I was asked by a commentator to summarise my approach to land value taxation yesterday. I asked ChatGPT to summarise my own work on this, and it offered the following summary:
Richard Murphy, a professor of accounting practice at Sheffield University Management School and director of Tax Research UK, has expressed scepticism regarding the implementation of Land Value Taxation (LVT). In his August 2024 article titled “Land value taxation is not a panacea,” Murphy outlines several concerns:
•Valuation Challenges: Murphy argues that LVT relies on assessing the rental value of land separate from any structures upon it—a process he deems complex and prone to disputes. He emphasises that most property owners are unfamiliar with distinguishing between the value of their land and the value of the buildings on it, leading to potential confusion and appeals.
•Revenue Generation Doubts: He questions the feasibility of replacing existing taxes with LVT, suggesting that the revenue generated from taxing land alone might be insufficient to meet governmental financial needs.
•Economic Impact on Tenants: Murphy challenges the notion that LVT would solely affect landowners, asserting that landlords would likely pass on the tax burden to tenants through increased rents, thereby impacting those who may already be financially vulnerable.
Instead of implementing LVT, Murphy advocates for alternative approaches to address economic disparities and generate public revenue:
•Taxing Rental Income: He proposes increasing taxes on rental income, such as introducing an investment income surcharge, to more effectively capture revenue from property ownership without the complexities associated with LVT.
•Capital Gains Tax Adjustments: Murphy suggests raising capital gains tax on the sale of land to ensure that profits from land sales contribute fairly to public finances.
•Development Land Tax: He recommends reintroducing a development land tax to capture the increase in land value when planning permissions are granted, thereby ensuring that the community benefits from land development activities.
Murphy concludes that while the concept of LVT may appear theoretically sound, its practical implementation poses significant challenges. He emphasizes the need for pragmatic tax solutions that are understandable to the public and effective in addressing economic issues.
For a more comprehensive understanding of Murphy's perspective, you can read his full article here.
Additionally, Murphy discusses these views in a video titled “Land value taxation is not the panacea that its proponents claim,” which you can watch below:
So, now a question:
Would more summaries of my thought on issues like this be useful?
- Yes (78%, 151 Votes)
- Only if I can find them again (10%, 20 Votes)
- Not sure (8%, 15 Votes)
- No (4%, 8 Votes)
Total Voters: 194
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With residential property the market is fairly ‘liquid’ so assessing the value for a ‘Council Tax’ or ‘Rates’ MK2 should be reasonably straightforward.
If you want I can email some ideas I have had
My suggestion for Commercial Property is a percentage tax on leases
LVT is not charged on the value of properties. It is taxed on land value. There is no market in that.
“No market for land”?
I am currently selling some land (suitable for grazing only – no hope value, no zoning) in front of a country house I converted into offices a few years ago. I hope there’s a market for land because the agent I have employed is quoting me between £12,000 and £15,000 and acre.
I have no objection to a Land Value Tax – especially if it raises the equivalent of what LAs require to provide all the services we need. Local taxes have never made sense to me – they are a left over from the days when parishes and LAs were solely responsible for the Poor Laws and workhouses.
A national Land Value Tax rate would spread the costs fairly across the country and enable us to scrap all local property taxes.
Yes, landlords would try to dump it on to tenants (who are already paying Council Tax anyway) but ultimately the market would decide – and, of course we need compulsory purchase for LAs to build homes for rent.
Compared to direct wealth taxes, which are a non-starter – incredibly complicated, incredibly easy to avoid and impossible to enforce, Land Value Tax seems simple, fair and impossible to avoid.
LVT would not be instead of the excellent things you propose in your Taxing Wealth Report, it is something that can initially replace really bad taxes that are universally hated.
No one claims LVT is a panacea – in fact the landvaluetax.co.uk web site states exactly the opposite and describes why.
There is no panacea, but LVT is one of the measures that can make things fairer – after all, it is the unfairness of our wealth distribution that has led to our current crisis of democracy where 8 out of 10 of the electorate didn’t vote for the current government. We can’t restore faith in politics without introducing measures that are seen to be fair.
I have never disputed it has a role
My argument is with Georgists who claim it is a panacea
The other issue of course that LVT proponents do not address is that the market for ‘Commercial’ land and property is not very ‘liquid’ which makes establishing a value even harder.
Hence the proposal – by LVT advocates in Scotland for Compulsory Sale orders as an alternative to Compulsory Purchase orders mainly for use with commercial land and buildings
Supporters of LVT claim that increases in land value result from public investment this is not usually the case. Increases in house prices are related to earnings levels, asset values and the fact that land is in short supply. Reducing demand which means taxes on earnings and severely limiting the use of properties for 2nd homes or holiday lets is one area of policy and another is to limit people to owning the property they live in and not buy up additional properties to rent out. It would also be appropriate if the UK population were to fall not increase.
Would a rental tax also not increase rents though, for the same reason?
Why?
The poll:
Yes.
Ideas are my currency.
I am not a social person in real life, debating on Facebook and this blog is my “social” life. Having summaries at hand with the arguments to weave as appropriate into my own discourse with sceptics is priceless.
That summary is very close to my own view (is ChatGPT always that good?!) I think LVT is very useful as a (partial) wealth tax and it could replace other property taxes (if we so wished) but the Henry George types arguing for LVT as the *only* tax are completely wrong. To use a golfing analogy: you want a decent set of clubs but no-one wins by being a one-club golfer.
Entirely agreed
And the latest version of ChatGPT is good, I have to admit
My query was as basic as it gets. I literally said ‘Richard Murphy land value taxation’.
I find the difficulty with those who call for a wealth tax, be it LVT or any other version, is that what they probably mean is they want several taxes aimed at reducing inequality, but fall into the trap of oversimplifying everything down to a slogan of a single wealth tax.
Those like yourself who understand that there are never simple single solutions to structural problems need to keep reminding all of us that we need to be focused on the out come of taxes not the slogan.
Thanks
I try
Richard, there is a chap in Scotland who has developed a detailed proposal for an Annual Ground & Roof Rent which would seem to be a workable solution. Would it be possible for you to do an interview with him to exchange views and agree on some practical approaches to an alternative for local and potentially national taxes? If you’re interested in talk with Graeme McCormick, then I’d be happy to send you his email address.
Is it a land value tax?
If so, no…
We learned early on from David Ricardo that every parcel or tract of land has some potential annual rental value. Later, Patrick Edward Dove added the argument (later picked up by the American Henry George) that this value is societally-created and has nothing to do with what an individual holder of a location does or does not do to improve the location’s capacity to yield actual tangible wealth (i.e., capital or consumer goods). George argued that once a holder of a location or tract of land contributed the full potential annual rental value as payment to the community, their financial obligation to the community is fulfilled. This is by definition a payment for benefits received, as the location’s rental value is directly associated either with the positive traits provided by nature or (and/or) the quality of public goods and services brought to the location. Any taxation of earned income, of capital goods and commerce is a confiscation of one’s private property and (in an ideal world) should not be subjects to taxation. The public capture of economic rent is, then, not actually taxation, although the tax mechanism is the methods for collection.
One other comment regarding economics and the subject of economic rent. The rental value of surface locations is an extremely important potential source of public revenue but hardly the only source. There are natural resource-laden lands, there are the resources in our streams, rivers lakes and oceans. There is the value of frequencies on the broadcast spectrum. There is the value of take-off and landing slots at airports. And, the list goes on an on. One economist in the United States (Fred Foldvary) estimated economic rents to comprise over 25 percent of Gross Domestic Product. Economists in Britain has calculated similar levels of economic rent for the United Kingdom.
We might consider the taxation of the value of some buildings, those that are more in the character of conspicuous consumption rather than a reasonable level of shelter and comfort. However, in general, buildings depreciate almost from the moment they are constructed. They require expenditure for ongoing maintenance. Then, every decade or so, they require huge expenditures for systems replacement. The optimum rate of taxation for most buildings is, therefore, zero, at least for the depreciated value up to the national median value (or some other appropriate measure).
If you have to appeal to David Ricardo and Henry George for authority you are in deep trouble.
You are.
LVT has a minor role to play in any tax system, but nothing more.
Please don’t waste my time with it. I have addressed the issue many, many times.