A simple guide to land value tax

Vlog number 3 is here.

YouTube Preview Image

Transcript here:

If somebody has a special talent, and they work really hard it and they excel – maybe they’re a brilliant sportsman, or they’re a comedian and they make millions of people laugh, or they invent something we all use. Or they start some business that brings benefit to everyone, I don’t think anybody resents that person making a great deal of money.

What pisses people off is those that have done sweet FA for what they have. It’s an objection to what is known as ‘unearned wealth’.

And I think in the current raging inequality debate it’s very important to differentiate between wealth that is earned and wealth that is unearned.

Defending Owen Jones

The Guardian columnist Owen Jones is getting a lot of flak at the moment because, in terms of earnings, he has joined the so-called 1%. And being part of that 1% is in some ways a contradiction of his socialist principles.

I would defend Jones and say that he has earned his place in the 1% by writing books and columns that people want to read. And by going on TV and saying provocative things that people want to hear.

If you born with nothing the only way you have of bridging the wealth gap is by working. But if you’re tax at 45% on your labour, while those that own assets go untaxed, bridging that wealth gap is very hard to do.

I’m going to describe a system of taxation now that would result in unearned wealth being distributed and shared, while earned wealth is kept.

It’s called land value tax – LVT. And it’s extremely difficult to explain in a pithy way that people understand – which is one of the reason no politician who wants to get elected has ever really made it their cause.

It’s based on the thinking of 19th-century American economist Henry George. He called it a ‘single tax’ because it replaces all other taxes.

Henry George Henry George

 

You’ve heard of the mansion tax. That derives from LVT. But the proposal was that it be in addition to other taxes. LVT – in its purest form – should replace other taxes. So there’s no income tax, no NI, no VAT, no fuel duty and so on.

The philosophy behind ‘Georgism’ is that wealth you earn or create is yours. You do with it as you see fit. But the wealth that nature has given us, in particular land, is unearned. No individual or company made the land; there is no cost of production to it: nature gave it to us, so it should belong to everyone. By building or farming or mining on it, many have improved it, but the land itself was always there. LVT ignores the house, the farm or the factory, whatever is on the land. Tax is paid simply on the rental value of the land itself. If the annual rental value of the land is £100, the tax payable would be a percentage of £100.

Some land is more valuable than other land, it has a higher rental value. But as it is the needs of the community that push the value up, the land value should go to the community and not the individual.

Kensington Palace Gardens - aka Billionaire's Row - the most expensive street in London. Kensington Palace Gardens – aka Billionaire’s Row – the most expensive street in London.

 

The 17th-century proponents of LVT were known as the physiocrats – physiocracy meaning ‘government of nature’. The ‘unearned wealth’ given to us by nature – the mineral wealth, the airspace, the broadcast spectrums, the space orbits – belongs to the community. Why should the oil under the sands of Saudi Arabia belong to a few princes? It is unearned wealth that should have been spread among all its people.

Some of Saudi Royal Family Some of Saudi Royal Family

 

Of course, there are huge costs and expertise that go into finding and extracting minerals, just as building and flying a plane or transmitting through a broadcast network involves great expense and technological innovation. Such endeavours, if taken on successfully, are compensated commensurately by the reward of profit in the market.

But if you want the right to exclude others from a plot of land – i.e. for it to be ‘yours’ – and you want government to protect your title to that land, then a rent needs to be paid to the community that reflects the value of that land. Once you’ve paid that rent, the profits of your endeavours are yours.

A simple explanation of how LVT would work.

Every parcel of land in the country is assessed for its rental value – not the buildings, crops, drainage or anything else – just the land. If the land is undesirable scrubland in a remote location with no planning permission, it will have low rental value. If the land is in a prime area, is very fertile or is rich in minerals, demand for access to these features will be high, so the land’s rental value will be high too. Valuations are based on current market evidence. If there are two parcels of land in the same street, both the same size and with the same planning potential, yet one is developed and the other not, they are still both given the same rental value. Tax is then levied as a proportion of the annual rental value of that land.

A four-bed family home of around 2,000 square feet in a pleasant part of London, might have a rental value of around £35,000 per year; similar property in an undesirable part of the country rents for £10,000.The difference between the two, around £25,000 per annum, gives you a rough guide to the premium that the London land commands, i.e. the land value of the London property. You would then pay a percentage of that land value of £25,000 in tax each year. That is the only tax you would pay.

What percentage? That depends on how much government needs for its spending. And again that depends on your view of what government spending should be. I believe in small government and individual or family responsibility, so I tend to argue in favour of low spending. There are others, particularly on the left, who thinks government should spend more. That’s fine.

Total governmentt spending last year was about 750 billion. To levy £750 billion in LVT, you would add up the annual rental value of all the 60 million acres of land in the UK.

You then divide the annual rental value by the amount government needs.

If the total annual rental value of all the land in the UK is £7.5 trillion and the government needs £750 billion, then the rate of tax payable will be 10% of annual rental value.

If the total rental value of all UK land is £1.5 trillion, then rate of tax payable would be 50%.

If a government is going to try to levy a 50% LVT, then good luck to it in trying to persuade its people to agree to that. That is one of the many beauties of LVT. It is direct and transparent. There is no concealment. The cost is felt directly by those that pay it. A government spending too much will find itself quickly pressed by its electorate to stop doing so.

In the UK at present, 50% of land is unregistered, according to Kevin Cahill in his book Who Owns Britain. 50%!

A generation of people – now known as generation rent – cannot afford a house. Yet there are over 600,000 homes sitting empty. Many companies are sitting on potential building plots and not developing them, instead waiting for its value to appreciate.

LVT will pressure existing landowners either to put the property to good use, or to make way for someone who will. It might cause dilapidated inner-city sites, for example, to be redeveloped, which in turn reduces strain on green-field and other environmentally sensitive areas. LVT makes for more efficient use of land and existing resources.

Inheritance tax has failed to redistribute the ‘unearned wealth’ of 70% of the land that is owned by 0.6% of the population. If those lucky people, companies or trusts who own this land want exclusive rights to it, pay tax on it to the community. If they don’t want to pay tax on it, sell the land to someone who is happy to. This is a quick, efficient route to redistribute this ‘unearned wealth’ through the community via natural market forces, rather than by the incompetence and moral minefield that is state reallocation.

It one that should appeal to the left – as it redistributes unearned wealth throughout society – as well as to the right. Milton Friedman described it as ‘the least bad tax’.

Milton Friedman - LVT is 'the least bad tax'. Milton Friedman – LVT is ‘the least bad tax’.

A natural source of public revenue – and an efficient tax

It is also a simple tax to administer. Once the system is in place, revaluation of land, which would probably have to take place annually, is the only issue.

Not only is there less bureaucracy, there is very little evasion. Land cannot be hidden or moved offshore.

It could also stimulate economic activity away from costly city centres towards depressed, remote areas, where land has little or no value, thus bringing all sorts of badly needed revitalization. Again, the effect would be to spread wealth and power.

Speculation in real estate, often a consequence of loose monetary policies, is probably the single biggest driver of the boom-bust cycle. While the unequal distribution of land is the most obvious manifestation of the wealth gap not only here in the UK but everywhere.

‘Tax land, not labour’, runs one of the LVT campaign slogans. It is a tax on consumption, not production. I see it as a morally preferable use of the coercive force of taxation to income tax.

See it as a fee, based on the current market value, for the right to occupy exclusively a piece of the land that belongs to everyone.

The idea of the proceeds of LVT going into a central government pot may seem contradictory to some of the other minimal-state views I go on about. What does government then do with its revenues from LVT? This raises the question, ‘What is the state for?’

Government should spend that money on whatever is deemed right at the time: it might be spent on roads or infrastructure; it might be spent on the protection of people’s private property rights; or it might simply be returned to shareholders – the people – in the form of dividend. Now that really would be socialism!

Pure LVT is unlikely to happen. But LVT in conjunction with a low, flat-rate of income tax is achievable and that’s what I think should happen

Here are nine reasons to like LVT:

  • Unearned wealth is shared by the community.
  • Productivity is not penalized through taxation, but incentivized
  • You are taxed on the land you use: on what you consume.
  • It is transparent. Costs are felt, not hidden.
  • Once the system is in place, it is simple to administer.
  • There is little tax evasion or avoidance.
  • It makes for more efficient use of land than we have now.
  • It disincentivizes speculation in houses.
  • Taxes are lower; people are empowered.

The philosopher John Stuart Mill said in 1848 ‘It is not the fortunes which are earned, but those which are unearned, that it is for the public good to place under limitation.’

Ain’t it so.

I have a new agent

I’ve just signed with Christian Knowles and CK Productions. The vision of the man!

I am delighted – for many reasons. Christian is a brilliant agent (the job he has done for the likes of Micky Flanagan , Hal CruttendenGary Delaney and Zoe Lyons is superb). I’m now in a stable with some of my best buddies in comedy. And it’s a huge boost that somebody like CK sees enough life in this old dog to want to take me on.

So, if you want to book me for an incredibly well paid, high profile TV job, or to be the keynote speaker at your Davos-type economic summit, CKP’s details are: tel – 020 3176 6971; email – info @ ckproductions.co.uk .

I should also say, if you want to book me for an incredibly well paid, high profile TV voiceover, I’m still with the mighty Another Tongue for v-os (020 7494 0300).

We have one more who understands the vast artistic and commercial potential of this immense, untapped talent.

 

How money and banking cause the wealth gap

In my campaign to save the world by spreading the word, I am quoting a passage from Life After The State (which I also quote in Bitcoin: the Future of Money?). It describes the way our modern system of money and banking (electronic, debt-based, fiat currency combined with fractional reserve lending) perniciously redistributes wealth from the many to the few:

Imagine a tiny economy. There are 20 people in it. Of these, ten each have $1 in cash, so there is $10 in the entire economy. The other ten people each have a house – these are the only assets in the economy and are each priced at $1. People quite happily buy and sell these houses for $1 each. If more houses appear in this economy, but the amount of money stays finite, the cost of houses will fall. But let us assume for now no new houses enter the economy.

One person – Mr King – is suddenly able to magically create another $10 from nowhere. He decides to go out and spend some of this new money. He buys a house for $1, which the vendor is happy to sell because, based on the knowledge the vendor has, that is the fair market price. Except that it isn’t because there is no longer $10 in the economy, but $20. At $1 the vendor has sold his house too cheap – and he has received devalued money in exchange.

Mr King then decides to outbid the others and offers $1.50 for another house. This vendor is delighted, sells, probably feeling rather clever, and makes off with $1.50, but even he has sold his house too cheap. Mr King, meanwhile, is developing a nice little property empire. The other vendors hear houses are now trading for $1.50 and now expect that price, which Mr King is happy to pay. In other words, house prices are gradually rising to reflect the new money in circulation.

There are some big losers in this process – the people who each had $1. The purchasing power of their money is now no longer enough to buy the house they were previously able to buy. Ultimately, their purchasing power will halve because there is twice as much money in circulation. They haven’t acted imprudently in any way – they haven’t even acted – yet they are made poorer by this process of other people creating new money.

What about the people owning houses? How have they done? Eventually, houses prices in this economy will rise to $2 – there are ten houses and $20 in circulation. The price of their houses should rise to reflect this extra money in circulation, so – as long as they didn’t sell – they come out even. They might think they are richer because their house now costs $2, but this is a delusion: it is the same house. They have just survived the inflation, nothing more. If, however, they were one of the early vendors who sold for $1 or $1.50, now they cannot afford to buy back the house they previously sold. They are ‘priced out’ and poorer.

Meanwhile, Mr King has done extremely well. He benefits, of course, as the recipient of a load of newly created money. But he was also able to buy houses for $1 and $1.50, before they rose in price to reflect the new money in circulation, so, with his houses now valued at $2, he profits from the asset-price inflation too. Wealth, which was originally spread evenly through our tiny economy, has insidiously transferred from cash-holders and those who sold their houses early to Mr King.

As a consequence of this process not only has wealth transferred, but those operating in our tiny economy no longer focus on making things. Instead they look for signs of future money creation and speculate on those signs, because there is more money to be made that way.

Sputnik with George Galloway

I’ve always been a huge fan of George Galloway, so it was a pleasure to be invited onto his TV show, Sputnik, this week.

Here we are banging on:

YouTube Preview Image

 

Nice to meet you George – thanks for having me on.