Killer Arguments Against LVT, Not (458)

Two KLNs which have been bugging me for a while:

1. The YIMBY argument, “It’s all about supply, build more houses and prices will fall, no need to hit existing home-owners with LVT”.

I admit I got bogged down in trying to explain that:

a) more supply – of the right type of buildings in the right places – will increase overall rents and prices. They can’t respond to my simple observation that there are more homes and commercial premises within the M25 than in the whole of Scotland, despite Scotland having fifty times the surface area, yet prices and rents are much higher inside the M25. So logic says, build more inside the M25, prices and rents there will increase further.

b) given a sensible corresponding reduction in taxes on earnings and output, the median or average home-owner will end up a lot better off. They’re being “hit” with a large overall tax reduction!

Clearly, I’m wasting my time on such arcane points, and the best strategy is to accept their assumption as correct.

The short rebuttal is:

i. Land Value Tax is not primarily about improving affordability, it is about making land owners pay for the value of government spending from which they benefit (fair and economically efficient) instead of making businesses and workers pay for the cost of that government spending through taxes on earnings and output (unfair and economically inefficient). The fact that LVT improves affordability and reduces inequality (by reducing the constant net transfer of wealth from the economy to land owners) is a big bonus, but not the main aim.

ii. Even if in the idealised YIMBY world, rents and prices were to fall, the question of who should pay for the spending which generates land values is unchanged.

iii. Also, LVT would tend to encourage more efficient use of existing buildings and more efficient/productive use of development land.

2. One of Richard Murphy’s KLNs “Lower and middle income households tend to only have one valuable asset, their own home. Wealthier people have as much again in shares, pension rights, cars, paintings, jewellery etc. Therefore, a tax on land would hit lower and middle income households hardest and would be regressive. A wealth tax would be much more progressive.”

No it wouldn’t, that’s basic maths.

The point is that land ownership is very concentrated in a few hands, so any tax thereon would be very progressive. The potential revenues from LVT (at least £250 bn a year in the UK) would dwarf potential receipts from a general wealth tax on shares, pensions rights etc (£25 bn a year, tops, even assuming it were morally justifiable and administratively enforceable, which it isn’t, and not subject to massive avoidance and evasion, which it would be).

The £250 bn LVT revenues (or indeed £25 bn wealth tax revenues) could and should be used to reduce the most regressive and damaging taxes, so although lower and middle income households will be paying in to the pot under LVT (which they wouldn’t be under a general wealth tax), they won’t be paying in much and their net income gain/tax reduction will be much more than if they were merely given an equal share of that hypothetical £25 bn wealth tax revenue.