These arguments are usually presented in conjunction with the Poor Widow Bogey, but let's treat them as a separate category:
• There's no cash to pay the tax; you can't pay tax in slices of land (skip to article)
• Taxes on land are "dry taxes"(skip to article)
• People will be forced to sell or rent out their land (skip to article)
• People will be forced to try and generate income from their land, even if that is a sub-optimal use (skip to article)
• It would be OK to make landlords to pay more but why should I pay tax on my own home? (skip to article)
• If they tax us on land, they might as well tax us on fresh air! (skip to article)
1. "There's no cash to pay the tax; you can't collect/pay tax in slices of land"
People only say this because they have become used to the socialist idea that taxes are primarily assessed on earned income. But there are two different types of "tax" (i.e. sources of revenue to fund government):
- taxes calculated as a percentage of cash or near-cash income (whether called income tax, corporation tax, National Insurance or VAT, a tax on turnover/gross profits), and
- user charges (Business Rates, council tax, fuel, tobacco and alcohol duty).
LVT is actually a user charge for the benefits (net of dis-benefits) accruing to each plot of land and collected or enjoyed by the owner (or the bank in the form of mortgage interest), it is conceptually no different to any other duty. You can't argue against fuel duty on the basis that "my petrol doesn't generate income for me, I can't pay petrol duty in pints of petrol", it is there because otherwise roads would be even more hopelessly over-crowded.
As to "slices of land", taxes (and rent or mortgage interest) are supposed to be paid in cash, but if a tax evader (or a rent or mortgage defaulter) runs up a large enough debt then his property (whether that is cash, physical assets or land and buildings) will be seized and sold off to pay the tax (or rent or mortgage arrears).
A 90% - 100% LVT on current site premium (definition see here) would be approximately 3% of the total selling price of each home (at 2017 prices). Even if house prices were to halve because of the LVT, that still means that any homeowner could run up 17 year's worth of arrears before there was a shortfall in collection.
Just because land itself does not spew out coins and notes, that does not mean that the tax can't be collected. Very briefly, on an administrative level, everybody will fall into one or more of the following categories, and all the collection methods would be administratively easy:
- Pensioners - tax can be deducted from state, occupational and private pensions (just like PAYE) with any deferred amounts being collected from proceeds of sale of house on death.
- Social tenants - tax can be collected as part of the rent (the rent includes LVT, by definition)
- Private tenants - tax would be collected from landlord (or withheld from Housing Benefit Payments)
- Households in lower-value homes - tax would fall below personal allowances/Citizen's Income entitlements.
- Households with mortgages - any tax exceeding personal allowances could be added to mortgage payments or collected via PAYE/Self Assessment returns.
- Public sector workers - as above, can be deducted directly from wages.
- Mortgage-free households - any tax exceeding personal allowances could be collected via PAYE/Self Assessment returns.
- Owner-occupier farmers and small holders - tax would probably fall below personal allowances, balance collected via Direct Debit/Self Assessment.
- Vacant premises and unregistered land. If the owner does not pay, a charge to cover arrears is taken over the land and if he does not come forward within twelve years, his title is void anyway under normal English land law (different in Scotland).
- Land owned by offshore trust etc. - if tenanted, then tax is collected from tenant. If vacant, see above.
2. The Taxpayers' Alliance, which is funded by large landowners and the financial services industry coined the term "dry taxes", which adds nothing new to the debate.
3. "People will be forced to sell or rent out their land".
This is nonsense of course and even if one alternative is correct then the other isn't. Nobody would be forced to sell anything, if you own land and buildings, then under LVT, even under 100% LVT, you will still be able to make a profit by renting it out, as the LVT only taxes the site premium and not the income which is derived from the buildings and improvements or other services provided.
The next question is, to whom would land and buildings be sold or rented, and where would they get the cash from? If a tenant can rustle up the cash to pay the rent on where he lives inclusive of the tax, then why not the current owner, who only has to pay the tax but nothing extra for use of the buildings and improvements?
4. "People will be forced to try and generate income from their land, even if that is a sub-optimal use"
The bulk of UK land and buildings by value is housing and by and large, people are paying for the enjoyment value, they do not derive cash income from their home any more than they derive cash income from any other goods they buy or the services they pay for.
So that's like arguing, "If supermarkets start charging me for the food I need, then I'd have to re-sell the food at a higher price to be able to pay for it." or "If we have a road fund licence, fuel duty and VAT on car use, then instead of using their cars to commute for work or for leisure activities, everybody will be forced to become a courier or mini-cab driver to generate the income to pay the taxes."
One of the main determinants of rental values is the level of local earnings. For example, although average earnings in London are £10,000 higher than in the rest of the UK, average annual rents are also £10,000 higher. Study after study (see e.g. Retail Week, August 2017) has shown that although there is a large wage differential between different regions of the UK, there is a similar difference in housing costs, so actual disposable household income after housing costs is quite similar across the UK (being almost exactly the same in London as in the North East).
The higher rents in higher wage regions are the entry fee which landlords charge, and which tenants are willing to pay, for the right to earn more money. Those tenants are already putting their homes to their optimal use by using them as a base from which to earn the higher wages.
These tenants go out to work, earn £20,000 net salary after tax and pay £10,000 in rent. From their point of view, this is just as good as living in a low wage area, earning £14,000 after tax and paying £4,000 in rent. Very few of them are going to move to a high wage/high rent area and then decide to start working from home on the basis that they have to generate income from the asset for which they are paying rent.
5. "It would be OK to make landlords to pay more but why should I pay tax on my own home?"
To which the rhetorical counter-question is: why should a tenant pay anything to have a roof over his head?
Answer: because he's getting something of value to him, or else he wouldn't pay it.
The total rent which any tenant pays can be split into two things: 'the rental value of the bricks and mortar' and 'the site premium'. With LVT, the landlord keeps the rent from the bricks and mortar and passes on the site premium to the government as tax. However the tax bill is split between them (the tax can only be paid out of the total rent collected), the landlord and tenant taken together are enjoying the benefit of exclusive occupation of that site. So far so good.
Good taxation involves taxing substance rather than legal form, because taxing legal form makes avoidance and evasion far too easy and erodes any underlying principles.
What if the landlord decides to get out of the rental business and sells a home to the sitting tenant? It would be the same person enjoying the same exclusive occupation; all that has happened is that they have swapped cash for bricks and mortar. The new owner continues to pay the site premium element to the government directly as tax and pays a smaller amount for the actual bricks and mortar.
To the outside world, nothing has changed. Why should the tax now fall to £nil merely because of a change in legal form?
6. "If they tax us on land, they might as well tax us on fresh air!"
This has been seriously advanced on several occasions, but that's the whole point isn't it?
i. Air is a natural resource, provided for free by nature (in which the Clean Air Acts help) and nobody has to pay for the act of actually breathing. Not even the most powerful government or landlord can make people pay for the act of breathing (although a Poll Tax comes close).
ii. Land (or location) is another natural resource provided for free by nature, but we have been conditioned to accept it as normal that landlords (or banks) charge us for the right to occupy it or acquire it, which includes the right to breathe the air from any particular site.
iii. Luckily, nobody can claim exclusive possession of the air: however much we breathe there will always be plenty left for everybody else, so while fresh air is of almost infinite value (without it we'd suffocate within minutes) nobody can privatise it and charge us for breathing it, so fresh air has no market value.
iv. Everybody needs exclusive possession of small patches of land to have their homes (or businesses) on, and there's a limited supply of good patches, which gives land its market value. Once all the land is registered as belonging to somebody, ever future individual in all eternity is forced to pay large amounts of money for the simple right to have a reasonable lifestyle (the only alternative is sleeping rough). What the Normans took by force in a few years is still paying their descendants handsome dividends.
v. Most households only own tiny patches of land, but in doing so, they are each placing a tiny burden on 'everybody else' who then has to use a less favourable plot. The sum total of all these tiny burdens is, mathematically and logically, equal to the rental value of any plot. And in turn, everybody (landowner or not) has a tiny burden placed on him by everybody who occupies a more favourable plot and so on.
vi. Imagine that there was a limited amount of air, and I'm a big fat bloke who burns through 6,000 calories a day, goes jogging and plays rugby; I drive a massive car and I love to have a roaring fire in the hearth. As a result of this, some other citizens are suffocating because I've used up more than my fair share of air. In that case, would it not be fair to levy a tax on fresh air to encourage me to use a bit less and use the fund to compensate people who are suffocating or whose cars won't start in the morning?
vii. So the only fair way of dealing with land rents is for all that land rental value (or site premiums) to be paid into a single pot and for the money in the pot to be dished out again to, or spent for the benefit of, everybody as equally as possible. So again, it's basic maths that the average household occupying the average plot would pay as much in LVT as it receives in cash or in kind, and would thus be effectively occupying land 'for free' in the same way as they can breathe air for free.