And which taxes would rise? And when will the structural deficit be eliminated – Johnson said it would be 2015/6, and then corrected that to 2016/7. Who knows? I’m sure Ed Balls is delighted that the Shadow Chancellorship is in such very knowledgeable hands.

“Obviously this is more welcome – I’d be more happier with a 60% split towards tax rises so that the economy can recover quicker.”

This would be funny if it wasn’t so sad.

@1 Tim

In answer to your questions;

They won’t tell us – but then neither did Brown. Stealth taxes are all the rage these days.

Elimate the structural deficit? When we can simply borrow more? Isn’t this site always telling us that the deficit isn’t a problem, nor is the national debt, and we are never in any danger of going bankrupt? In that case, why worry at all?

But I agree, Ed Balls must be smirking away at the moment….

The ratios that they all quote are not written in stone and can only ever be projections. The ratios are based on multiple variables and if one variable moves from the projection then all the other variables move as well changing the ratio. In other words, they are a load of bollocks. I agree we should be massively investing in infrastructure when it is so cheap to do it because British infrastructure is crap. I tend to view the growth we would get from it as more long-term by improving the supply side of the economy. A bit of Say’s Law must come into play so I am less convinced by immediate multiplier growth arguments. For example, the green energy infrastructure arguments that would apparently solve unemployment problems. Most of the long-term unemployed are low-skilled and are certainly not qualified to build a green energy infrastructure. Therefore, it would only be shifting qualified people from one part of the economy to another.

I can see why lefties would favour more of the adjustment coming from the tax side. However, that is not without risks. Take too much in tax and you end up making the situation worse. The recommended ratio is actually 80/20. A 60/40 or 50/50 split is not really credible unless AJ has discovered potential tax seams that can be mined without damaging growth. As Prince Charles would say I am all ears. Support for a LVT perhaps? Liberals have been in favour of a LVT since the 19th century so they could hardly argue against it.

“AJ has discovered potential tax seams that can be mined without damaging growth.”

Osbourne thinks he has anyway with VAT.

Except an LVT would wallop house values in a massive way (unless of course you are a council tennant) which would be bad for all the house owners already underwater and the banks which have given them mortgages. Which would massivel affect household credit and M4 money supply, in turn affecting consumer spending and lowering growth.

The problem I find is that the Left’s default position is always more tax, yet at the same time saying that we can deal with the deficit by simply growing our way out of it. The first view suggests that the deficit IS in fact a massive problem, but raising taxes acts to reduce growth……so if you take the LC view that spending cuts are unecessary, how do you suggest that the deficit problem is solved?

((or do you take the line that there is no deficit/spending problem at all?))

@5 Planeshift

Nowhere do I see that Osbourne thinks that the VAT rise will not affect growth, buut he does say it is necessary to help balance the nation’s books.

It is also a less damaging tax than increasing NI, especially for poorer people as essential items (food, childrens clothing etc) are not subject. NI affects all equally, thus barely touches the rich. VAT taxes luxuries more, and should bring in more income from higher earners who spend less as a % of their income on basics. VAT is more of a “progressive” tax than NI….

“Except an LVT would wallop house values in a massive way”

I thought that was the point of it – and as somebody looking to get on the ladder at some point in the next few years it would be in my interests as well.

@8

Not so good for the guy with the mortgage now worth twice his house….and would you want to get on the housing ladder if you had to pay a % of the value of the house every year in taxes?

A house at the moment is a security – an asset which you can live in.

With an LVT it actually becomes a liability – what happens if you become unemployed, or can’t afford the LVT, rates go up so your mortgage becomes unpayable and no-one wants to buy your house because house prices are once again dropping because the LVT has been increased again by the latest government…..once in place taxes rarely ever go down.

But who cares what the opposition “plans”?
We are 4 years away from the next general election.

“Nowhere do I see that Osbourne thinks that the VAT rise will not affect growth, buut he does say it is necessary to help balance the nation’s books.”

He actually thinks it will boost growth: “He added that he regarded the increase as “permanent” and it would “increase employment” because it would increase confidence that the government was tackling the budget deficit.”

http://www.bbc.co.uk/news/business-12110945

@ 11

He used the word “progressive” too. Apparently “progressive” is now poliictobabble for “good”, regardless of the context. Room for the submission of A Progressive Proposal, maybe?

“Not so good for the guy with the mortgage now worth twice his house… ”

Well durrh, of course its bad for people who have been using rising values to fund consumption beyond their incomes. But rising values priced numerous people out of the market. Winners and losers isn’t it? If you are opposed to LVT on this basis, I do hope you oppose the adam smith institute’s ideas of relaxing planning permission.

” % of the value of the house every year in taxes”

I realise you are a tax avoiding city boy in south africa, but surely you remember council tax. It has a similar function here, the amount you pay being determined by the band of property you live in. But you pay it whether you own or rent anyway.

“A house at the moment is a security – an asset which you can live in.

With an LVT it actually becomes a liability – what happens if you become unemployed,”

If I become unemployed I can’t pay the mortgage so LVT is not relevant. With or without I have problems if I lose my jobs,

“once in place taxes rarely ever go down”

Corporation taxes do. As will inheritance tax once the finances allow.

@13 Planeshift

Well done for totally missing the point of the argument…to which I can add that if LVT crushes house prices, which it surely will, the money the LVT will raise will reduce….so it will need to increase every year for the take to stay constant. Thats a vicious downward sprial if ever I saw.

As it happens I do support relxaing planning permission to a certain extent. My dear architect father knows only too well how ridiculous it has become.

I don’t “avoid” paying tax. I just pay it in South Africa, where I earn my money. I suppose I’m avoiding paying tax by not smoking and drinking too, right? It just so happens that the tax regime here in SA mean I pay almost identical rates till you hit the 50% bracket in the UK, the tax laws here are more stable and I get a much better standard of living.

Council tax is not an LVT. It is applicable per occupied house based only partly on value of property. LVT would be ON TOP of coucil tax, else there would be no point in it surely? Replacing CT with LVT would raise little or no revenue but would smash house prices into next week.

An LVT makes any property a depreciating asset, or in accoutning parlance, a liability. In fact, though it would be a massacre for every homeowner, those nasty corporates you so despise would probably be able to offset a lot of their profits by structuring their land holdings…and essentially offset any LVT they pay against corporation tax.

Just love the poor way these things get thought out, and how people ignore the law of unintended consequences….my guess is Lefties have just thought “lets tax those nasty rich homeowners (so I can become one more easily) – that’s a great idea!”

“Lefties have just thought “lets tax those nasty rich homeowners (so I can become one more easily) ”

Except LVT was advocated by Adam Smith, as well as being advocated by several libertarians online.

Hmmm…then I disagree with them aas well then.

If I use my taxed income to buy a house, and pay taxes on that purchase, as well as taxes for use of local provisions….should I then be taxed *again* for just having the pleasure of owning that property? In effect a double taxation on income taxes…?

Not very libertarian IMHO – more along the socialist/marxist dogma that everything should belong to the state.

p.s. your post at @15 is a straw man though…..it doesn’t matter who advocates it, jsut if it will work or not. I’m arguing, convincingly I hope, that it’s a bad idea and will cause much more damage to the economy than the money raised will fix.

Tyler, I don’t have time to discuss this at the moment but you appear to be quite confused about a LVT. A LVT has nothing to do with property. Property is a depreciating asset from the day it is built, it is land that appreciates. A LVT is a tax on land. The supply of land is perfectly inelastic and is unmovable so a LVT is unavoidable. Nearly all taxes distort but with a LVT there is no deadweight loss. It is the perfect tax and has been known as such from the days of the classical economists through to that Marxist Winston Churchill who was much in favour of a LVT. Some reading for you.

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

http://www.landvaluetax.org/what-is-lvt/

This is an excellent thread demolishing all the arguments against a LVT
http://blogs.ft.com/martin-wolf-exchange/2010/07/12/why-were-resources-expunged-from-neo-classical-economics/

“should I then be taxed *again* for just having the pleasure of owning that property? ”

You will – you’ll pay council tax which will be worked out based on the band your property is in.

The libertarian angle comes from those who advocated it as a replacement for other taxes, believing it to be better than taxing labour, machinery etc. Unless you an anarchist, then you believe in some form of state spending which has to be paid for. So the question is Tyler, how do you pay for it?

All I ever read from you is why this tax won’t work or that tax won’t work, without ever you saying what the least worst taxes are, or how you would pay for your (smaller) state.

Oh I do hope this is true…

Labour is at its best with bold policies like this one. People do not pay enough tax, they should pay more.

@19 Planshift

Council tax is only paid if I occupy the property. LVT is whether I like it or not.

Most of the taxes proposed on these pages, such as LVT, Robin Hood tax etc won’t work…all I do is spell out why.

Last time I checked we already have very high taxes on almost everything, taxes haven’t gone down in decades and public spending has always trended higher as a % of GDP. The Left’s default solution to overspending despite increasing tax revenues and higher GDP growth has been more taxes….

@ 18 Richard W

Property itself doesn’t necessarily depreciate. Land often does….an oddity created by the planning permission laws. That said, the two are mostly interchangeable in this argument, given that the LVT is really targeted at homeowners.

Skim reading Martin Wolf, I wouldn’t say that he demolishes all arguments against LVT. He only really talks about resourse based use of land. His argument revolves around rental “unearned” income, which is actually currently taxed as income, almost as if it was an LVT….

BUT

Income taxes are proportional to to the rental yield of the land. They don’t depress the actual value of the land/property. An LVT turns land into a forward funding liability, which reduces the future value of the land. As I mentioned earlier, as the LVT depresses prices, to make the same income for the government it constantly has to increase….further depressing prices. At least with the current situation if the market is bad, your asset might be un or underutilized, but it doesn’t become a liability.

For example, the foreclosure situation in the US is bad enough as it is, as is the US deficit. Imagine how much worse it would be if homeowners were on the hook for tax as well, which they couldn’t pay so the deficit would be even worse. It would also crush the mortgage market as banks wouldn’t lend if the asset they recieve in foreclosure actually puts them in line to pay more tax.

Law of unintended consequences.

Please look it up.

“very high taxes on almost everything”

We have lower taxes than in Scandanavia and much of europe.

LVT – already in use (according to wikki) in Taiwan, Singapore, Estonia, Pennsylvania, New South Wales, and Mexicali, with one planned in Ireland 2013.

Tyler, you really do not get LVT so I suggest you read up so more on the subject. I repeat it has nothing to do with property. It was the comments in the Martin Wolf thread that demolished the arguments rather than his post. Unfortunately it was a long thread and some of them appear to have disappeared.

Land which includes things like the seabed and radio spectrum was created with the earth, it was not created by the landowner. If someone owns land they deprive everyone else from owning it. For this they should recompense the rest of society from the recovery of unearned rents. Do you think land cares who owns it? It will exist regardless of ownership.

Nothing the Duke of Westminster does gives his land in central London value. It is the infrastructure that the state provides and the desirability of London that gives it value. If he did not exist the land would still have value and increase in value each year. Therefore, each increase in value is unearned increase in wealth and is parasitical.

If all capitalists in Britain withdrew their capital from business, British industry would collapse. If all labour withdrew their labour, British industry would collapse. If all landowners stopped owning the land on which industry stands nothing would happen.

A LVT is not an additional tax but a replacement for destructive taxes on labour and capital. It is the free market solution to financing the state because it is taxing unearned increases in wealth.

When the Jubilee line was built all the land along the line increased in value. It was the state spending money that caused the increases nothing landowners did. The same thing happens when the state builds a good school or a commuter line. Land in that area increases in value. People should not be taxed for improving their homes so I completely disagree with property taxes. However, a LVT is not a tax on property. Good social infrastructure always results in higher land values. This is a play on the George Theorem.

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

@ Richard

*Bangs Head*

Let’s use your Jubilee line example.

Land DID indeed increase in value when it was built. And that WAS indeed unearned. The problem with Martin Wolf’s logic and argmuent is how the landowner EXTRACTS that value. If he can’t extract it, it has no value.

If he sells the land, a tax is levied. Both on buyer, but also seller in most investment cases (CGT on the increase in value of the land).

If he rents the land (at increased value thanks to the new tube line) that counts as income and the landowner is taxed on that proportionally to both the rental and his income.

The case you are making for LVT is only truly applicable when the land is unused, un-developed or unproductive – i.e. kept in some kind of reserve.

I’ll say it again – income from owning land is already taxed. At the moment it is on extraction of the value of land’s use, or of the increase in value of land. This means that tax is dependent on the income stream based on the land. If there is no income stream, no tax.

With LVT you turn owning the land itself into a liability, as just holding it costs you money and you have to rely on the rental or increasing value of the land outpacing that tax. If it doesn’t (like in the real world today) the economics of the situation mean that land prices will fall, as will rentals etc. The LVT take would fall, meaning (especially if as you say LVT is a replacement for a tax on Labour), meaning that to balance books LVT would have to rise, compounding the problem. The one levying LVT, in this case the government, would become the land owner of last resort.

Which is I suppose why so many on the Left love LVTs – it takes money from “rich” landowners and in a crisis draws land ownership back to the state. It’s a marxist dream.

Taxing “unearned” increases in wealth would throw up huge issues for our pension system by the way…

Or, to surmise;

“Land which includes things like the seabed and radio spectrum was created with the earth, it was not created by the landowner”

True. But the landowner owns the rights to the value that land generates. That value is ALREADY taxed through income tax or CGT.

As you would say, recompensing the rest of society.

Tyler, I can’t be bothered going through every one of your points but they have all been debunked many times. I will just give you some links. I have to laugh at the Marxism bit. Sure some lefties like the Greens are in favour of a LVT. However, most of them are too busy trying to dream up schemes to tax rich people and failing miserably to give it much thought.

Some of the rightish in favour:

Mark Wadsworth
Adam Smith
Adam Smith Institute
Edmund Burke
Winston Churchill
Milton Friedman
Tim Worstall (allegedly)

As one can see they are all a bunch of commies.

http://www.economicvoice.com/land-value-tax-questions-tackled-by-economist-mark-wadsworth/50013340#axzz1AL3Hr2bW

http://markwadsworth.blogspot.com/2010/07/ricardos-law-of-rent-in-action.html

http://markwadsworth.blogspot.com/search/label/KLN

@ Richard

Just Read Mark Wadsworth’s stuff…..and he makes exactly the same points as I do (especially on it pushing house prices down), without extrapolating to the logical conclusion;

If you replace other taxes with LVT, and LVT pushes house prices down, to retain the same level of tax reciepts (and govt spending) LVT has to go up. Which further depresses house prices….unless of course you continually cut the cost of government (which Wadsworth alludes to as a choice).

You could actually argue both cases for LVT….if in place through a Leftist, statist government you could end up with land being dumped on the state as a buyer of last resort – the Marxist ideal. You could also find that a Libertarian/Right govt continually reducing the state as the reciepts form LVT diminish….the Libertarians dream. All a function of implementation. Though I’d guess the former more likely given politicos self interest.

Just because Libertarians and some on the right think LVT is a good idea doesn’t mean it is….for the reasons I point out. I might tend politcally to the right, but I’m a pragmatist, not dogmatic.

Wadsworth even says that pensioners might have to be excluded from LVT because they could get forced out of their homes….

….as could anyone who finds themselves unable to pay an LVT.

Which would put huge pressure on social housing for sure.

As he himself says, housing would become a luxury. LVT would become a massive disincentive for people to buy to live in or as an investment. Why buy an investment property if the rent goes to the government and the value of the land is essentially zero?

Tyler, your arguments are getting more bizarre and absurd each time. Might I suggest you learn what is meant by economic rent. Hint, it has nothing to do with property rent. It is the economic rent of land that is taxed not its price.

The reason I pointed out the people on the right who support a LVT was to counter your ridiculous claim that it was Marxist. Marx famously rubbished LVT. Just another thing he was wrong about. People on the left and right support LVT. If anything lefties are more sceptical because there would then be no need for inheritance taxes.

The elusive asset rich income poor widow problem is easily solved by deferring liability until death. Your zero value land is so absurd I can’t believe a sentient person said it. There might be land in the middle of nowhere which is good for nothing and is worth zero. That is fine because it has zero economic rent and would be taxed at zero. I repeat, it is the unimproved economic rent of land that is taxed not its price. Therefore, you need not worry about the value of used land falling to zero even if the economic rent tax was 100%. That really is absurd. The value of the land in Mayfair is not falling to zero even if the tax on economic rent is 100%.

Some more links for you:

Some good charts showing the Laffer curve, GDP and the rental value of land.

http://www.slideshare.net/MarkWadsworth/laffer-curve-gdp-and-the-rental-value-of-land-5952066

The view from across the pond.

http://wealthandwant.com/docs/Batt_NYS_ed.htm

Mark Wadsworth answering questions on that bastion of socialism Conservativehome.

http://conservativehome.blogs.com/platform/2008/03/mark-wadsworth.html

I actually bothered to email Mark Wadsworth about this;

Whilst he kindly did clarify a few points for me, unfortunately I still believe there are some holes in his arguments. Principally that the LVT is based on land footprint, but then has a variable rate of tax applied to it dependent on how that land is valued…which is entirely dependent on how the land is used….which effectively takes it back to a tax on property, not land, with all the attendant problems mentioned at length above.

He effectively admits as much when saying that pensioners would probably have to be exempt from paying it.

It makes the assumption that land has some intrinsic value – which is untrue. If you can’t do anything with the land to extract value from it, its worthless.