LVT has the advantage of being a direct tax. One of the arguments against indirect taxes is that they are indiscriminate, ie. they are paid equally by the rich and poor alike and are therefore unfair. However they are popular with governments, as they allow the people to believe that they are not really being taxed, they are simply paying higher prices.
They appear also to be preferred by taxpayers, for the reason that they are impersonal, and clearly paid by everyone equally, no doubt appealing to a sense of fairness, regardless of the fact that the poor pay the same as the rich. Also indirect taxes are convenient for governments as they are more flexible, being easily adjustable to meet unexpected events without constant reference to electoral promises, and so they are undeniably useful, but for the reasons mentioned above it is better if they are kept to a minimum. Direct taxes are therefore more honest; I suggest that they fall into two basic groups:
- Taxes imposed on existing wealth.
- Taxes imposed on the wealth creation process.
To encourage wealth creation and general prosperity it is always better to tax the first group rather than the second. The first is a tax on ownership, the second a tax on work and trade. Among the first group are property taxes (Council Tax and Business Rates), Capital Gains Tax and Inheritance Tax. Capital Gains Tax is more accurately a tax on the realisation of increased value at the point of a sale. Inheritance Tax is a tax on the realisation of value at the time of a transfer of wealth, but they are both taxes on existing wealth. None of these taxes are impediments to wealth creation.
Among the second group are Income Tax and Employee’s National Health Contributions, which are taxes on work. Also VAT, Corporation Tax and Stamp Duty, which are taxes on trade. These taxes act as discouragements to wealth creation. LVT would fall into the first group as a tax on unearned wealth, actual or potential, due to the simple ownership of land, one of the essential elements of production. This would include vacant land being held out of use for speculative purposes.