tax system mirrlees land value tax commonwealth

Enough quick fixes, Overhaul the tax system now
location value people’s budget

Time to tax the fat of the land

The English press gave Brits lots to think about this month. We trim, blend, and append five 2012 British articles on taxing land values from: (1) The Guardian, Mar 10, by W. Hutton; (2) The Observer, Mar 18, by J. Airs; (3) Financial Times, Mar 16, by M.S. Webb (editor-in-chief of Money Week); (4) New Statesman, Mar 20, by P. Kaszynska (sr. researcher, project manager at ResPublica); and (5) Tax Research, Mar 10, by R. Murphy.

by Will Hutton, by John Airs, by Merryn Somerset Webb, by Patricia Kaszynska, and by Richard Murphy

Britain’s tax system is riddled with exemptions, cliff-edge withdrawals of allowances, wild step-changes in effective tax rates, and irrationalities that hold back investment and enterprise.

A real shock-and-awe budget would reform the system from top to bottom -- attacking the vested interests behind all the craziness.

The outlines of a reforming chancellor might do were set out in an extraordinary review of the tax system led by Sir James Mirrlees of Cambridge University for the Institute for Fiscal Studies.

Mirrlees wants to change so much that one's head spins: substituting congestion charges for petrol duties; taxing gifts over a lifetime rather than just on death; creating a land value tax; removing the myriad exemptions from VAT; protecting normal rates of return for businesses from being taxed; shaking up property taxation from top to bottom. And that is not all.

There are three ideas that could make a real difference to Britain's recovery prospects. The first is on business taxation. Interest on debt is allowable against tax, one of the reasons that debt levels have grown to such enormous levels, precipitating the financial crisis. Either remove the tax relief on debt or, more interestingly, create parallel tax relief on profits.

Next up is taxation of property. Introduce a land value tax on business and agricultural property; the principle is that as land becomes more valuable because of its business use, so it should attract more taxation.

Last, he should remove the innumerable exemptions from VAT, especially on financial services; here, a new financial services tax should be introduced.

To see the whole article, click here .

Will Hutton touches on the virtues of a land value tax ("Enough quick fixes, Mr Osborne. Overhaul the tax system now", Comment). If you have the good fortune to own land, you possess a source of wealth that you do not have to work for, other than to collect rent or leave idle until its value reaches a point that makes it worth selling. Say you do work the land as a business, its value will depend on resources, natural and communally created, which you inherit with the land.

An annual contribution to the commonwealth in return for this bounty seems just and the incentive to make productive use of your land, since you are paying tax on it, will contribute to the common good. One further virtue -- terra firma can't be shifted offshore.

To see the whole article, click here .

It isn’t hard to make a case for shifting the burden of tax in the UK from income to land.

It goes like this. A house might cost more or less the same to put up in Wales as it would in London and -- as a structure -- would be worth the same in both places. But the house in London sells for 20 times the price because of the activity around it. Think of the community, the airports, the schools, the hospitals and the ease of doing business -- the price you pay for the land is a function of all these social rather than private goods.

This suggests that the value of a piece of land should be divided into two: first, the value of whatever sits on the land (its houses, factories etc); second, the value given it to buy the surrounding civilization (its ”location value”).

A letter in the FT a few weeks ago claimed that, when a bypass is built around a town, residential property values rise by an average of 15 per cent as a direct result. This 15 per cent uplift in capital values accrues instantly to private owners in the town. But, given that the bypass will have been paid for by everyone’s taxes, why does it make sense that one group of people (freeholders) should make money out of it when everyone else does not?

From this comes the idea that the uplift should be shared out among the community via a property value tax -- or a location value tax (LVT). That way, something that the community has provided benefits everyone.

Some taxes are less distorting than others -- income taxes are the worst, LVTs the best. But the most distorting thing of all is having too many complicated taxes piled on top of each other.

If you are thinking of setting up a company and funnelling your freelance earnings through it to cut your tax bill, keep going: the corporate tax rate might well make the excess burden created by the bureaucracy of a small company worth taking on.

To see the whole article, click here .

The People's Budget of 1909 introduced an array of unprecedented measures to tackle poverty and inequality. Its stated ambition was to be "a great step towards that good time, when poverty, and the wretchedness and human degradation which always follows in its camp, will be as remote to the people of this country as the wolves which once infested its forests". Among the radical policy measures harnessed to achieve this ambitious goal were a land tax and an increase to inheritance tax. The People's Budget had its most staunch champions in David Lloyd George and Churchill, known to their contemporaries as the "Terrible Twins".

The government of a nation eviscerated by inequalities -- where 40 per cent of all the wealth is owned by 5 per cent of the population and 70 per cent of approximately 60 million acres of land owned by less than 1 per cent of the population -- should not exacerbate the perception of unfairness. In order to tackle inequality in a serious way, the coalition government need a set of policies as radical as those introduced in 1909 by the government under Lloyd George and Winston Churchill when they put forward a proposal for a land value tax.

To see the whole article, click here .

The mansion tax would need a complete revaluation of UK property to work -- but as I pointed out in that case you might as well reform the whole of UK local government taxation and have a land value tax instead.

To see the whole article, click here .

JJS: Next step is for commentators to cite just how much land and resources in Great Britain are worth, how much the Brits spend for the sites and nature they use. Probably it’s enough to fund desired social services plus pay the citizenry a dividend. Another wrinkle is to show how all those “rents” can be recovered without coercively taxing anyone but by instituting cooperative fees and dues.


Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .

Also see:

Royal Legacies that Continue to Plague Most Places

Bonus Balls

Wealth gap widens between super rich and rest yet ...

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