Patrick Hutton left this comment half way down a thread on Peter Thiel balking at the high rents in Silicon Valley:
An important apologerap* is the response to "won't a LVT exacerbate the high rent problem?" I know there'll be face palms of frustration at this question. But it's one we need to be able to answer off the cuff.
* I'm not sure what that word means, but the rest is crystal clear and it's a bloody good point.
I never replied to that comment because I haven't come up with anything pithy yet, despite having mulled it over for the past week.
Agreed, we are pretty certain that in absolute £-s-d terms, rental values will be much higher under an LVT-only system. Any reduction in taxes on output and earnings grows the economy (= higher rents) and rents will increase to soak up the tax saving.
Two counter-arguments why people in the productive sector will be better off are:
1. Instead of average earners in high wage areas paying 40% of their gross income in tax and then 40% of their net income in rent, leaving them with 36% of gross income as disposable, they will be paying 60% of their new, higher gross income in rent/LVT, leaving them with 40% of their higher gross income as disposable.
2. At present, landlords (and banks/depositors) collect rent (and mortgage interest) and spend it on themselves without actually producing anything, meaning a huge net cost to the productive sector. LVT is just the government collecting rent, of course, but most of it (assuming a reasonably efficient and honest government) will be recycled back to 'everybody' and most of 'everybody' are in the productive sector. Collectively, we will all be owner-occupiers.
So even though people in the very high wage areas might be paying 60% rent/LVT instead of 40% taxes on earnings, they'll be getting a lot of that extra 20% back in one way or another.
Neither of which is very pithy or off the cuff, I'm afraid. I'm sure some of you can do far better.
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