Looking at LVT within the proper context

[msbrown at cwcom.net]

In a sort of response to what burns_curtis said on the Diggers list:

LVT is a nice theory in practice (redistribution of the “unearned increment of 
land values" to the community, as well as aiding the redistribution of land).  
However, before I go on to make points about the merits of this “universally 
applied theory”, lets look at the practical reality of why it is a non-starter 
explicitly ‘on it’s own’ within the context of the financial capitalist system 
we currently find ourselves in (that said, from the start, it needs to be said 
that the old policy of “betterment" - a tax levied purely on the unearned 
income of increased land value on property derived from being accorded 
development rights / planning permission - first introduced in 1947 – could be 
implemented tomorrow). 

LVT would assume ownership of the resource that is land.  As applied to the UK, 
the problem is, to quote Mike Rowbotham (author of the groundbreaking “Grip of 
Death”),  we live not in a “property-OWNING democracy”, but a “property-OWING 
democracy”. It would be deeply unjust and would avoid the deeper root of the 
problem to reform the tax base (to move towards LVT) while staying within the 
current money system which has a deeper, underlying and absolutely fundamental 
stranglehold on the economy and wealth creation itself, nevermind wealth 
distribution.  While 97% of the money used by society is bank-created book-
entry debt (loans), the basis of the system which is continuous borrowing 
(money created parallel to it’s repayment) means that as more always has to be 
found for repayment than has been loaned due to interest charges, the money 
supply is constantly increasing, and so, requires constant economic growth to 
sustain it while also causing price inflation and ever-spiralling property 
prices, locking people into the need to constantly stay-afloat on the wings of 
financial capitalism in an economy where the workforce must attain ever greater 
productivity while at the same time, everything they own is effectively tied-up 
in debt.  (To briefly explain money creation theory, see below *1).   
Therefore, taxing property would be a tax on the very thing that the majority 
of the population don’t actually own outright, and which increasingly commands 
larger and more unsustainable incomes just to ‘get one’s foot on the 
ladder’(unsustainable because peoples’ income is increasing at a slower rate 
relative to their debt). *2

Therefore, there are 2 absolute pre-requisites to implementing LVT.  The first 
has to be overhauling the debt-based money system, where government and local 
communities are free to create more debt-free money into the economy while 
regulating commercial bank lending. Taxpayers would be saved immense sums of 
interest, discounts and exchanges, and the relief of price inflation (not least 
regional disparity of property prices) would form the basis of a more stable 
system and less pressurised economic environment.

The second essential pre-requisite to adoption of LVT must be a strong, 
consistent and properly regulated planning system, because without a good 
planning system LVT, could be harmful.  For instance, if LVT replaced existing 
council taxation to become a more sophisticated means of redistributing 
benefits to the wider community, with exemptions for land designated for 
affordable housing, the planning process would need to be further tightened up, 
and the definition of what constitutes "affordable housing" would need to be 
explicitly defined.  In terms of agricultural land, LVT could be an effective 
stick to beat intensive agriculture, to accompany the carrot of 
grants/financial assistance for transition to labour intensive environmental 
friendly farming / farming geared to localised supply.

The first argument in favour of Income tax rather than LVT is that it is a tax 
on actual wealth as opposed to LVT, which is a tax on potential wealth.  That 
said, there must be a case for incorporating elements of LVT to break up large-
scale land holding and “betterment”. The last time betterment was used in the 
UK was under the Labour government of 1967, where a betterment levy was set at 
40% by the Land Commission; it was abolished by the Conservatives in 1971.

I personally am wary of the universal applicability of LVT, considering the 
best first tax to be the Uniform Business Rate, which most obviously falls on 
wealth creators.  Henry George’s ideas, if put up-to-date in the modern-day 
context of the international market-place, would show them up to be inadequate 
solely on their own, in the face of the massive tax revenues that are gained 
from business and high-income streams.  However, I am encouraged to learn from 
someone who knows more about LVT that if properly implemented, it would not 
apply to smaller land-holdings below a certain size.   And, as well as this, 
since it was suggested to me that LVT would only work if implemented alongside 
a universal basic-income scheme, then smallholdings would effectively get 
their “housing-benefit” equivalent in this form. This is a far simpler 
explanation than where you say:
(Point-3) “If the rent were collected centrally and redistributed equally to 
everyone then as the price of land rises, then the 'dividend' that each citizen 
receives from his share of the central collection of that rent also rises to 
the same degree. This means that if one owns a plot of typical value, one does 
not pay any rent nor tax, because the amount one receives in dividend equals 
the charges made for the land one holds”.


*1 Fractional Reserve banking (lending out many times the amount you have in 
deposits) is the principle of Commercial Banks money-creation function. When a 
bank makes a loan, it does not take the money from anyone’s account, or even 
it’s own funds.  It simply creates the money, by crediting it’s customers 
account with the amount of the loan – a ‘liability’ to the bank – and balancing 
it’s books by entering the new amount owed to it as an ‘asset’. Therefore, if a 
person deposits $100 in a bank and the reserve requirements are 10% then the 
bank will keep $10 for reserves and loan out $90. This $90 dollar loan ends up 
in someone else's bank account in either the same bank or another bank. The 
deposit of the loan is treated just like any other deposit and the bank loans 
out $81 (keeping $9 which is 10% of the $90 for reserves.) Of course the $81 
ends up in yet another person's bank account and the process continues. The end 
result of this is that for every $100 deposited almost $1,000 can be loaned 
out. This is a very simplified example and in real life the maximum amount is 
rarely reached. The point here is that by it’s very nature, Fractional Reserve 
Banking creates money out of thin air. 

So, while the money is based on debt (loans), the money supply grows through 
this continuous increase in borrowing – and the parallel increase in debt. 
While the principle of this is the bank’s ability to increase loans, the system 
is actually more demand-led.  Therefore, because in an economy more money has 
to be found for repayment by bank customers than has been loaned due to the 
interest charged on the loans, so further loans have to be made by the banks 
for this to be possible in the economy.  The system is thus demand-led, through 
the demand for loans, with banks having to ensure that their “reserves” grow in 
proportion to the growth of the money stock.  Much of the interest received by 
banks is retained as these “reserves”. So, the whole process increases the 
money supply several fold. 

To emphasise the escalation of the money supply, in 1963, the UK money supply 
stood at £14.1 billion, of which £3 billion was actual notes & coins (21%). By 
1996, the total money supply in the UK was £680 billion, of which £25 billion 
was notes and coins - just 3.6% of the total money stock (p-14, "The Grip of 
Death", by Mike Rowbotham, 1998). 
 

*2 I take issue here with the level of growth/price spiral inflation, and take 
as given the fact that this is a tax on a resource which is widely variable in 
value according to the level of economic activity in a given region independent 
of the development value of the land (which is the case for extracting 
betterment), and so, if one was to compare 2 houses of similar size in 2 
different areas, one would owe much more than the other, so exerting pressure 
in the former area to earn greater income to pay for the tax. LVT is a natural 
equalisation tax, taking money from the richest parts of the UK (Cities of 
London & Westminster account for 25% of UK land values!) and giving to the 
poorest.

Meanwhile, due to the fact that the whole system is predicated upon continued 
economic growth, it is perhaps not anymore susceptible to a financial crash 
than any other systems of council tax.


Mark.S.Brown

In diggers350 at y..., "burns_curtis" <john.burns-curtis at bigfoot.com...> wrote:
> Well currently you are taxed on your labour.  The harder you work the 
> more they tax you.  A disincentive.  For your kids have only one tax.
> 
> 
> 1.  Remember, land rent is levied right now, but in addition taxes 
> are also levied on wages etc. So if land rent replaced taxes on 
> labour and if the rent/price of land remained unchanged by the switch 
> then people who received wages would be better off to the extent of 
> the taxes they now pay on their wages
> 
> 2.  The price of land will actually fall as a result of its  
> possession being taxed A lot of land is presently being held out of 
> use for no other purpose than to collect an increase in its price. If 
> charges were made for the holding of this land then all land held for 
> this purpose would be sold to someone prepared to use it to create 
> wealth and so pay the tax.  There would be a 'land bonanza' as all 
> this badly used land were sold by owners who would be faced by 
> unpayable tax bills if they retained ownership..The price of land 
> would fall dramatically.
> 
> 3  If the rent were collected centrally and redistributed equally to 
> everyone then as the price of land rises, then the 'dividend' that 
> each citizen receives from his share of the central collection of 
> that rent also rises to the same degree. This means that if one owns 
> a plot of typical value, one does not pay any rent nor tax, because 
> the amount one receives in dividend equals the charges made for the 
> land one holds.
> 
> A very brief introduction to Georgism
> http://www.progress.org/cgo/cwho.html