Some Homeys get hysterical and say that introducing LVT would be "massive redistribution" and accuse you of being a Commie or something.
Well no, that's utter nonsense. There are other Homeys who argue that the "wealthy" would get off lightly and that the "hard-working homeowner" would be clobbered. It's all hysterical nonsense devoid of factual basis.
All mainstream LVT supporters (apart from, admittedly, a few Fifth Columnists) agree that LVT would and should be a replacement tax, and for the sake of this discussion, we can assume that government spending/total tax revenues are kept pretty much constant, it is just a shift in who pays for it.
(It would be nice if the UK government pulled its finger out and got rid of all the waste and theft in the system, which must be about 20% - 25% of total spending, i.e. get spending back down to 35% - 40% of GDP, with which we managed quite happily until The Financial Crisis, which they used as an excuse to massively ramp up spending on their nearest and dearest, The Fog of War and all that, but that is also a separate topic. Suffice to say that government spending in the UK is not particularly redistributive downwards.)
Everybody has their own personal list of most-hated taxes (for many people, LVT is at the top of that list, of course), but the ideal candidates for replacement are existing taxes on land, buildings and wealth generally. Some of these are 'regressive' (Council Tax, the biggest chunk, and the TV license fee) and some of which are 'progressive' (SDLT, CGT, IHT); some of these are openly anti-business (Business Rates) and some are just a plain nuisance (Insurance Premium Tax, s106 agreements).
Taken individually, all these taxes are 'unfair' in the emotional sense and downright stupid in the economic sense, but taken together, the 'unfairness' evens out (i.e. people in average homes pay nearly 1% of its value every year in Council Tax/TV license but pay very little in SDLT and nothing in IHT - people in expensive homes pay bugger all as a percentage in Council Tax/TV license but get smashed with up to 40% IHT once a generation). So once you net that off, what you are left with is a whole load of stupidity.
If you replaced the whole lot of them with a flat tax on site-premium rental values, the 'unfairness' would even out, and by and large, there would be relatively few identifiable 'winners' or 'losers' from the change. But that'd be a good first step in the right direction, one good tax replaces a shed load of bad taxes on a fiscally neutral basis.
(As it happens, the rate would average out at about 0.7% per annum on current selling prices, which is not uncoincidentally how Domestic Rates in Northern Ireland were recalculated back in 2005, or the rate chosen for the Annual Tax on Enveloped Dwellings introduced last year),
If we're somewhat more radical than this and start replacing or reducing the Big Three taxes - income tax (approx. £150 billion a year); VAT (approx. £100 bn a year) and National Insurance (also approx. £100 billion a year) it would be perfectly feasible to do it such a way that there are relatively few identifiable winners or losers.
(VAT is the worst and most economically damaging tax, but it is neither particularly progressive nor regressive; it just makes everybody poorer all the way up and down the income scale; puts the most businesses out of business and creates the most unemployment. The National Minimum Wage might be daft, but its impact, to the extent it can even be measured, is a tiny fraction of that, far better to reduce means-testing, but I digress. But the EU insists of a minimum standard rate of 15%, so there's not much we can do there, even if the pol's wanted to, which they don't. Ditto Employer's National Insurance.)
Higher rate income tax is clearly 'progressive' and Employees' National Insurance is clearly 'regressive'. They both raise similar amounts of revenue and higher rate tax kicks in where Employee's NIC tails off, so we could, for the sake of this discussion, get rid of both at a total static revenue loss of about £90 billion. Factor in a bit of Laffer Effect and you'd need to increase the LVT rate from approx. 0.7% to approx. 2% of current selling prices to be fiscally neutral.
So to the extent this would result in any "redistribution", it is merely from the 'land wealthy' to the 'income wealthy' or from 'rent collectors' back to 'rent generators' (which we LVT-ers refer to as predistribution), in the same way as tobacco duty is redistribution from smokers to non-smokers (to the tune of about £200 a year to each non-smoker!).
The two categories overlap to a large extent (most low earners live in small, cheap homes; most high earners live in nice big homes) so it is certainly not upwards or downwards redistribution, it would be sideways redistribution - the much eulogised "hard-working homeowner" would truly be better off and those who are currently hoping to inherit big time and then retire on the proceeds would have to become "hard-working homeowners" themselves - to the extent that this concept even exists.
Here endeth.
Debate Magazine
