I'm certainly not going to say something like "because me and my mates and people like me would lose a stream of unearned income".
> ... extremely wealthy landlords ... killing LVT
LVT would not be an appropriate method for targeting tax extraction from extremely wealthy landlords. They would (probably) make up their losses through rent increases and additional service charges - effectively passing on the tax to renters and leaseholders. If you want to target the rich you need to use tools that target their personal and/or business income streams - in the UK, for example: Income, Capital Gains, and Corporation taxes.
"The producer is unable to pass the tax onto the consumer and the tax incidence falls on the producer. In this example, the tax is collected from the producer and the producer bears the tax burden. This is known as back shifting."
From section "Inelastic supply, elastic demand" https://en.m.wikipedia.org/wiki/Tax_incidence
If the landlords decided to increase rents expecting tenants would foot the bill, they would find out tenants to leave the location because it would be unlivable for them at that cost.
More likely scenario is by introducing LVT the landlord would be forced to do the opposite - ie decrease rent - as other landlords would dump their uninhabited properties back to the market.
Being a landlord is not some easy path to free money. It is a great deal of trouble and expense for (usually) marginal profit, and yet somehow people manage to be uniquely ungrateful for the services being performed on their behalf even as they freely choose to rent rather than own.
Now, if you abolish zoning or rezone places in addition to a land value tax, it could work as the investor could build more housing for the same land thus splitting the cost over multiple renters which I'm sure is the intended affect but a land value tax won't work without changing zoning laws.
Yes, tenants will be better able to afford to purchase a home -- and will be able to sell it more easily should they choose to, either to upgrade to a fancier house or a better location within the community, or to move to another part of the country.
Yes, they will be responsible for replacing the refrigerator and other appliance, and doing the maintenance (said to be estimated at 1% of the cost of the property, but of course that would vary a lot according to whether land value is 20% of the total, or 80% of the total value of the house-plus-land or condo-plus-share-of-the-land.
And for first-time homeowners, there are always some rude shocks.
Those landlords will have to find productive uses for their money, perhaps investing in young entrepreneurs, or developing land to meet the needs of their community for housing.
Seriously?? If your inquiry concluded this then it certainly was being run on behalf of landlords.
They would no more be able to make up their losses through rent increases than I could make up the loss of being charged extra for a loaf of bread at the supermarket by unilaterally raising my wages. One does not drive the other.
When the supply of housing remains constant and the demand of housing remains constant then prices remain constant. LVT changes none of these variables directly.
Doesn't LVT increase the cost of providing the already existing housing and wouldn't that decrease the supply of housing? This would apply one time when the LVT comes into effect.
No, it just shifts where the land rents go.
Depending on how it was implemented it could lead to a wave of property developers going spectacularly bankrupt and a lot of mortgages secured on the value of land would be defaulted on. Stock market would likely take a hit/tank.
If anything, it encourages building more, so that the income from the rent can be used to the pay the LVT.
I'm not talking about long-term, but the initial effect of LVT coming into effect. If the landlord has to pay more then that's an increase in cost. Landlord income was likely at equilibrium before LVT. Those that could afford to lower prices to outcompete others probably already did so. As a result I don't see how we can expect landlords to eat the cost instead of passing it on.
>If anything, it encourages building more, so that the income from the rent can be used to the pay the LVT.
Sure, but this also requires housing to be as profitable (or more) as other uses of the land. It might make sense to turn that housing into something else.
Just to be clear, I'm not arguing about what it would be like in the long-term. I'm talking about the transition between going from not having LVT to having LVT. It's not at all clear to me that this wouldn't disrupt housing.
Right, but how does that lead to less housing? It's not like the landlord would stop renting the apartment and just hold it empty right after an LVT is implemented, since they would to pay the LVT either way. Most likely, the landlord would sell the building and land to someone else, who would then develop it to something that would provide enough income to cover the LVT obligations (say, a taller apartment).
Your claim also assumes that the LVT will be greater than the current property tax obligations. I don't think that's a given. The LVT for buildings that are using land efficiently probably would be lower, since the would no longer have to pay tax on the building (which is higher for a multi-unit building compared to a SFH).
As a side note, I am in favour of the government providing a subsidy to current landowners when a LVT is implemented, to compensate them from the lost land value (essentially "buying them out"), but I don't think that would be economically necessary.
> It might make sense to turn that housing into something else.
Yes, this is a possibility. But if that happens, then it's a sign that the demand for new housing is a low, so it makes sense to not build new housing (or convert existing housing). In regions where there's a housing shortage, a developer would be able to make a large profit building new housing, and thus would do so.
Why on earth would you assume that a landlord charging market rent would lower their prices when there's nothing forcing them to?
>As a result I don't see how we can expect landlords to eat the cost instead of passing it on.
Heavily leveraged landlords would be able to pass the costs on in the form of defaulting on mortgages. Non-leveraged landlords being forced to eat the costs would likely be very unhappy about being forced to "eat the costs" (lose their stream of unearned income), but they would have few other options. Violence would be a significant possibility.
Do you have research, or an evidence base, for this?
> [...] it certainly was being run on behalf of landlords.
It certainly was not.
Economics by Paul Samuelson: https://archive.org/details/economics00paul/page/603
Do you have research that indicates the opposite is likely to be true? I'd be really interested in seeing what that is based upon.
>It certainly was not.
It's not unusual among for economists to do this subconsciously due to the incentive structure of the profession.
[Links to PDF] https://www.webarchive.org.uk/wayback/en/archive/20070411120...
Since no land can be created or destroyed, the supply-demand curve is fixed. This means that the land tax cannot be passed onto the renter, because the market conditions haven't changed. The rent is not calculated based on the landlord's costs plus some extra, but instead is whatever the market equilibrium price is.
Another way to think about it: if landlords have the market power to raise rents, why wouldn't they just do it now, rather than wait until an LVT is passed?
Exactly. Because they hold monopoly pricing power over tenants they could in theory increase the rents 10 times even today. They don't do that, because better strategy for a parasite is to maximize profit and not to kill the host.
Now, if you abolish zoning or rezone places in addition to a land value tax, it could work as the investor could build more housing for the same land thus splitting the cost over multiple renters which I'm sure is the intended affect but a land value tax won't work without changing zoning laws and at the end of the day, it's all passed onto renters.
That logic only works in a non-competitive market. The reason they don't raise rates is obvious: There are other landlords around and any one landlord raising rates would lose business to the others. If you raise costs for all landlords, however—for example, by imposing a LVT—then there is no risk of defection. Landlords either raise their rates or lose money with every rent payment. Any that don't raise their rates will go out of business to be replaced with others who do. And if you use price controls to prevent them from raising rates despite losing money then they would go out of business without being replaced, leaving individuals and businesses to buy their own property outright rather than renting, in which case they will be paying the LVT along with all the other costs formerly handled by the landlord.
TL;DR: Don't assume that the market equilibrium price is fixed and independent of cost!
City rent is an aggregate monopoly - there is not enough supply of housing to have effect on downward pressure for rents. Demand is overwhelming supply.
Landlords' rent prices are not driven by competition but determined by what the market can bear.
The problem it targets is not the wealth of landlords. The problem it targets is land owners who are not landlords making money, often as a by-product of consuming a luxury good (a home in a city center), without actually providing the social functions which in principle justify their compensation (anticipating demand, managing housing at scale, high-quality construction on a budget, etc).
It's funny how we introduce massive upheavals all the time - ending this social program here, injecting trillions of dollars there, but this one addition is considered infeasible.
I suspect that the primary problem with George's theory is that he underestimated the political power of rent-seekers.
The Inquiry was set up in 2004 because there was a legal requirement to undertake a property revaluation before 2005 which, as things stood, would have led to massive changes in people's tax burdens (winners and losers). The Government wanted a way out of the problem - but the Inquiry didn't give them one: Lyons decided that revaluation was essential and should go ahead.
The Government sorted the issue in time-honoured fashion by changing the legislation to remove the need for a revaluation, and changing the Inquiry's terms of reference. And so it goes ...
> It's funny how we introduce massive upheavals all the time - ending this social program here, injecting trillions of dollars there, but this one addition is considered infeasible.
My understanding is that things are done in at least 51 different ways in the US. Maybe one of the smaller, more progressive States in the Union will be willing to try out some form of LVT in the near future?
Because its appreciation in value is largely unearned wealth, especially in a country like England with a long history of aristocracy and landed gentry.
You might search for the term "unearned increment." It was a common expression to point out what people who reaped but did not sow receive due to our failure to collect the economic rent.
One person's unearned increment is another's — and likely many others' — lost birthright. Who is entitled to it? All of us! How do we implement this? Land value taxation.
The whole thing about tax is to extract the maximum number of feathers from the goose with the minimum amount of hissing. Taxing property is easy "because it's there" - you can't hide a house, or a barn, or a factory.
Though deciding _how_ to tax property is a bit more difficult. At one time they tried taxing by the number of chimneys a house had[1]. Another was the Window Tax[2].
Have you ever heard of the phrase "They got away with it scot free"? I was born in the village which (by legend) introduced the Scot Tax - not a per-head levy in our Friends born north of Hadrian's Wall but rather a tax on properties across the Romney Marshes, specifically raised to pay for maintenance of the sea wall. Houses below sea level had to pay the tax, houses above sea level were 'scot free'.[3]
... And people think tax policy is boring!
[1] Technically they taxed hearths, but it's a lot easier to count chimneys from the outside of a house than it is to gain entry to the house to count the number of fireplaces - https://www.nationalarchives.gov.uk/help-with-your-research/...
[2] You can still see many houses in the UK with bricked up windows. It wasn't done for aesthetic purposes; it was done to limit the level of tax that could be levied on the property - https://en.wikipedia.org/wiki/Window_tax
Its a shame the inquiry didn't recommend formula funding from central government receipts (couple of pennies on income tax?) - so much grief could have been saved.
The Inquiry's main objective was to investigate possible revenue streams that could be raised locally, to help local councils free themselves from the tyranny of central government funding. At the time local government revenue came from Council Tax, Business Rates (though the level was set by central government, not local authorities themselves), licence and other fees (eg to open a tattoo parlour, or register a death), small fines (dog mess and other litter) and car parking charges. Altogether the revenue raised covered less than 10% (I think) of all local government spending. The rest of the money was supplied by central Government - making the UK one of the most centralised states in the world.
A "couple of pennies on income tax" would've made the situation worse - though one of the things the Inquiry looked at was the possibility of localising (some) income tax.
The reason to do so is because it reduces inequality and leads to a fairer society.
Instead, we permit individuals and corporations and trusts to privatize the value and we tax it only very lightly --- they get to keep the lion's share, just as if they made it themselves.
And you don't de-incentivize productive labor (as our current tax scheme does to an extent).
If all tax were things like use of land, use of aluminum in a can, burning of a unit of fossil fuel instead of "you worked an extra hour or invented something, now you owe a greater percent!" I believe society would become much more innovate and efficient.
Not sure if it leads to a fairer society. (of course one could argue it is fair for a not so rich person not to live in a rich area :-) )
I sincerely believe all types of capital should be taxed instead of income, the tax burden doesn't have to change but it should be redistributed a bit.
This would also deal with companies like Amazon and Apple who pay very little tax on profits - they'd pay a tex on assets instead like land or cash and pay a larger share.
Values for assets are market values, which are arbitrary and every-changing yes, just like income and profit is arbitrary and every-changing but at least values for assets are generally set by third parties, as opposed to the value of profits - the situation could not be much worse than the one at present where large companies choose how much tax to pay by manipulating their books to adjust profit.
I don't think companies should be taxed on customers personally, but if they choose to value their brand name at $10m owned by a subsidiary as a tax dodge (as at present), sure they should be taxed on that.
There's nothing wrong with the idea. The big issues were mainly around introducing a new tax system and the massive upheavals and uncertainties businesses and people would face as part of the change. Winners and losers, etc. Given the uproar surrounding the later introduction of Universal Credit I'm glad Sir Michael chose not to recommend LVT in his report.
Anyway - anecdote time. One of the big questions we asked at the start of the Inquiry was: "Why tax property?" After long consultations with the most senior Experts and Gurus across Government and Academia the answer came back: "Because it's there."
[1] https://www.webarchive.org.uk/wayback/en/archive/20070411120...
(I'm mainly commenting because it's an opportunity to show off the Inquiry's website. I built that! I had to do it in my "spare time" because we didn't have a budget for the work. This version is from 2007, but the original code was written in 2004 in PHP and after that most of the work was adapting the site to add events, display responses received, etc. Simpler times!)