There are growing calls for increased use of land value taxes to replace income taxes and corporations taxes as a major source of government revenue. Yves Smith points out:
Income and sales taxes add to the price of doing business, and hence reduce their supply and competitiveness. Most economists – even Milton Friedman – recommend that the more efficient tax burden is one that collects economic rent – property rent, fees charged for using the airwaves, monopoly rent, and other income that is basically an access charge. If you tax land rent, for instance, this doesn’t raise the price of housing or office space. The rent-of-location is set by the market place……
I agree with Michael Hudson that our income tax system encourages the use of debt, over-use of which was one of the primary causes of the recent GFC:
Our tax system favors debt rather than equity financing. By encouraging debt it has prompted a tax shift onto the “real” economy’s labor and capital. The resulting interest charge and tax shift mean that we’re not as efficient and low-cost producers as we used to be…..
But I have two concerns:
- Introducing new taxes without abolishing the old leaves scope for government to increase tax revenues as a percentage of GDP over time. And few things are more inefficient — and more harmful to growth — than government spending.
- Focus on land value taxes alone, while neglecting other rent-producing assets such as patents, copyright ownership, rights to airwaves, and even brand ownership may skew investment towards, and inflate the price of, these lower taxed assets.
Read more at It’s Time to Levy the Land | naked capitalism.
To get the full benefit from land value tax it has to be about untaxing labour and capital. The increase in productivity and employment would reduce welfare needs. Infrastructure spending would result in higher land values in relevant areas and the cost could be partially returned in the LVT.
The difficulty would be a politically possible implementation, acceptable to home owners, especially retirees on low incomes. In Australia, the Henry tax review, and then the “Turning Grey into Gold” report re older Australians, both advocated the substitution of stamp duty and the existing state land taxes with a broad-based annual LVT.
Stamp duty, the tax on moving, especially adversely effects retirees who have many reasons to move (sea/tree change, downsizing, family and health reasons).
This article:-
http://www.abc.net.au/news/2013-02-01/janda-stamping-out-inefficient-duties/4496356
refers to some of the transitional measures to make such a change acceptable.
“The ACT model presents one way around the potential shock of change, which is to phase the stamp duty reductions and rate increases in so gradually as to avoid any sudden jolt to the property market.
The Henry Tax Review suggested a more novel approach to transition which might also address some of the political concerns of people who have already paid stamp duty on their current property. That would be to restrict the new land tax to properties changing hands after a particular introduction date, so that those who already paid stamp duty are not taxed twice.
This proposal goes a step further and suggests that buyers of properties after this date could be offered a choice: either pay stamp duty up front, or agree to pay land tax into the future at a rate set that would roughly equal the stamp duty they would have had to pay plus inflation.
Once a property had switched onto land tax, however, it could not switch back onto stamp duty the next time it was sold. Gradually, almost all of the housing stock would move onto land tax, at which time, decades hence, another transition arrangement could be made for the few properties left that were not yet covered by land tax.
The government might lose some upfront revenue in the short-term, but in return would receive a much more stable long-term source of income. First time buyers would be no worse off, because the land tax was simply replacing the amount of stamp duty they would have had to pay, and they may be better off, because the lower upfront costs mean they may need to borrow less money from the bank, and therefore have lower total interest repayments.
The only other common objection to land tax is that asset-rich but low-income home owners may be forced from their homes by their tax bill. However, it would be very simple for state governments to allow such people to defer their land tax payments, which would be indexed at a suitable rate and only fall due when the property next changed hands. Thus the land tax bill could be automatically deducted from the sale proceeds of the property when it was eventually sold.”
Once the above change was well established it may then be possible to increase LVT at perhaps as little as 0.1% per year with corresponding reductions in taxes like payroll, income and company tax. I think a rate of 5 to 6% is to be aimed for as that is what it takes if you are not just going to replace one lot of speculators with another wealthier lot.
Obviously considering the opposition from vested interests it would be a politically difficult reform.
Without it though here is more of the same, an economy where land is monopolised and work is penalised, producing superfluous wealth for the few, struggle for most and unemployment and welfare dependence for many.
Despite advocacy from tax reviews there is no evidence of progress, rather the reverse.
David Collyer at Prosper Australia in series of Englobo articles shows how the Victorian government decisions promote land banking by developers and high land prices.
http://www.prosper.org.au/2013/07/04/victorian-government-entrenches-englobo/
State governments are also changing local governments rates policy from land value rating to CIV (capital improved value) taxing buildings as well. This happened in Victoria in Kennett’s time, Tasmania and NSW are now tending that way. They argue that a big/expensive house is the defining characteristic of wealth. Nothing is said about large families needing large houses or about the mortgage a large family might be paying off. In their simple model, big house equals wealth, so they get charged more than the person with several smaller houses and speculators holding land vacant.
Re airwaves, they could be subject to limited term leases payable annually and renewed by auction.
Here is an article by Terry Dwyer on patents:-
http://thedepression.org.au/?p=11351
Great post
“The Henry Tax Review suggested a more novel approach to transition which might also address some of the political concerns of people who have already paid stamp duty on their current property. That would be to restrict the new land tax to properties changing hands after a particular introduction date, so that those who already paid stamp duty are not taxed twice.”
….or, as part of the phase in, you could allow home-owners who paid stamp duty in the last say 5 years to amortize this against land taxes over a period of time.