Think outside the money box: Land Value Tax (LVT)
Everyone speaks of tax in terms of income tax. But there are good reasons to tax land instead – in particular a Land Value Tax.
When governments or parties hoping to govern say: We will not raise taxes, what they mean is that they won’t raise income tax, VAT or other existing taxes. So when there’s a shortfall of revenue, new taxes are introduced, or some other piece of creative “ah, that wasn’t what we meant” piece of legislation comes out. Well, here’s one, why not tax wealth?
In the UK, there is really only one tax that can be connected with personal wealth, and that’s Council Tax, charged according to the value of your home. But it only has a weak correlation with wealth, given that homes vary as a proportion of one’s wealth, consequently penalising those on higher mortgages whose net wealth might be close to zero and being kind to the wealthy who not only have investments elsewhere but also benefit from a cap on Council Tax at the value that takes them into the highest tax band but no higher.
Land Value Tax differs from Council Tax in that there is no cap, it applies to the unimproved value of the land (i.e. as if it has no house on it), and is paid by any person, corporation or trust that owns land.
Background to LVT
It was 19th century American economist Henry George who is credited with the idea of LVT. He recognised that unlike earned income, and wealth arising from labour, unimproved land has not been made nor is anyone’s to give away. It is nature’s, and as guardians of nature in any jurisdiction, is justifiably taxable by the state. George went so far as to state that it need be the only form of taxation, given that other forms of taxation are taxes on production. However few today would advocate going so far as that.
More recently, the idea of LVT has been taken up by organisations on either end of the political spectrum. On the right, think tank The IEA suggest it could replace business rates as well as, ultimately, council tax and stamp duty (a tax on moving house in the UK). The Adam Smith Institute, another right wing think tank, advocates replacing a number of taxes with LVT although stops short of applying the tax to agricultural land. On the left of politics, the Green Party campaigns in the UK Parliament for a LVT but the government has never shown any interest. There is more interest in Scotland, as land reform campaigner (and Scottish Greem Party MSP) Andy Wightman see LVT as an alternative to Council Tax, and would be raised at a local level.
Why LVT is a bad idea
Any new tax regime yields winners and losers. Here, it’s people who are income-poor and land-rich that will suffer. Some point out the widow in a large empty home, being looked after by family. Others point to LVT being an attack on large landowners, who already perform a kind of land guardianship, and farmers who need land to produce food. These are all good arguments, which I shall address shortly.
There are practical considerations too. How does the treasury place a value on a piece of land? What if the land contains a building with more than one resident (e.g. an apartment block)? As land values fluctuate, is it right that someone’s tax liability also fluctuates? These are all real challenges. Although I would argue that it’s no worse than the current Council Tax regime.
Why LVT is a good idea
In a nutshell, it’s unavoidable, it can be morally justified, and being connected with a limited resource (land), it helps to address inequality. I have argued these points many times before and my view has not changed.
It’s unavoidable because a land register states the owner of every square inch of land in the country. Even if there are gaps, it is simple enough to pass a law stating that registration is obligatory and any unregistered land is liable to be claimed by the state, or at least sold and the proceeds invested for the benefits of the state. This cuts right through the tax avoidance schemes of wealthy landowners, who hold their land assets via an offshore trust, away from the prying eyes of the treasury. Offshore trusts would pay LVT just like the rest of us. And landlords pay it, not their tenants. State-owned land, including roads, can probably be ignored. And taxing agricultural land might need some more investigation.
It’s morally justified because ownership of the land isn’t an absolute. It’s something granted by the state, who, as operators of the biggest tanks, can repossess it at any time. If that sounds petty, consider how respected such land ownership would be following an invasion or revolution. The state very much upholds land ownership, and in a democracy that means all of us.
It reduces inequality because in a country like the UK, land is a scarce resource. Those who don’t have any of it find it increasingly harder to get hold of some. Prices go up and up. More people, same land. And anyone who’s played Monopoly will recognise that wealthy landowners get even more wealthier while the rest struggle to pay rent. Recognising the previous statement about a democratic state, isn’t it basic common sense that as equal stakeholders in the state, nationals can push back against land monopolists and never be priced out of the market. Land is one thing that free markets really don’t serve well.
Money Questioner’s views
I think I summed those up in the last paragraph. I wouldn’t advocate punitive levels of LVT nor would I suggest that it need be the only form of taxation. But to take the sting out of the housing market and effectively paying everyone a dividend from the rent of the nation’s land (perhaps linking this with UBI) some of the problems of inequality can be overcome. Better that than a revolution.
How may LVT be made politically acceptable?
Much as I applaud the Single Tax idea of Henry George for having great ethical principles at heart, I find after more than 50 years in our Movement that its introduction is simply not practical. Apart from use of the word “Tax”, which in any case no politician wants to propose, we must eliminate the offense that our proposals for LVT causes to landlords. Obviously they will strongly oppose the proposal for having to pay a new tax (or anything else we might like to call it). The problem then is not to have to fight them, nor try to convince them on moral grounds, but how to make them want to pay for land access rights or revenues.
To achieve this there should be introduced a gradual change in the way that land is being owned, which should be introduced by new laws. Whenever a site or prospect of land is being offered for sale (possibly with its buildings, etc.,) and whenever ownership of such a site is being transferred between family members (and on which an inheritance-tax would normally be paid), the change is that government automatically buys the land at its current normal nominal price. This is done simultaneously when the buildings are sold in the usual way or their ownership is being transferred. (The courts shall be empowered to settle the land-value, if/when doubt is expressed–land-value maps being publicly accessible.)
The previous landlords or their heirs will no longer have any political objection, since the money from the land sale will greatly exceed the subsequent annual lease-fee (see below) for access rights to this land. This change will also eliminate the (hated) inheritance-tax. It is imagined that this process of land sales and governmental purchases will be spread over at least 40 years.
Immediately when the site belongs to the government, this land must be offered for lease to the new or bequeathed owner of any buildings thereon. The lease-fee should be set according to normal amounts of rent for other similar sites, (and again the courts should decide when there is disagreement.) The above “first refusal” for this leasing offer is most necessary, because any buildings of practical use and value on the site, will still be sold or bequeathed as items of durable capital goods, as before.
However, access to the site and its buildings should be denied by the government until the site is leased by someone who can then (and normally would) have purchased (or been given) the building in the usual way. All taxes that are applied to subsequent building developments should be abolished at this time.
A new owner would acquire the building property more cheaply than before, because it is now without the price of the land under and around it. Such a buyer can then give for hire (rent-out) any building for access and use, as if it were any other item of durable capital goods. In the unlikely event of the leaser not owning the buildings, his/her incoming land rent (from the building owner), shall not exceed the out-going lease-fees by more than 2% (say). Should nobody initially lease the site and its buildings (if any), because of there being no demand for their use, the buildings may be pulled down by the next (eventual) leaser, who will be free to re-develop the site (and would naturally want to do so).
The government should borrow the money for site purchase, or can even offer national redeemable bonds to raise money for it. As the lease money begins to flow to the government, it uses this to:
a) repay part of its loan for site purchase, which may be extended,
b) purchase more sites as and when they become available,
c) cover the interest on the loan and on the new bonds and their eventual redemption, and eventually
d) reduce other kinds of taxation.
It will be appreciated that over the long term the lease fees are equivalent to LVT, but due to the greed of landlords (who behave as if they were capitalists), their income from land sales will satisfy them better than their being taxed. Eventually nearly all the land would then be leased from the government.
Nationally leased land, in countries like Hong Kong, is close to 100%. This approach is known to be most successful, for the rate of growth of prosperity. Also when the previous landlords have more money to spend, most of it will be invested in durable capital goods, making production costs lower as obsolescent durable items are more easily replaced and so the national prosperity will grow also from the government’s investment in land values.
This proposal is not land nationalization (at least no more than what currently applies), since no additional regulations are placed on how the land is to be used.
Because the selling of land is a natural process which is (if anything) encouraged by the land returning to public benefit, the resulting lower priced buildings will become more easy to sell and this will not place such a limitation on their owners who wish to better develop the sites.