It's a provocative proposition to suggest tax on rents should be increased but it finds support across the political spectrum.
There's an article on rents in the FT this morning. I won't seek to summarise it, but it's well worth a look.
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And then watch rents shoot up.
NEXT!!!
You clearly do not understand the economic concept of rent
If the government puts up tax on rents do you think my landlord is going to be so generous as to freeze my rent?
Rents are a very broad concept
Land rents are already taxed
Many aren’t
Including the rents enjoyed by those who are property owners and not occupiers
It’s the untaxed rents I was aiming at
Yes, land rents are taxed here but not in any intelligent way. Business rates do collect a considerable proportion of land rent (although the unintelligent bit is taxing the buildings which are part of working capital). Commercial land values are consequently moderated and have not experienced massive bubbles.
However, this is not true of residential land. The owner of the most expensive apartment in the world (at One Hyde Part) may as a single occupant pay £1100 per annum Council Tax – if it is rented the owner pays nothing. The consequence of all this is that residential property (for which there is no accompanying rental stream for owner occupiers) represents by value 75% of UK land yet occupies only about 6% by acreage.
And the vast majority of UK land is entirely untaxed – maybe why 1% still own 70% of it.
The rent-seeking behaviour to which the article refers is complicated and not easy to solve but the collection of land rent for public benefit is a no-brainer for a courageous state.
Did the landlord cut rents when mortgage interest rates went down? Did he increase them when mortgage rates rose? Did he increase rents when house prices rose? Does the rent he charges depend on his outstanding mortgage balance? The answer to all these questions is generally “no!”.
The price you pay for your home, rent, paid to the landlord reflects supply and demand for housing. Just like any other market. Landlord’s costs directly affect neither supply nor demand.
Well done, you’ve got a subscription to FT
You can read about 30 articles a month for free too – this is not an elitist link
It shouldn’t be controversial. Taxes on rents have the least economic ill-effects, and taxing them wouldn’t generally interfere with people’s ability to life their life according to their plans.
They fit in very well with the liberal egalitarian ideal of taxing the lucky to improve the position of the unlucky.
I couldn’t believe my eyes when I read this: “As land became less important to the industrial economy…” and this “Land rents still exist although governments tax most of them…”. What a load of rubbish. Off to write letter.
Good article. The problem surely is identifying rents, as the distinction is often subjective. One day soon people will start to balk at the money they pay to Apple – its control of ITMS means its surplus profit on music and apps is a rent.
More practical distinctions are, for example, between conditional payments (dividends, bonuses) and unconditional ones (fixed-interest, land rent, basic salary). There’s an argument that unconditional ones should be discouraged in favour of conditional ones.
What I still find hard to understand though is why we insist on taxing income from work so much more than investment income (by that special income tax which applies only to income from work, called NIC)
I agree with Murphy.
Much of the total economic rent is not collected for public revenue. So we need to tax the worker and enterprise even more to cover it. This is a point of great dissonance for the man.
See here for an idea that explains it from the bottom.
http://highpaycommission.co.uk/submissions/the-cause-of-high-pay/
This shows how large corporations are not producing wealth in proportion to their total economic activity. They are extracting wealth *from* the economy through their exclusive ownership of enormous land assets. In the end.
That is, monopoly profits, are a tax on everyone else.
Where Murphy is not so wise is to miss that the largest unearned incomes (economic rents) are in the value of land itself, at the root. Homeownerism. Bank mortgages. Corporate monopoly. Resource rents. Are by far the largest. Tax evasion is miniscule in proportion. This is an extreme point of denial for Mr Murphy.
At the Bank of Ideas conference Mr Murphy stated to me before a large public audience that “land is not a big deal here”
Yet it is the BIGGEST deal. Without land, what at all can be produced? So what gives?
Murphy is a skillful and industrious character. We are working to help him see this simple factor. He has massive influence. And means to correct a corrupt world.
But if he does not understand the major issue at the root, he is using that important power to misdirect the people, without even knowing it.
Respectfully – I have called for more work on LVT in the last few days
I wholly get the issue
I just don’t think it is the ultimate answer to the ultimate question
That is the difference between us
I haven’t seen this call. Can you supply a link please?
It would be absolutely astonishing if more work on LVT really was needed! Every well-posed question has been asked and answered many times. I can name numerous, well-informed individuals who can easily answer any sensible question. You might not like the answers though.
LVT has been promoted by literally millions of people over more than a century. They have written books, formed thousands of clubs and societies (“Single Tax Clubs”). They have written magazines, theses, academic papers, blogs. It’s been implemented on a small scale. Outline plans have been drawn up for most developed countries.
There’s even an easily understood simulation of economic rents and radical fiscal reform in the form of Quaker fiscal activist, Lizzie Magie’s Landlord’s Game (Monopoly(tm)) and Prosperity games of 1903.
I’m sure the questions posed in your call for more work can readily be resolved in a matter of days.
Perhaps the best question to ask, however, is “If it’s so great, why isn’t it used everywhere?”. Once you understand why it has proved impossible to implement and sustain, the next question is “Can we develop the principles into a robust, politically and economically viable alternative to contemporary taxation?”. The answer is a very definite “yes!”, as shown by the Systemic Fiscal Reform Group’s innovative Location Value Covenant instrument.
Have you ever played Landlord’s and Prosperity games? The lesson on the potency of fiscal reform is profound.
And respectfully, I do not agree
The case has clearly not been made – whatever you think
And nor has the viability been proven
I also advocate tax reform – and know that the job is to suggest feasible reform – and I do not think that case has been made for LVT yet – and have not seen it
Of course I could be wrong – but you definitely are not its purveyor in the way I have seen you deliver the case. Sorry, but that’s just factual observation
“And respectfully, I do not agree. The case has clearly not been made — whatever you think. And nor has the viability been proven.”
Your claim is that more research is needed to establish whether a viable case for LVT exists. I say that there are no further questions of interest – the viability has been clearly disproven. Hence I do not campaign for LVT. And neither does Robin.
Your recent call for “more work on LVT” suggests you believe there might be a sound case for LVT – that it might>/i> be viable, but that nobody has successfully proven or disproven the viability yet. I have not seen your call, so I cannot direct you to existing work which could lead you to a conclusion.
You write : “you definitely are not its purveyor in the way I have seen you deliver the case. Sorry, but that’s just factual observation”
It always seems like we are talking cross-purposes on this! I have proved to myself the non-viability of LVT. I have not sought to make the case since. I have however given you a worked numerical example, and discussed the features of LVT to help the debate. So it goes without saying that I am not the purveyor of the case for LVT!
I do however make the general economic case for direct collection of economic rents on land, natural resources and money for public purposes, where practicable.
Unfortunately, I do not see a resolution of your uncertainty over LVT. It is impossible to make a clear case for its viability, so you will never endorse a full (100%) LVT. But it is equally impossible to flatly reject the advice of the numerous LVT/Georgist supporters, since this creates discord in the community – and I think it also conflicts with a constitutional purpose of a major funding source of yours.
Reform proposals centred on Location Value Covenants (LVCs) overcome essentially all the defects of LVT and of existing tax structures – the benefits remain uncontested. Innovation like this is the direction I believe Tax Research should go!
I will never support a 100% LVT
And not a hope I’ll be doing LVCs either right now
Neither has any prospect of happening and I am interested in deliverable change – in which LVTs will play a part, I am sure, but never as a cure all for the tax system as quite simply they’re not
So, you are, I am afraid, wasting your time with me – I will not be joining you in your direction f travel any more than I’ll be joining right wing libertarians
OK.
“And not a hope I’ll be doing LVCs either right now” “I am interested in deliverable change”
LVCs are already a legally valid way for funding government, I believe. No need for changes in law – just do it! I’d have thought that would be one of the most easily delivered and uncontroversial means of procuring public services.
I can understand why you might prefer devoting your time to other projects. But having developed LVCs over several years, I’m now looking to tap into tax and legal expertise such as yours and your associates to help put them into practice – or to identify any sticking points. So far it looks as simple as drawing up and signing the necessary paperwork! We work to the same goals.
I’d appreciate it if you didn’t dismiss LVCs in such a cursory manner – particularly as they demonstrably can readily meet your “10 Cs of an efficient tax system”. As an expert in the field people will naturally assume that your comments are well informed – if this is so, I welcome your reasoning, otherwise it is hugely discourteous to everyone in our field. Thank you.