Debate Magazine

Killer Arguments Against LVT, Not (394)

Posted on the 05 May 2016 by Markwadsworth @Mark_Wadsworth

An earlier variant of KLN 393, from here:
… while the land value tax is paid over time, the burden of the tax (its incidence, in economics jargon) falls entirely on the person who owned property at the time the tax was instituted. The value of future taxes gets immediately priced into the value of real estate. For those who buy property after the tax is instituted, the higher property taxes are offset by lower mortgage payments.
True so far… here comes the crap...
In other words, the economic efficiency of the land value tax comes from the fact that it operates by confiscating wealth accumulated in the past rather than taxing the accumulation of new wealth. This, too, is unfair. Society benefits when people defer gratification and save for the future. People justifiably expect that if they save today, they’ll enjoy the benefits of that accumulated savings in the future. Of course, people who generate income from their accumulated wealth should pay their fair share of taxes. But a land value tax goes way beyond that point, depriving owners of one particular asset class of the benefits of decades of thrift.
That's clearly quite self-contradictory bollocks which flies in the face of facts. If you are one of the original landed gentry, inherited the land or took out a BTL mortgage, it required no net thrift whatsoever - quite the opposite, you have been able to spend more than you earn (at the tenants' expense). 99% of owner-occupiers who bought with a mortgage will have paid considerably less in cash terms than somebody who has been renting all his life; it is tenants who really have had to "do without".
But enough of my musings, by coincidence, Ralph Musgrave emailed me a link to this bit of academic research shortly after I re-discovered the KLN above:
Our original interest was to enquire whether the introduction of land into a growth model might account for a “virtuous” circle in which saving-up for land (or housing) generates growth and higher land prices, generating further increases in saving, and so on.
Such an account is sometimes proposed for high saving rates in East Asia, where mortgage markets are limited or absent. Our analysis does not support such a story. The user cost of land reduces the resources available for consumption of reproducible goods, so that the introduction of intrinsically valuable land into a growth model lowers the equilibrium stock of capital and raises the equilibrium interest rate.
On the asset side, the presence of land causes life-cycle savings to be reallocated away from productive capital towards land. The social optimum in such a model is for land to be nationalized and provided at zero rent. Land markets, far from generating saving and growth, are inimical to capital formation.

Back to Featured Articles on Logo Paperblog