Buskers on the London Underground understand rental value. Earnings from a pitch at a busy station near the city centre will be far higher than out in the suburbs. The higher earnings have nothing to do with the music: they reflect the rental value of the site. And rental value can be a significant source of public revenue.
The latest edition of Tax Justice Focus explores the issue of taxing natural rents from land. Economists define land, alongside labour and capital, as a factor of production. Unlike labour and capital, however, it is in fixed supply and has no cost of production. Being scarce, land is in great demand, but in many cases it is used inefficiently and its potential as a source of significant amounts of public revenue goes unrecognised. In this edition, guest editor Carol Wilcox and her selected contributors argue the case for adopting Land Value Tax as a just and efficient fiscal tool.
In the lead article Nic Tideman presents LVT as a tool for development. Poor countries have generally low land values so LVT is not commonly considered as a useful instrument for raising government revenues. Nic describes the mechanism whereby LVT can trigger a virtuous circle of increasing land values and revenues.
Henry Law discusses how LVT might be introduced. One of the main objections to LVT seems to be that it is impracticable, particularly that the valuation process is problematic. As can be seen below LVT has already been successfully implemented and land value assessment is becoming a simpler task with the development of improved software and other tools.
Molly Scott Cato then presents LVT as a green tax. Ever since value slipped its attachment to the natural world around when fractional reserve banking was invented in the 17th century?money has become increasingly important, and the planet and its resources less so. To find solutions to the financial crisis and the environmental crisis, she argues, we must get our feet back on the ground.
Finally, Joshua Vincent describes the LVT experience in Pennsylvania and presents some interesting data. The split-rate taxes levied in Pennsylvania are probably the best documented applications of LVT in practice. In fact only a small portion of rent is collected in this way, which some say is insufficient to show the effects.
This edition also covers news of the recently issued Nairobi Declaration on Tax and Development, plus details of a forthcoming conference on the Political Economy of Taxation at Loughborough University, UK, in September 2010, a review of an IMF paper looking at the role of tax distortions and tax havens in the build-up of debt in financial systems around the world, and finally an invitation to support a documentary drama film.
You can download Tax Justice Focus volume 6, number 1 here: http://taxjustice.blogspot.com/2010/05/tax-justice-focus-taxing-natural-rents.html
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I thoughts thats what rates are ? A tax on the rentable value of the property so at present businesses pay of the order of 50% of the rentable value of the premises they use.
This is about real rent – the return to land, not capital.
@catsick
Not quite. Rates are a tax on the value of the land plus the value of the buildings (and other improvements) that make up a property whereas LVT is a tax only on the value of the land portion of a property. The difference looks small but the effect is huge: rates encourage the owner to develop a property as little as possible whereas LVT encourages the owner to develop a property as much as possible.
The stickingpoint is over how the values will be FAIRLY calculated and applied. High land values could adversely affect folk on fixed incomes (or even no income), thereby forcing them out of long-cherished homes because they can’t afford the LVT. I don’t buy the “roll-up” idea either, for elderly people; i.e deferring LVT payment till the property is sold; if the LVT owed is higher than the property price, what happens then? Who’s going to pay the rest? Some more homework is needed here, methinks. Not all elderly wish to live in homogenous no-room-to-swing-a-cat granny-stackers with a window-box; admittedly the desire is usually for something a little smaller than a 4-bed house in old age, but let’s not encourage sardine-cramming.
Would rural-dwellers be unfairly penalised because of their land’s “natural assets”? That implies that only the rich would be able to afford the higher LVTs associated with “attractive” land.
What about land owned by charities? I know several who run preservation sites (buildings, machinery, etc)….if LVT was too hefty, they could be closed down.
I can see why the tax attracts attention as a cure-all for the economic situation. But extreme care would be needed in its implementation. There are bound to be some hefty losers. The other thing is; at the moment, no-one has any idea at all exactly how much their bare land is worth. That means an LVT bill arriving on their doorstep could provoke a heart attack…..or not….in other words, much much more education is required to get the public to understand how it all works. I’m not convinced as yet.
@Christopher. Please look at http://www.landvaluetax.org. Most of your objections are covered there. Your example of the poor widow with final LVT bill more than the house is worth would be a very rare occurrence. If there were really no value in the whole estate it would obviously have to be written off. There will always be winners and losers with any change to the tax system but that is not an argument for the status quo, no matter how unfair and inefficient. The huge potential revenue stream could easily compensate where there is genuine hardship – just as the current system does. Take a look at the stats for net worth of UK citizens – there are a huge proportion who are in the negative region. As a young person, if you don’t belong to a family who owns land now you have very little chance of accumulating any wealth during your lifetime. This has to change.
People being what they are, they need to see actual figures….”what is it going to cost me?” At the moment I see plenty of theory but no figures. Without those, I couldnt possibly support the idea. I get the impression that, although it is intended to replace all other forms of taxation, that isn’t likely to happen; I can see land tax being demanded as well as other taxes, not instead of.
The other problem you’ve got is trying to convince people to pay “rent” for something they already own, especially those who have paid their mortgages off. We view our houses as including the garden, not excluding it; and many of us already make full use of our land, for vegetables, etc. It’s all rather altruistic and I don’t think most people are really up for it at the moment. It may be the “right thing” in your eyes, but it’ll be a long time before the majority accepts the idea.
Christopher, where do you “get the impression that, although it is intended to replace all other forms of taxation”. That is certainly not my view and I state it quite clearly in the editorial.
You have to understand the meaning of land. Whatever you have done to your land you have not contributed one whit to its increasing value – but everyone else has. As a start we would advocate the replacement of Council Tax and ‘Business Rates’ by LVT. Since unused, currently untaxed land would be included, the tax base would increase and the average payment would be reduced.
However, no one is going to vote to pay tax – govts just impose it.