house they will only pay around £2,000 in council tax p.a. and the money tied up will not be doing anything useful.

    Also, if the value of the home increases that will be nothing to do with any work on their part.

  • @ Dane Clouston

    LVT is not a tax on Capital because returns from Land ownership are not made from Capital investment. Yes you my have bought a licence to “mine” land values in the same way you might buy a title to a gold mine. However, unlike a gold mine, any return above capital investment and a reasonable profit ie monopoly income, is not collected by the Government.

    Incomes from capital investments need to be sustained by more capital investment. Returns from monopoly incomes don’t. Hence income from Land is not a return from Capital. At least not the owners capital anyway ;)

  • I’m not at all clear why we would want to tax anyone’s wealth, capital, inheritance or incomes? They have been EARNED. That’s a good thing isn’t it?

    Why not just collect unearned incomes? Unearned incomes syphon money from the productive economy. Not collecting it is actually a bad thing in itself ie a deadweight cost.

    Government could fund itself entirely from unearned incomes. This would be a very good thing, wouldn’t we all agree?

    So why on earth are we discussing wealth taxes etc?

  • @Joe Bourke

    Exemptions are a very bad idea. Poor Widows in Mansions have made many times the original price of their property in unearned capital gains. Over 1000% in some cases.

    Now if they don’t have the revenue stream to pay for it, the payment could be deferred until a change of ownership. IH, SDLT, CT etc would have been abolished and other taxes reduced. That should sweeten the pill, if they decide not to downsize (which would be a good thing for society in itself), or they can downsize and cash in a considerable unearned capital gain.

    What about poor widows with an enormous collection of rare ferraris? If they can no longer afford to maintain or put petrol in them, should they also receive a tax payer subsidy? If not why?

  • @Geoff – You ask why someone who has invested their incomein property should pay more than someone who has just spent it. The whole basis of the tax system is, inevitably, punishing the responsible. You could equally argue why someone irresponsible like me, who is wasting their computer science education by just teaching English should pay less income tax than someone actually working in IT as I could if I wanted.

  • David Allen 14th Dec '12 - 6:54pm

    “The only two points at which wealth can be taxed is at sale, or at the death of the owner. ”

    Well – insofar as this is true – doesn’t it follow that we should base our wealth taxation policy on inheritance tax?

    We need a more effective tax on wealth to stem the rise in social inequality. We also need it because we are struggling to bring in enough revenue any other way. The tax dodgers, and those who would argue that rich people should be left alone because they will only dodge more tax if they are pushed too hard, are winning.

    The one time when you can be fairly sure that taxation of wealth is not going to cause too much temporary pain, is when the wealth that is taken by the taxman is wealth that has not yet been passed over to its new owner. In other words, when it’s the estate of someone who has just died, and the tax merely reduces the inheritors’ windfall gains. So the taxman can levy substantial sums, without agonised cries of pain (whether real or faked) from those paying.

    With any other form of wealth tax, including the mansion tax, the Tory press will have a field day hyping up the hardship caused, widows being forced to sell their mansions and sleep rough, etcetera, the usual nonsensical but effective propaganda. So with any other form of wealth tax, the taxman can only afford to bite little and often. That means multiple expensive administrative valuation and taxation exercises every time he makes a little bite. That means most of the tax income swallowed up in tax gathering costs.

    Don’t lose the opportunity to tax wealth. But do it in a practical way that works!

  • Benj,

    “Exemptions are a very bad idea. Poor Widows in Mansions have made many times the original price of their property in unearned capital gains. Over 1000% in some cases. ”

    This is where LVT purists get over enthusiastic. The average home (flats and houses) price in the UK according to the Land Registry is £161,000 (i.e. buildings and Land). Just taking the top 15% or more of Landowners into the LVT tax net is going to bring in something in the order of 4 to 5 million homeowners in London and the South East as well as the more affluent suburbs of the UK’s major towns and cities. While the top 15% by value are mostly those that are currently higher rate taxpayers and non-doms in Central London, only a very few are living in what might be described as mansions.

    Once you reach retirement age, particularly if you are living on a modest income, you may wish to downsize from a family size property to economise on costs. Many will however need to consider what is fast becoming the norm – Long term care in their latter years. Private nursing home care for the elderly (ofter widows or widowers, sometimes both together) is currently costing an average of £1000 per week in the South-East. Fees at that level quickly extinguishes the assets of most homeoners except the very affluent with assets and income sufficient to meet this need. Is it really sensible and practical to add the burden of deferred Land Value Taxes to what for more and more of our elederly citizens is the only asset they have. Is it not prefarable to leave assets available to fund Longterm care (instead of relying on an increasingly reluctant state) and with luck leave enough to contribute towards a deposit on a home to their grandchikdren?

    LVT has a lot of potential benefits, but is only practical above a tax free threshold for homeowners. In my view, that threshold should include both an asset exemption based on capitalised rental value and an income exemption for UK resident taxpayers, set at the current higher rate tax threshold. This mirrors the system currently in place for state financial assistance with Long tern care costs, albeit social care limits are set at very low levels.

  • Michael Parsons 14th Dec '12 - 9:29pm

    If we don’t break up big estates to redistribute the land, and by taxing acquire back for society the pure rent element that has arisen on large holdings from economic development, then is it not true that landlords will become the ultimate beneficiaries of all economic progress made b y others? I don’t hear the neo-liberal marketeers complaining much when poor families are put on the streets through the operation of the financial system.

  • I cant debate with someone who claims that it is a myth that the rich circumvent taxes. Are tax lawyers mythical in this parallel universe? Do trusts not exist? Offshore accounts? Tax havens? I guess you have a map at home with many holes where the likes of Switzerland and the Caymans should be.

  • Michael Parsons 15th Dec '12 - 12:36am

    Absolutely right Alistair.
    I also do not understand why the suggestion that high-value properties cannot be taxed “because tax is paid out of income-flows” is produced with such an air of apparent aplomb. Schedule A tax was levied on the notional income of owner-occupiers from their property, this notional income simply being added on top of the income covered by the other schedules.. Provided that the threshold is raised high enough to lift it clear of the ordinary householder (as indeed should be done for inheritance tax, and its rate greatly increased) there seems to be no problem. If however neo-liberal economist we seem to be dealing with objects, we could always take the EU Banking view; and make the liability payable by handing over part or all of the property in question, as is imposed I think on the real assets of the Greek nation by demanding mineral resources, islands and the like, , if our objectors prefer that method It at least avoids taxing property income. and would have an egalitarian effect domestically (unlike the regressive effect on Greece as between nations of international EU seizures).

  • I’ll give you an example of the hidden dangers of land value tax.
    I have an elderly relative who brought a small rural property in 1969. He;s a respected academic and ploughed a lot of his earnings into the property to turn it into his home. It generates no income. It isn’t the den of a rapacious landlord or anything else, It”s just a very nice converted farm, with a couple of acres of land in a scenic area.’ It’s now valued at close to £2000,,0000. He has a good pension and still earns money from some academic work.Someone please explain to me why someone who has contributed and still contributes to the greater good should be taxed out of his home.?

    Sure there are people sat on vast amounts of unearned wealth and redistribution is a fine moral principle. But not everyone living in a nice house with a bit of land is in the same category. You do not right historic wrongs by creating new ones. The danger with the Land Value and mansion tax model is that it will not hit the mega rich. but will cause problems for people who have, over a lifetime of work, simply made a nice comfortable life for themselves. To me the answer can only be through income and inheritance..

  • Geoff is right about the need to base taxation around value creation and notes the observations of Karl Marx on Labour value theory, that remain as valid today as they were in his time.

    The factors of production, however, include Land and well as human resouces and Captal created by labour in the form of buildings, plant, machinery, technology, know how and intellectual property.

    Land, or more specifically locations, has specific characterist that differentiate it from Labour and mobile capital. It’s scarcity lends itself to monoply by a rentier class that allows surplus value created in the economy to be accumulated by Landowners and providers of mortgage finance. It’s price or rental value is not determined by costs of production but by the economic surplus created by the primary factor of production – namely human capital.

    Mark Wadsworth blog includes some excellent examples of has this process works in practice and his argument that LVT coud serve as a sound basis for a Citizen’s income is shared by many, including myself.

    If charts and statistical correalations are not your cup of tea and you can spare 35 mins, you might watch this excellent Australian documentary Real Estate 4 Ransom

  • @ Joe,

    The asset rich, income poor. Why are they? They have a valuable asset because as productivity in the economy rises, this crystallises as higher house prices not disposable income. That’s why these huge capital gains are unearned.

    They are income poor because they have had a lifetime of paying 80% of their incomes in taxes, and 25 years of being saddled with a back breaking mortgage. So what they gain on the swings they’ve more than lost on the roundabouts of tax.

    Under LVT they would still have a valuable asset, although on average 65% less than current values. However, they would have a working life of paying no taxes on income, VAT etc and a reduced mortgage by 65%

    In other words, they will still have a nest egg in terms of their property, but would have had far more disposable income in order to save for their retirement.

    They can stay in the same property, pay their LVT and still be better off. Or they can downsize and be much better off.

    The point being, only banks, landlords, property companies and those paid to administer our tax system lose. Good, they are parasites.

    Everyone else is necessarily better off. Even poor widows in mansions. If they don’t pay for their care who does? A poor widow in a council house?

  • benj.

    the argument for LVT is based on ecnomic efficiency. I see LVT as an appropriate element of a wide-ranging program of tax and benefit reform. The purpose, from my perspective, should be to capture the benefit of ‘economic rents’ within the tax base.

    As a illustration condider the following:

    UK GDP – £1.5 trillion . The UK’s GDP makeup is comprised of agriculture (1%), Industries (22%) and services (77% ). Services include Finance and banking, hospitality and retail. With more than 28 million tourist arrivals the tourism industry is worth £80 billion annually.

    UK Public Spending – £677 billion . Pensions (20%), Health (19%), Welfare (17%), Education (14%), Other (29%)

    UK Property Values – Residential £4.2 trillion, Commercial £300 billion. If an assumption is made that 50% of UK property value is attributable to the capitalised rental value of Land than the Land tax base is £2.25 trillion. To replace all current taxes with LVT and meet the public spending requirements with LVT alone would require a tax rate of 30%. of the base, across the board on all Landowners.

    Now consider the average homeowner occupying freehold Land (exclusive of building value) of say – £100,000. They would need to be assessed taxation of £30,000 per yeari.e. far excess of the economic rents arising from their landholding. It is impratical for the simple reason that GDP or national income does not derive solely from the use or consumption of Land, but rather from a combination of the factors of production.

    As Mirrlees noted “deciding exactly how to tax land and property is particularly complex, because they combine a number of characteristics that each suggest different tax treatments. Take a house. It sits on land, the value of which we might want to tax because the land is completely fixed and the return to it is an economic rent. But the house also provides services that are consumed by the occupier—just as a fridge or a car does. So it is natural to think that the
    value of this consumption should be subject to VAT. The house is also a valuable asset, whose value rises and fluctuates like those of stocks and shares. So we might see homeownership as a form of saving that should be
    taxed consistently with other savings. Also important is the distinction between owner-occupied and rented property. Ideally, we would want to treat these consistently. But, at present, their tax treatments are quite different in the UK, providing a clear bias towards owner-occupation.”

    LVT on economic rents can be collected by imputed taxation of land rental values only a(t income tax rates), but it cannot wholly replace the primary source of taxation i.e, the generators of national income or GDP. This is why I believe it is best suited as a replacement for higher rate tax on incomes above the threshold and not as a general basis for taxation. This approach avoids the problem with asset rich, income poor homeowners and largely leaves owner-occupied housing assets as a form of saving for old age.

  • @ Joe

    Aside from the fact the figures you quote seem a little on the low side ( a google search puts commercial property at 717bn http://www.bpf.org.uk/en/files/reita_files/property_data/BPF_Property_Data_booklet_2012_v8_-_11790.pdf ) It should be remembered that rental values are depressed by taxes on productive activities. If these were eliminated you expect to see these rise substantially, perhaps double, even more on commercial premises because business has higher burdens.

    So, given that “sin taxes” were to be kept, I see little problem LVT covering total uk Government expenditure. Especially so when you bear in mind a lower welfare bill (no taxes on productive activities = lower unemployment) as well as the expansion in GDP associated with the elimination of three sets of deadweight costs.

    These being 1. Taxes on productive activities 2. Elimination of compliance costs. HMRC, payroll, tax accountants, lawyers etc. 3. Cost on production of by people making a living on unearned incomes, owner occupier businesses having an unfair competitive advantage.

    I don’t have a precise figure for the above total, but one can imagine it to be substantial, in the order of many hundreds of billions per year.

    No matter what the figures, all one has to do is apply some logic to situation. As I stated above, if unearned income enjoyed by the parasitic behaviour of landlords, banks, property companies and administrators where redirected back into the pockets of people and business, how could anyone be anything but better off?

    As to your point about people using their property assets to pay for their care, I say do the majority of those assets really belong to home owners anyway? What about pensioners who have worked and rented all their lives?

  • benj,

    the purpose of LVT is to capture economic rents arising from unearned increments in the value of land attributable to community investment in infrastructure.

    The concept of economic rents should not be confused with commercial or contract rents derived from improvements to property. Undeveloped or uncultivated land has little value and will generally only be developed when community investment in thecsurrounding area makes it profitable to do so.

    Contract rents should not be affected by LVT. The LVT is borne by the Landowner and not the tenant. If commercial rents were infact to increase as a consequence of reductions in taxes on Labour and Capital, then, ceteras paribus, wages could be expected to reduce and/or prices to increase to compensate .

    It is completely unrealistic in my view to expect to replace all taxes, with the exception of excise duites and levies, with LVT and would in fact be self-defeating to the rational for LVT of economic efficiency in the form of the capture of economic rents for the common good.

    In advocating tax reforms, it is not enoough that one can ‘imagine it to be substantial’. There needs to be a logical basis that is easily understandable by a sceptical public.

    It is not really helpful to reduce a complex argument to “{if} unearned income enjoyed by the parasitic behaviour of landlords, banks, property companies and administrators were redirected back into the pockets of people and business, how could anyone be anything but better off?

    As to the question – do the majority of property assets used to pay for care belong to home owners anyway? The answer has to be unequivocally, Yes. The right to quiet enjoyment of individual property is the foundation of a free and democratic society bound together by the rule of Law. The state has a right to assess a reasonable level of taxes in an equitable and just manner for the common good, but absolutely no right to confiscate or otherwise usurp the property of individuals

  • @ joe

    Land rents/economic rents/unearned incomes, whatever you want to call them are set by affordability. Ricardo’s Law of Rent or something.

    Therefore, as tax rises, rents go down. Tax goes up, rent goes down. Until you get your head around that, you’ll never understand why LVT can pay for all Government expenditure, with a surplus, and only capture unearned incomes/economic rents.

    I think you may not appreciate that the true value of a location does not reveal itself until there are no taxes on production.

    “If commercial rents were infact to increase as a consequence of reductions in taxes on Labour and Capital, then, ceteras paribus, wages could be expected to reduce and/or prices to increase to compensate .”

    Why? People/business have more disposable income/profit, rents rise to match affordability. Government increases LVT to mop up the increase. We are back where we started(ish see below), why would prices rise/wages fall?

    The only thing that would change is people would have more disposable income than now, given the current ratio’s between wages/tax/rent remain the same, not forgetting downward pressures on land values by better allocation of property resources.

    “It is completely unrealistic in my view to expect to replace all taxes, with the exception of excise duites and levies, with LVT and would in fact be self-defeating to the rational for LVT of economic efficiency in the form of the capture of economic rents for the common good.”

    That’s only an article of faith that on close examination is not born out by facts. Is there some reason you particularly want to tax incomes, wealth, capital etc?

    “In advocating tax reforms, it is not enoough that one can ‘imagine it to be substantial’. There needs to be a logical basis that is easily understandable by a sceptical public.”

    We only have academic studies to go on for a best guess on the dead weight costs of taxation. I believe it averages out around 15%GDP. As for the other two set of dead weigh costs, I know of no academic studies, but common sense should inform anyone the costs are not trifling. I sure if you were to make an educated guess, you wouldn’t be too far out. Just because we don’t yet have an exact figure should preclude us from mentioning such an obvious point.

    “It is not really helpful to reduce a complex argument to “{if} unearned income enjoyed by the parasitic behaviour of landlords, banks, property companies and administrators were redirected back into the pockets of people and business, how could anyone be anything but better off?”

    I’m actually going to take the above as a complement ;)

    “As to the question – do the majority of property assets used to pay for care belong to home owners anyway? The answer has to be unequivocally, Yes. The right to quiet enjoyment of individual property is the foundation of a free and democratic society bound together by the rule of Law. The state has a right to assess a reasonable level of taxes in an equitable and just manner for the common good but absolutely no right to confiscate or otherwise usurp the property of individuals”
    ,
    How can you talk about economic rent and come out with the above? I don’t want to tax any property, assets, wealth, earned incomes, whatever.

    Btw, aren’t people’s incomes and wages their property too? Only asking;)

  • Mark,a few points, if I may.

    1. Ricardo’s Law of Rent states that the rent of a land site is equal to the economic advantage obtained by using the site in its most productive use, relative to the advantage obtained by using marginal (i.e., the best rent-free) land for the same purpose, given the same inputs of labor and capital. the Law of Rent refers to the economic return that land should accrue for its use in production.

    The law of rent makes it clear that the landowner has no role in setting land rents. He simply appropriates the additional production his more advantageous site makes possible, compared to marginal sites. The law also verifies the claim by Adam Smith that the landowner cannot pass on the burden of any cost such as land value taxes to his tenants, as long as such taxes truly do not bear down upon improvements and affect the relative productivity of his land compared to marginal land. For this to be true the tax must be levied on the rental value of land and not the rental income after it is taken by the landlord, otherwise landlords will be less inclined to rent.

    Consequently, the maximum that it is possible to levy as LVT is 100% of the annual rental value of land on which improvements have been built.

    2. UK Housing stock £4.3 trillion according to Savills report UK’s housing stock hits value ceiling of £4.3 trillion , commercial at 700 billion, farmland is tuppence ha’penny (possibly nil). gives us a nice round figure of 5 trillion.

    3. Assume your estimate of the value of improvements at £2 trillion and apply a rent yield of 5% to the combined site value of £3 trillion i.e. £150 billion. This is the maximum economic rent that can be collected. Try to collect anymore and Land will have a negative holding cost. In such circumstances, no one in the UK will want to own land for their own use and Landlords will only be willing to rent when they can recover the excess of LVT over economic rents on site values, by increasing the contract rent payable by tenants forbuilt improvements. That would destroy the economic effiiency rationale for introducing LVT in the first place.

    4. We currently have an unsustainable deficit of 120 billion, part of which has to be closed with tax rises. Tax receipts are projected to be £700 billion in 2015-16 with some way to go after that before debt financing stabilises. £150 billion of LVT or even your workings of the current site premium element of UK resi land of £225 billion and rental value of commercial of £50 billion, will be nowhere near the tax take required.

  • benj.

    I agree with some of your points and disagree with others:

    Agreed:

    1. Property owners are currently not paying the full ammount for the consumption of location values. Yet these values are not made or sustained by property owners. They are by Government expenditure and wider economic activity.

    2. LVT is not a tax on Capital because returns from Land ownership are not made from Capital investment.

    3. Land rents/economic rents/unearned incomes, whatever you want to call them are set by affordability. Ricardo’s Law of Rent or something.

    Diagree

    1. Government could fund itself entirely from unearned incomes.

    2. Exemptions are a very bad idea.

    3. LVT can pay for all Government expenditure, with a surplus, and only capture unearned incomes/economic rents.

    On your final question” Btw, aren’t people’s incomes and wages their property too? Only asking;” Yes, and like all property in a free society we don’t try to tax them at more than their economic value or appropriate them. Not even if they are the earnings of “parasitic landlords, banks, property companies and administrators.

  • Matthew Huntbach 15th Dec '12 - 11:59pm

    Glenn

    I’ll give you an example of the hidden dangers of land value tax.
    I have an elderly relative who brought a small rural property in 1969. He;s a respected academic and ploughed a lot of his earnings into the property to turn it into his home. It generates no income. It isn’t the den of a rapacious landlord or anything else, It”s just a very nice converted farm, with a couple of acres of land in a scenic area.’ It’s now valued at close to £2000,,0000. He has a good pension and still earns money from some academic work.Someone please explain to me why someone who has contributed and still contributes to the greater good should be taxed out of his home.?

    Did the value of his property rise to £2,000,000 purely by his own work? Or did it rise through general changes in the economy from which he was able to benefit purely because he was in a position to buy this property in 1969?

    As has already been pointed out, he is not being put in the position of being “taxed out of his home”. The suggestion is that a property tax could be paid in equity share. So it will be his heirs who have to pay for it. Is that fair? Well, is it fair that those who were not lucky enough to have as a relative a respected academic who could afford to buy a rural property with a couple of acres of land in a scenic areas should be shut out of the chance of doing so even more by the fact that they have to pay tax on their income which they might be using in the hope of buying a property, while those he did nothing for it except have the right relative get it for free?

    If the heirs have a need for the property, they should contribute towards paying the tax – it would be cheaper than paying a mortgage for the same property. If they don’t have a need for it as they already own their own house, but wish to take it over, they could sell their house to pay the tax. If they have their own house, is it fair that now having inherited another they can own both, and rent one out making more money at the expense of those who were not lucky enough to have that sort of relative?

  • Michael Parsons 16th Dec '12 - 12:07am

    Geoff Crocker again asserts that property should be taxed only at sale or death,.with all the aplomb of the old non-sociological economics. But this us unsustainable: if we impose a tax on land, and the presumed income is not available to pay it, of course it will be paid when the land is sold to meet the bill, or taken by the State in lieu of payment. How else could it be? But a tax collected only on sale at will would be nugatory – a range of trusts, life-time gifts and transfers etc would avoid it, or else owners would simply hang on to land as some have done since the Norman land-seizures. Land taxed at death (inheritance tax?) is also liable to endless legal obfuscations and avoidances -as now..
    As for stimulating enterprise by not taxing high income and accumulations etc. sound very bogus: the large-scale amalgamations, and growth by acquisition, stunt initiative surely? And the bungling and largely unpunished criminality of big international banks rouses little confidence in this sort of talk. In effect all these oppositions are simply traditional defences for illiberal oligarchy.

    I suggest too that for rational discussion the mantra about “inefficient nationalised industry” should be scrapped: industries were nationalised because they were in inefficient, and in breakdown under private management, and then revived: gas and coal and agriculure are a good example. And also they generated nationalk control and could be the ehiucle for social controlk too.

  • Geoff,

    would you agree with any of the following statements?

    1. The flow of rents attributable to Land (groundrents) could, if desired, be taxed at higher rates than at present and potentially at up to 100% of the income derived?

    2. The taxation of groundrents at 100% of the capitalied rental value of Land, would effectively render the capital/market value of Land to Zero, but leave the market value of buildings thereon intact.

    3. A Tax on the Imputed rental value of land not rented (e.g residential property and undeveloped commercial land) could replace council tax and/or business rates or other taxes such as stamp duty, assuming similar council tax benefit and business rate reliefs as at present are kept in place.

  • Geoff,

    Statement 2 above should read – The taxation of groundrents at 100% of the income stream, would effectively render the capital/market value of Land to Zero, but leave the market value of buildings thereon intact

  • @ Joe

    From your comment to Mark

    “4. We currently have an unsustainable deficit of 120 billion, part of which has to be closed with tax rises. Tax receipts are projected to be £700 billion in 2015-16 with some way to go after that before debt financing stabilises. £150 billion of LVT or even your workings of the current site premium element of UK resi land of £225 billion and rental value of commercial of £50 billion, will be nowhere near the tax take required.”

    That’s because he assumes that if you agree, which you appear to, with Ricardo’s Law of Rent and therefore rents are set by affordability, when other taxes are reduced then eliminated, that figure of 275bn will more than double.

    It has to. I’m a landlord, if i see my tenants are paying less and less income tax, NI, VAT etc I’ll put my rents up to absorb it. Futile of course, because it will just get reabsorbed by the Government by LVT.

    Hence 275bn revenues goes to 550bn revenues.

    The bulk of existing taxation just gets transferred into LVT. People still end up with higher disposable incomes though for all the reasons stated previously.

    Are you a believer yet?

  • @Joe

    Btw, I know I stated it before, but it is worth reiterating it again, just so we are clear. 275bn is not the true level of rental value of land in the UK. That amount is depressed because of taxes on incomes and consumption.

    I wrote previously “Therefore, as tax rises, rents go down. Tax goes up, rent goes down. ” it should of course read, taxes go down, rents go up. Taxes go up, rents go down. Doh!!

  • Mathew
    I believe in income tax and have already stated that I support inheritance tax. Obviously, to a great extent my relative has benefited from property price rises , although the property has also been extended. What I would point out is that this was done whilst paying 1960s and 1970s levels of income Tax .
    Personally. I am less keen on removing people from income tax than most of the commentators on this forum. I think that the problem for low earners is that they aren’t paid enough, not that they are Taxed at too high a rate. It’s a road that leads to Mick Romney style statements about 49 percent of the population not paying any tax. The answer is finding ways of raising earnings rather trying to redistribute through the tax system . To me this means tightening market regulation and giving people back bargaining tools . The move away from income Tax simply disenfranchises people further. Why do politicians need to address the voters if everything is paid for by the banking system and glorified oligarchs?

  • @Dane

    A 100% LVT would eliminate location values from all property prices. So a £50,000 three bed terrace in Neath would still be worth £50,000. But that same terrace in Chelsea would be worth £50,000 too, Not £2,050,000 as it is now.

    The Duke of Westminster’s wealth would be reduced by over 95% overnight.

    I think that’s what we call an equalisation of wealth, wouldn’t you agree?

  • Richard Dean 16th Dec '12 - 12:57pm

    I think that’s what we’d call Not Going To Happen.

  • @ Richard Dean

    Yes, there are some very powerful vested interests that have undue influence and access to power.

    That’s why people like you should be pulling out all the stops so that ordinary people get to hear the truth.

    Then it might just happen. We live in a democracy not a dictatorship. If things are shit ” Not going to happen” is your fault as much as anyone’s.

  • Richard Dean 16th Dec '12 - 2:29pm

    The truth is that Land Value Tax is both unfair and damaging.

    It is unfair because the extra value of the house in Chelsea has been created by the residents of Chelsea. It was their labour which produced the money which alloed them to pay people to build the place. The extra value from their labour belongs to them – and they’ve already paid income tax on the money they earned, so LVT is double taxation.

    It is damaging because it prevents poor people from owning land. Suppose you have the choice of either buying land at 1000 and owning it for good, or buying at 500 and having to also pay some unknown extra future taxes in perpetuity. As a poor person, I’d be ok to work hard to save the 1000 to own owutright, rather than saving only 500 and having the burden of all thos future taxes.

    The only advantage to land value tax, as it used to be, is that you can’t move the land, and it’s easy to find out who owns it. That’s perhaps not so easy now if land is owne by corporations who are owned by shareholders including pension funds which means you and me (actually, not me, I’m too poor to put money in a pension fund).

    LVT on rented housing will put the rents up for sure. Over time, so noone really knows for sure why the rent’s going up. Where else wll the landlord get the money to pay the tax?

    Land ownership was what started civilization – people saying this is mine, which gave them the control whioch allowed them to control the crops and so farm efficiently. Taxing it is to go back many thousands of years.

    How is your Envy button today? Can anyone press it?
    LVT is one great big con.

  • Richard Dean is the Grasberg gold mine of all KLN’s ;)

    Only joking Richard, but you are a legend.

    http://en.wikipedia.org/wiki/Grasberg_mine

  • Seriously though Richard, you’ve had this all explained to you a hundred times yet you still come out with statements like “LVT on rented housing will put the rents up for sure. Over time, so noone really knows for sure why the rent’s going up. Where else wll the landlord get the money to pay the tax?”

    There’s no point in debating with you when the theory and the reality has been carefully and patiently spelt out numerous times.

    All that I will say, you are quite right to be sceptical of ideas you haven’t come across, or thought of yourself, however an open mind will give you the pleasant experience of serendipity. Try it, you might like it.

    Sorry, if that sounds personal, but when you make statements like “How is your Envy button today? Can anyone press it?
    LVT is one great big con.” it’s the least you can expect.

  • The effect of LVT can be best shown by way of simplified examples.

    Firstly, replacing business rates with LVT

    A shopkeeper is paying rent of £20,000 per year and business rates of £2000 – Total Cost £22,000. The shopkeeper pays £5000 in income tax from his net profits of £25,000. This is the maximum rent and tax that the shopkeeper is able to pay from his profits and it leaves him with a net income of £20,000.

    The Landlord receives £20,000 and pays £10,000 interest on a £200,000 mortgage loan. He pays basic rate tax of £2000 on his earnings. The Landlords net income is £8000.

    The lender pays £2000 tax on his interest income of £10,000, that leaves him with a net income of £8,000.

    The governments tax receipts are £11, 000 (£7,000 from the shopkeeper, £2000 from the Landlord and £2000 from the Lender).

    We introduce LVT @ 100% and abolish Council Tax.

    The Shopkeeper is able to pay rent of £22,000 without affecting his profits and continues to pay £5000 in income tax. His after tax income remains at £20,000.

    The Landlord receives £22,000 in rent. Based on Land Values we allocate £11,000 of rents to land and £11,000 to the shop building.

    The Landlord pays 100% LVT on the Land rent of £11.000 less attributable interest of £5000 i.e. £6,000. He pays basic rate income tax of £1200 on his profits of £6000 from building rents. The Landlords net income reduces from £8000 to £4800. The market value of the shop reduces from £400, 000 (20,000 x 20) to £220,000 (£11,000 x 20)

    The Lenders income and taxes are unchanged. (The Loan to Value ratio of the mortgage has increased from 50% to 90.9%. The Lender may as a consequence seek to increase the risk premium element of the interest rate).

    Government tax receipts increase by £3,200 to £14,200 at the expense of the landlord. (Shopkeeper £5,000, Landlord £7200, £2000 from lender.

    Secondly, replacing council tax with LVT

    For an individual renting a family home at £20,000 per year and paying council tax of £2000. The outcome for all the parties is the same as that of the shopkeeper example.

    For a homeowner, the outcome depends on his marginal rate of income tax.

    The homeowner has a joint mortgage of £200,000 on a house valued at £400,000 on which he pays £10,000 interest. He pays £2000 in council tax.

    His income and that of his spouse is £25,000 each on which they pay income tax of £5,000 each.

    They will be assessed an imputed Land Value Rental of £10,000 and pay basic rate income tax of £2000. They will no longer pay council tax, so their position is unchanged. Higher rate tax payer will pay an additional £2000 per year in these circumstances. Additional rate taxpayers slightly more.

    Government tax receipts increase by £2000 from higher rate taxpayers.

    LVT can be a powerful tool to address the drain of resources from productive activities to Landholding, if applied sensibly and appropriately. It weakens the arguments for tax reform to make exaggerated claims.

    benj – Land prices and the incidence of taxes on productivity are not so simple. There is no reasom why rents should increase as a consequence of introducing LVT (beyond the compensating adjustments for council tax & business rates), unless a government was foolish enough to try and collect more than 100% of the economic rents on comercial property (i.e. the extra market rental value attributable to a site by virtue of its location over and above the near zero rental value of marginal land). Such a policy would neccesitate assessing LVT on even worthless land – if you could find anybody willing to make such a donation. There may be potential for residential rents to increase were personal disposable incomes to be hiked by the ellimination of income and other taxes, but such increases are more likely to be seen in social housing, where tenants enjoy a below market rate of rent than in the private sector, I would also expect the withdrawal of housing benefit and other rent subsidies to occur as direct taxes were reduced. Consequently, I think it very unlikely that we would see dramatic increases in housing rents as a consequence of a shift from income taxes to LVT.

  • Richard Dean 16th Dec '12 - 4:38pm

    Seriously, benj, people have explained this to you so often, it’s amazing you still let people push that Envy button! Can you not come out of the cocoon and open your eyes and see?

    Joe’s got it right. LVT only works if you simplify. It would be a disaster in the complicated real world. Even so, he makes a meal of it. He wants tools. He’s pushing your button so he can have some!

  • @ Dean

    Ok, how’s this for simple. As I said to Joe above.

    “{if} unearned income enjoyed by the parasitic behaviour of landlords, banks, property companies and administrators were redirected back into the pockets of people and business, how could anyone be anything but better off?”

    I’ve been a profession BTL for over 20 years. If an LVT were introduced I’d stand to loose almost everything. I’d certainly have to go out and look for a job.

    Now, tell me. How is that pushing my “envy button”?

    Oh, don’t tell me, you don’t believe me?

  • You could also try this for simple?

    How about we all keep what we produce, and only pay for the natural resources we use?

    Do you agree with this? Because if you do, you’re right behind a 100% LVT.

  • Am I the only person reading this thread and feeling like I’m learning less the longer the answers get?

  • @ Joe

    Look I’m not an “expert” in any of this. Mark is, so is Henry at landvaluetax.org . They’ll both be able to explain, hopefully clearer than I’ve managed, that what I’ve told you is 100% correct.

    You know about affordability and Ricardo so it’s just a case of you putting 1 and 1 together. It really is.

    Mark has provided you with some links, but if you still don’t get it, please email Henry. It’s really important you understand what I’m staying is correct, because the consequences are important. Apologies if that sounds patronising, it’s just that you’re almost there ;)

  • Mark,

    thanks for the link to your blog workings. My criticism of the contention that any increase in disposal incomes automatically generates rent increaes, falls into serveral catergories, some of which follow:

    Firstly, the current historically high level of disposable income that is absorbed by housing costs Britons pay 40% of income on housing costs – making UK the most expensive place in EU after Denmark and Greece. Current levels of rent are driven not solely by levels of disposal income but by lack a geneal lack of affordable housing supply across many areas of the country.

    Secondly, the impact on disposal incomes of a significant proprtion of the population on social housing subsidies, housing benefits, in-work tax credits and benefits and tax allowances. Shift in the tax base and the incidence of income taxes will necessarily see disposal incomes reduced by this element of the tax and benefit systems.

    Thirdly, the still high proportion of home ownership in the UK acts as an alternative to rented property. I can see the reason for replacing council tax with LVT for owner-occupiers as a more equitable distribution of the tax burden across income deciles and generations. It is not apparent to me, what would be gained by replacing income tax with LVT for this majority group of taxpayers.

    Fourthly, Ricardo’s law of rent refers to the economic return that land should accrue for its use in production.It is Increases in the productivity of Land, not a shift in the incidence of taxes, that will cause rents to rise. The Law of Rent implies that wages bear no systematic relationship to the productivity of labor, and are instead determined solely by the productive capacity of marginal land,as all production in excess of that amount will be appropriated by landowners in rent. Shifting the incidence of tax does not of itself increase productivity beyond the marginal gains that accrue from the relief of the deadweight costs of tax on production.

    Ricardo noticed that the bargaining power of laborers can never dip below the produce obtainable on the best available rent-free land, because whenever rent leaves them with less than they could get on that free land, they can simply move to the new location. The produce obtainable on the best available rent-free land is known as the margin of production. Since landlords have a monopoly over a given location, the only limiting factor for rent is the margin of production. Thus, rent is a differential between the productive capacity of the land and the margin of production.

    As regards your comment that property taxes were historically the principal tax base in the UK, that was true of a society dominated by agricultural production. Income taxes were introduced during the Napoleonic wars. The industrial revolution and subsequent development of the welfare state has fundamentally changed the relatinoship between Landowners, Labour, Capital and Entrepreneurs our modern economy and the basis on which taxes are raised.

    PS: I like both of these ideas as a starting point for development of a positive tax reform program:

    “When I suggest that we roll all taxes on income (Income tax, VAT, NIC, corp tax) into a flat income tax/corporation tax of 20%, people say that this is pandering to the rich or a rich giveaway (and I don’t think any UK politician would dare suggest it). So this change is presumably the opposite of the politics of envy.

    But when i suggest that we also have a flat tax on the rental value of land, I am accused of politics of envy.”

  • Richard Dean 16th Dec '12 - 5:55pm

    I have to look that up, benj! :-) I’m sure it’s a compliment.

    Money isn’t held in land, it’s held in banks. If I buy land, I release the money in exchange for the land.

    So releasing land doesn’t release money!

    (ther’s a joke in there, by the way!)

  • Richard Dean 16th Dec '12 - 6:14pm

    Ok, so Grasberg is not nice, you were being offensive, but I’m used to it. No worries. What’s going on there has the appearance of colonial exploitation, environmental irresponsibility, and massive corruption, although things can have very different implications in the 3rd world. LVT hasn’t got much to do with it.

  • @ Joe

    Just to say the points you raise are very apt. My worry with LVT is that it would produce TOO much revenues to the Government by an up ward spiralling effect. So we’d end up with a Government swallowing up 65% GDP instead of 45%GDP. And no one would end up with any extra disposable incomes.

    Of course, there are also many downward spiralling effects, you mention some. Now, exactly at what point they balance out at is beyond my ken, and might need an economist too work it out.

    However even if it did balance out roughly where we are at 45% gdp, on a like for like swap of rental values should still double.

    Anyway, let’s is what Mark has to say, I’ll be interested in his response to you. Thanks.

  • @ RD

    “Ok, so Grasberg is not nice, you were being offensive, but I’m used to it. No worries. What’s going on there has the appearance of colonial exploitation, environmental irresponsibility, and massive corruption, although things can have very different implications in the 3rd world. LVT hasn’t got much to do with it.”

    Funnily enough, and all joking aside, you couldn’t be more wrong. If you look at third world countries, it is precisely because the poorest are being deny access to the revenues of their natural resources that they are locked in poverty.

    They are pushed out from prime farm land and forced to the margins, which has disastrous consequences for our environment. Why? Their corrupt governments don’t charge the correct resource rents, but chose to pocket bribes instead. Just another reason LVT is a good thing. Alleviate world poverty and save the environment.

  • Richard Dean 16th Dec '12 - 6:38pm

    Actually the rental value of the Graberg mine is probably zilch. What would you do with it, apart from die from the poisons? LVT is not the solution there.

  • @ Richard

    From Wiki

    Freeport, the owners of the mine made an operating profit of 4.1 bn $ from 6.4 bn revenue in 2010.

    So, the answer to your question is……….mine for gold? It looks quite a good business to me.

  • benj,

    I have read a good deal of what Henry Law has to say on LVT and agree that he is very knowledgable in this area.

    I would agree with Mark Wadsworth, that whether or not we see exponential growth in land values/economic rents and the LVT that can be derived therefrom, is probably not relevant to where we are at this juncture of the debate on Land reform and taxes. In fact such Longer term perspectives may cloud the issues of immediate concern.

    I would be fully supportive of the proposals put forward by Tony Vickers of Alter, being taken up as Libdem policy – with two important amendments:

    Firstly, I would not seek to tie our hands by making the ‘tax shift’ revenue neutral by law, thereby requiring offsetting reductions in others taxes for every budgeted increase in LVT.

    Secondly, I would like to see a low income level exemption (as we currently have for council tax) for owner-occupier pensioners and other claimants.

    The main elements of the proposal by Tony are:

    -Basing LVT on rental value not capital value, because property/land rents are much more stable than prices.
    -Using LVT not just for local government but mainly for national taxation.
    -Establishing that all land is eventually taxable, so a coherent and complete register of ownership and value can be undertaken.
    -Exemption for low-value land and small sites, also a tax-free element for owner-occupiers, linked to local land values, to encourage spread of ownership.
    -Make the ‘tax shift’ revenue neutral by law, thereby requiring offsetting reductions in others taxes for every budgeted increase in LVT.
    -Use of ‘precepting’ (as happens now with multi-tier local government) to enable the simplicity of a single national tax administration to be combined with full autonomy for every elected council (and devolved governments) in rate setting: local billing authorities would be abolished.
    -Treating owner-occupiers as having notional rent paid to themselves (what they would earn if their home/business-site was rented), so that LVT can be subsumed within the income and corporation tax systems.
    -Allowing LVT liability of owner-occupier pensioners and other claimants to be ‘rolled up’ and only paid (with interest) upon death, sale or re-mortgage of property.

  • @ Joe

    “Secondly, I would like to see a low income level exemption (as we currently have for council tax) for owner-occupier pensioners and other claimants.”

    If I vociferously disagreed with you on that point alone, I think we might really be splitting hairs. I personally think it’s an unnecessary proviso, if the glide path in where to be over 20 years.

    One other idea I had, which was not popular, is that even if we had roll up, the amount finally taken by the state wouldn’t come to more than the location value. I don’t know why, it just seem consistent.

    The other point to deal with is negative equity. On who’s shoulders should if fall. I favour the banks ;)

  • Mark,

    that all makes sense on the face of it, but in the article I linked to on UK housing costs you will note the following:

    “UK families are among the worst off in Europe when it comes to housing costs, spending more than 40% of their household income on rent, mortgage payments and other living costs, according to the housing charity Shelter.

    …in France, just 5.2% of the population face such unaffordable costs compared to three times as many in the UK. Of the 29 countries analysed, only families in Denmark and Greece are worse off, making the UK the third most expensive place to live in terms of housing costs. UK families are now worse off than many countries with ailing economies, such as Spain, Italy and Portugal. Cyprus is the cheapest country, with just 2.5% of the population facing unaffordable housing costs, equivalent to one in 40 people.

    Shelter said a chronic lack of affordable homes in the UK means the situation is set to get worse. The housing shortage has forced house prices up, which has had the knock-on effect of forcing potential homeowners into the expensive private rental sector.

    These figures are the evidence that the UK housing market is deeply dysfunctional. With so many families spending huge amounts of their income on their rent or mortgage, people will be making daily trade-offs between food bills, filling the car tank with petrol, and paying their housing costs.”

    Families in the UK pay an average £6,760 a year in housing costs alone, with mortgaged homeowners paying £7,436 compared to £8,320 for private renters, according to the 2010-11 English Housing Survey. Tenants in social housing pay an average of £4,108.

    This is not set to get better any time soon. While the situation is bleak at the moment, a succession of governments failing to provide much-needed affordable homes means that the future facing our children and our children’s children is only set to get worse.”

    In short, earnings/disposable income increases do not explain why we are faring so poorly as compared with other developed economies in Europe with similar per capita GDP or why the % of income allocated towards rents/housing costs has increased so dramatically in recent years.

    As UK disposable incomes (and certainly any discretionary element) have been squeezed in recent years we have seen a stabilisation in house prices (at least outside London) and commercial rents, but a meteoric rise in residential rents. Ricardo’s law sems to hold good for Land prices, but a chronic shortage of rental accommodation relative to demand (driven by both lack of access to mortgage finance and increasing population) is driving rents ever upwards, in the opposite direction that Ricardo’s law predicts.

    In Greece where there have been precipitous falls in disposable income, rents and housing costs appear to remain stubbornly sticky.

    The factors impacting the UK housing market are multiple and while regional wage differentials are a significant element, it can be observed that they are not by any means the only factor. It is for this reason among others that a healthy dose of scepticism should be exercised in anticpating results over and beyond what can reasonably be expected in the way of tax revenues on a conservative estimate of existing economic rents.

  • Michael Parsons 17th Dec '12 - 10:47am

    Geoff
    No:because by saying property should only be taxed at point if death or sale you were committing yourself to policy futility; and you said it in a manner that suggested ‘should’ meant ‘could’ ( all that stuff about “flows”), and I don’t think I am alone in that impression, even allowing for the fact that most economists can’t write for toffee. Your “aplomb” seems to reside in the repetition of the old neo-conservative saws from the eighties in disregard of the development of economic sociology since; so about as exciting as Jack Horner’s plums.

  • “It’s rather hi-jacked the original article which was essentially arguing that tax can only be paid from cash flows unless it forces assets and houses to be sold. Therefore tax the cash flow ie the income whether earned or unearned.”

    Or from future cash flows(upon change of ownership), which is a bit like what happens when you agree to a mortgage, ie future cash flows from your earnings. No different really.

  • @ Geoff

    Yes but do have a right to expect taxes never to change? Like Council Tax, which is a bit like a LVT only massively regressive.

    I know you are going to find this factious, but when they tried to abolish slavery one of the arguments against doing so was exactly the same as the one you have just put forward. ” we paid for our slaves with the full expectation of a return for our investment. It’s not just to take our property away from us!!”

    And the analogy is a very good one if you think about it. Your unearned income is someone else’s earned income. So, what is that then? Theft? Slavery perhaps?

    Even so, it’s not all bad for those who have bought a house with no expectation of a hike in taxes is it? How much unearned capital gains are they sitting on? Have a look at historical house prices and we’ll let you do the math this time ;)

  • Matthew Huntbach 17th Dec '12 - 11:46pm

    Geoff Crocker

    Very difffent really. Nobody who currently owns a house bought it expecting to or agreeing to any wealth or land tax.

    Is there no-one alive who bought their home before 1963?

  • @ Geoff

    If there were a 20 year glide path in to a 100% LVT, would this resolve some of your worries?

  • This whole thread completely misses the point. Tax is not whatever the Treasury can squeeze out of the public: tax is not a punishment and it must not be arbitrary.

    So what is tax?

    Tax is two things: it is a financial charge for the hidden or underlying social costs in an economy, such as education or security; and it is an investment in the type of society people want to live in, which includes provision for the sick and elderly. Often the two overlap or combine.

    What this thread fails to mention is that fair and sufficient revenue raised by tax is best calculated across the widest possible base according to the expenditure necessitated by those activities deemed legal and legitimate. Tax is a function of capital and must be used to build capital (social, environmental, financial or otherwise).

    However taxes also distort markets because political value judgements are made about the manner in which capital accumulates. Tax competition between jurisdictions further complicates matters.

    The current problem can be summarised as a product of the current age of globalisation, where capital flows are managed and manipulated to take advantage of tax competition. Since access to international markets is not equal harmful imbalances arise, creating a double whammy of additional spending demands on states and more regressive effective tax rates on individuals.

    So the proposition that wealth can only be taxed when transactions are made is at best unimaginative – cash and capital flow in different ways – and the solutions to the revenue problem are not national, they are global.

    I thought Margaret Hodge made a very good point when examining Amazon – a company which operates a .co.uk domain, with warehouses, distributors and management all based in the UK should expect to pay UK taxes on the profits of all company activities within the UK. That this doesn’t happen implies the tax and regulatory system is not operating as it should.

    A return to feudal-style land taxes like Burgage, Socage and Carucage is nothing more than a direct response to the breaking down of barriers to capital flows and the failed regulatory system, but just as the feudal tax system collapsed because of popular discontent at unfair exemptions and outright evasion (as well as resistance to the consequent inhumane social bondage) the simplistic introduction of land taxation alone will neither raise enough nor have desirable human outcomes.

    Instead tax types and rates must begin to be coordinated internationally, while tax havens must be brought into line so that they can be held to account responsibly. We could attack the tax pirates directly, but it is far better to blockade the pirate harbours.

    Because it is difficult and dangerous to coerce cash flows then we must want to capture capital flows, and land, as in jurisdictions, not LVT, is the answer.

  • @ Geoff

    Here’s an article on LVT by Sam Brittan in the FT

    http://www.ft.com/cms/s/0/1e98b4da-5d56-11e1-869d-00144feabdc0.html#axzz2FRFnXcLS

    The comment thread is a very interesting one, well worth a read. I was particularly struck by this quote from it.

    http://www.ft.com/cms/s/0/1e98b4da-5d56-11e1-869d-00144feabdc0.html#ixzz2FRLwAQJL

    “During the [American Civil] war I served in a Kentucky regiment in the Federal army. When the war broke out, my father owned sixty slaves. I had not been back to my old Kentucky home for years until a short time ago, when I was met by one of my father’s old negroes, who said to me: “Mas George, you say you set us free; but ‘fore God, I’m wus off than when I belonged to your father.” The planters, on the other hand, are contented with the change. They say: “How foolish it was in us to go to war for slavery. We get labor cheaper now than when we owned the slaves.” How do they get it cheaper? Why, in the shape of rents they take more of the labor of the negro than they could under slavery, for then they were compelled to return him sufficient food, clothing and medical attendance to keep him well, and were compelled by conscience and public opinion, as well as by law, to keep him when he could no longer work. Now their interest and responsibility cease when they have got all the work out of him they can.”

    From a letter by George Jackson, dated 1885, reprinted in “Social Problems” by Henry George

    Landowners, don’t have to do the coercion anymore. That’s been contracted out to the government.

    As far as there being a clear and succinct proposal, as has been stated previously- You keep everything that you have earned, and only pay for what you have not earned.

    That’s not a sound bite, but the basis for a simple and transparent way of organising society.

    It’s just as relevant for big government, or an anarchy. That why it attracts support right across the political spectrum. Marxist’s included.

    I’m sure Mark would be delighted to set out a proposal on this site, if you gave him an invite. These comment threads are not necessarily the best way to get a point across, as you’ve observed.

  • Michael Parsons 21st Dec '12 - 11:53pm

    Hmmm..A simple point about tax payments? Well you started off by saying we can only tax income not wealth, because assets have to be cashed-in to meet taxes on them. But surely that is fallacious and has led to the lengthy disputations that followed? You have simply elided earned and unearned and capital sales as income. Taxing imputed rent from large land-holdings would be a social policy aimed at breaking-up estates in the interest of redistribution of land and a general right of access to it. It would have the same motivation as changing farm-subsidy policies in favour of small-holdings and away from the old “wheat barons.” Especially too if we redirected support to English free-hold horticulture which as largely a joke though what there is can be very well done: it needs a massive expansion which land redistribution could achieve, along with encouragement of new entrants to farming. Again it is sociology of economics you need to look at: institutional effects on transactions and plans. For example, revising marriage laws so a son can take charge of the family farm without being prevented by family fear that his wife might walk away with half of what generations have built up simply by sleeping with the local romeo might speed technological advance by allowing new managerial control.. Monetarist talk about flows and assets is really very wide of the mark when it comes to land questions, socially advantageous developments and rights. Markets might work for goods, less well for labour and not at all for land – the further the S/D and tax analysis gets away from commodities the less use it is.

  • We need to reclaim commonly created wealth to pay for common services. And leave private income in private pockets. It is that simple !!!!! Currently we do exactly the opposite, with private individuals and organizations appropriating common wealth. Hence we have trickle up effect. In the USA the top 1% own more wealth than the bottom 90% , the UK is not far behind – this indicates an economic system that is badly broken.

    It is no secret that the tax system is a convoluted mess, in need of radical reform. Currently we tax a man’s labours, his production, in Income Tax. We tax trade in Sales taxes. We take the fruits of a man’s labours. These “bad” taxes penalize production and trade. It is ludicrous to be penalizing and discouraging production and trade. These are exactly what we should not be taxing at all. These point should be encouraged.

    Where does the revenue come from to pay for public services? Well there is:

    1. Commonly created wealth.
    2. Wealth derived from use of common wealth.
    3. Wealth in extraction of common resources.
    4. Use of common resources.

    These form the pool for which public services should be funded

    Commonly created wealth in the UK overwhelmingly is in the form of the lift in land values – this can be easily reclaimed. The land values were created by collective economic community activity, not the landowner. Other forms of common wealth are the extraction of resources like oil and gas (shale gas in the near future), use of the waters for fishing, charging for use of the electromagnetic spectrum, air corridors, streets by taxis, etc., etc.

    Revenues from land alone in the UK can eliminate income and sales taxes. The others forms can go towards reducing or eventually eliminating corporation tax. As enterprise would expand by eliminating taxes on production and trade, HMGs expenditure would be much less.

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