These are some of the routine objections raised by opponents of LVT:
- LVT is a form of wealth confiscation.
- The ‘Poor Widow’ objection.
- Separate valuation of land would be too difficult.
The following are my responses: 1. LVT is a Form of Wealth Confiscation
In the Mirrleess Review of 2011, the comment is made that there are those who see the taxation of wealth ‘as the unjustified confiscation of private property’ 1–– a view that is more likely to be held by the wealthy than the less wealthy. To respond to this charge we have to return to the principle of ‘ability to pay’, noted in Part 1, and the issue of ‘identification and measurement’. LVT is generally considered to be a wealth tax (or one might say a tax on the ownership of the access to wealth). It is also an excellent way of identifying the location of that wealth and providing a means of measuring it.
No one is trying to disguise the fact that LVT would shift the burden of taxation off the less wealthy onto the more wealthy; indeed this is one of its main purposes. For many years politicians of all colours have seen themselves as champions of the poor. They spend endless time and effort devising legislation to improve the condition of the poor by trying to reduce the inequalities of wealth distribution that exist within society. These efforts have been going on for decades in vain, for they deal only with symptoms and never face up to the causes. One of the prime causes of the mal-distribution of wealth is due to the misunderstanding and misuse of the economic rent of land. LVT faces up to this problem directly and head-on. As mentioned in Part 3, item 7, with any change toward a system of LVT there would be winners and losers . The losers would be the wealthy who for generations have reaped the unearned benefit of the economic rent at the expense of the rest of society. With some honourable exceptions, they will no doubt cry ‘foul’, ‘confiscation’, ‘class envy’, ‘Communism’ and whatever else they can think of to protect their privilege. What would be confiscated is the capacity of private landowners and speculators to increase their unearned wealth gained from the work of others, and thereby exacerbating the ever-widening wealth gap. The acceptance of LVT amongst ordinary citizens would depend on their acceptance of the principle of just deserts and not on exploiting some opportunity to gain something for nothing. I suggest that the winners would include everyone––even the rich. The necessary openness of an LVT system would increase efficiency at all levels of production. The owners of industries and service organisations would benefit by being able to sell their products and services more readily to a wealthier population. In 1914, in order to solve the problem of employee turnover, Henry Ford doubled the pay of his workers, resulting in significant increases in production and company profits.2 Companies could also save money otherwise spent on paying expensive lawyers and accountants to devise clever ways of avoiding taxes; a waste of talent that could otherwise be employed for a more socially beneficial purpose.
A common theme that recurs frequently with objectors is the one of fairness: that taxing wealth in the form of accumulated assets is unfair: It may be acceptable to tax any income derived from an asset, such as that from renting out a house, or interest on shares or savings, but not in order to ‘confiscate’ a portion of the capital value of the asset itself, which is how the effect of LVT is often seen.
The response to this objection depends on the acceptance of the three classical divisions of economic reward: wages to labour, rent to land and interest to capital. Unfortunately the neoclassical/neoliberal view that dominates economic thinking at the present time does not recognise land as being different from any other capital asset, so a tax on it is more likely to be seen as confiscation. And so it is basically a matter of education or, where the neoclassical view is concerned, re-education. Any acceptance of LVT in principle amongst economists will require a basic change in this attitude––towards the status of land. The issue of fairness is directly related to the perennial objection concerning the ability to pay, proffered curiously by the rich as well as the poor. This argues that simply having a valuable asset does not mean one is able to pay some new tax, at least not without having to sell or mortgage the asset. There is some truth in this, but it disregards the fact that LVT would be a replacement for other taxes (see Part 3, item 15, Which Taxes?) and also that there would need to be a gradual transition period (see Part 3, item 7, Winners and Losers). Undoubtedly, a tax on land would adversely affect those whose wealth was invested in land assets, but only in the sense of surrendering a proportion of the increase in value created in any case by the community at large.
On reading through many objections one gets the sense that the objectors are making the erroneous assumptions that LVT would be an additional tax that would be introduced overnight, which would of course be highly disruptive. Were these misconceptions to be corrected, the strength of the objections would be much reduced. The issue of the ability to pay is one of principle––determining who should pay and how much. This takes us back to the basic principles behind all taxation, discussed in Part 1. As has been said earlier, all taxes have to come from some form of wealth or wealth-creation activity. To describe such taxes as confiscatory is nonsense. It would be more helpful to see taxes as contributions, towards enabling a society to function as it should.
References:
(1) The Mirrlees Review, Chapter 15, Taxes on Wealth Transfers. para. 1 https://www.ifs.org.uk/publications/5353
(2) https://www.jstor.org/stable/2534911
2. The ‘poor widow’ objection.
The poor-widow objection has been around for at least a hundred years; at least since Winston Churchill expressed his exasperation in a speech to parliament in 1909.1 It has become a shibboleth that is instantly brandished, even by those who admit to having only a vague knowledge of LVT. By some uncanny means they seem to know all about the poor widow. In more recent times it is expressed as the problem of the ‘asset-rich, income-poor’, or more specifically, elderly people having only a state pension but still living in the large family home––especially widows in mansions. This issue has been discussed to exhaustion, and it is largely agreed amongst LVT advocates that the best solution is the deferment system, whereby any tax increase arising from a change to LVT is deferred and settled out of the estate at death, or from the proceeds at any prior point of sale.2
The poor widow objection is based on certain assumptions that in any case may not be true, namely that:
- With LVT the tax liability will always go up rather than down.
- The house in which the poor widow lives is in a high-value location.
- Any revaluation assessing land and buildings separately will be to the detriment of those living in large houses.
It tends to be forgotten that the poor widow is already paying a council tax based on selling price values. If she is in a large house it is likely to fall within the current highest band H already, which she is having to pay out of her pension now. If the house is in a low-value or even average-value area, under LVT her tax bill might go down. It should be remembered that within the current valuations, or any new revaluation, it is only relative values that matter, not absolute values; the total tax take is the same. Since the last valuation in 1991, relative land values may have changed a great deal, but this is much less likely with relative building values. If there is any change in fortune for the poor widow, it will relate more to where she is living than the size of her house; it is quite possible that she could gain rather than lose.
References:
(1) http://www.wealthandwant.com/docs/Churchill_LPCP.html
(2) http://www.wealthandwant.com/docs/unindexed/Batt_poor_widow_solution.htm
3. Valuing Land Separately would be too difficult.
This must be one of the weakest of objections, and it seems to be peculiar to Britain. Other countries that have practiced LVT or have some form of LVT in place report no particular problems with making separate valuations for land and buildings. The Danes had a National LVT from 1957 to 1964, during which time the Danish economy prospered.1 They have had local LVT since 1926 with revaluations every four years. Since 1998, valuations have been updated annually.2 The Australians have for many years employed different forms of LVT in different states––with regular revaluations––and do not report any special difficulties. Many towns in the USA practice the ‘split-rate’ system, which requires separate valuations for land and buildings on a regular basis.
In 1964 a land-value survey was carried out in the town of Whitstable in Kent for the Rating and Valuation Association. The valuer’s report included valuation lists and site value maps and was carried out without any insuperable problems. In his conclusion the valuer commented that ‘the field work involved in valuing site only is very much less than valuing site plus improvements.’ 3 In a follow up survey done in 1973, the same valuer said, ‘The field work was done with notable speed.’
In a 2010 report for The Green Party of Scotland, the environmental scientist Andy Wightman commented, ‘Valuers in Scotland have no difficulty in general in valuing land and property for a range of purposes.4 With reference to a land-value survey carried out for the Inland Revenue in 1910, he also commented:
‘If the Edwardians can manage to survey the ownership and management of all land in Britain and Ireland with paper and ink, there is no reason why modern aerial imagery, computerised mapping and GIS technology cannot do the same a hundred years later.’
In 2005 a land-value tax study was also carried out for Oxfordshire County Council.5 The study group included a qualified surveyor who reported, ‘Valuations based on the undeveloped value of land present no special problems for a professional valuer.’ Professional valuers no doubt have their own sophisticated methods for making separate site valuations, but for the layman there is a simple method known as the residual system, which is easy to understand: If you take the overall value of the property (the selling price), and deduct the replacement cost of the building, allowing for age depreciation, the remainder would be the site value. Insurance companies are continuously engaged in assessing the replacement costs of buildings for insurance purposes. For a newly built house, the process would be even easier: where one would simply deduct the builder’s costs and profit without any depreciation.
Another possibility for valuing the land without contestation from the landholder is through the method of self-valuation. This allows the landholder to make his own assessment of the value, with the condition that the taxing authority reserves the right to purchase the land at the declared price. O’Regan notes that in New Zealand this method was incorporated in the general property tax of 1879.6
The Land Registry
A further reason that is often raised by opponents of LVT, for the supposed difficulty of making a comprehensive valuation, is the fact that the Land Registry is only 85% complete. This is largely due to the difficulty of tracing landowners who do not wish to reveal their identity–– who hide behind offshore shell companies, or obscure agencies. After the government proposed the privatisation of the Land Registry in 2014, it was discovered that all the potential bidders had links to offshore tax havens.7 The proposed legislation was subsequently withdrawn. Although it is obviously preferable for the Registry to be complete, it is not absolutely essential. Assuming that the current occupant of the site is, for whatever reason, not able to reveal the identity of the owner, then the LVT charge would be served on the occupant who would then be able to deduct the same amount from whatever rent he or she was paying to the agent. Where vacant sites with no occupant were concerned, the government could, via the international media, declare its intention to expropriate the site, unless the owner came forward within 6 months.
References
(1) http://www.glasswings.com.au/geonomics/denmark.html
(2) http://people.plan.aau.dk/~est/Valuation/AM%20Dkcountry05EN.doc
(3) http://www.landvaluetax.org/download-document/108-whitstable-1964.html
(4) http://www.andywightman.com/docs/LVTREPORT.pdf
(5) http://www.labourland.org/downloads/papers/oxfordshire_land_value_tax_study.pdf
(6) O’Regan, Rating in New Zealand. p.82
Further notes:
Objections to LVT are dealt with comprehensively in Mark Wadsworth’s blog: http://kaalvtn.blogspot.fr/p/index.html
Also refer to the FAQs of Land Value Taxation Campaign’s site: http://www.landvaluetax.org/frequently-asked-questions/
Further useful comment on the subject of valuation can be found in the paper by Dr. Tony Vickers, ‘Questions around the Smart Tax’ on the ALTER website: http://libdemsalter.org.uk/en/article/2013/737148/questions-and-answers-on-lvt-a-need-to-update-them