Fwd: Legrain on Land Tax

Mark Barrett marknbarrett at googlemail.com
Thu Apr 8 18:02:16 BST 2010

Tax the ground they walk on
Philippe Legrain<http://www.prospectmagazine.co.uk/search/magazine?s=%22Philippe+Legrain%22&search_fields=author_only&advanced=1>

  23rd March 2010  —  Issue 169<http://www.prospectmagazine.co.uk/issue/169>
A new land tax is the only efficient and fair way to bring Britain’s
finances back into line

*The Duke of Buccleuch and Queensberry on his estate: 0.3 per cent of
Britain’s population owns 69 per cent of its land *

Consider these three facts. One: Britain is struggling to recover from a
crisis caused in large part by a huge property bubble. Two: unemployment is
painfully high. Three: the government has a huge gap in its finances. So,
what would you raise taxes on?

Astonishingly, Labour is proposing to raise already high taxes on labour,
through an increase in national insurance contributions. Finance fails, so
workers pay—this is not only unfair, it will also damage future growth by
making labour more expensive. Existing income tax and national insurance
already increase labour costs by half, causing unemployment. Raising taxes
on something the government wants to encourage—hard work—is perverse.

Another option is taxing harmful things, like carbon emissions. A charge of
£30 a tonne could raise around £16bn and reduce emissions. Even better, if
the tax per tonne rose as emissions fell, it would ensure a steady source of
revenue. But still bigger gains could come from taxing an unproductive asset
at the heart of our most recent bubble: land.

Britons have long seemed addicted to property speculation. Yet swapping more
or less the same stock of houses with each other cannot logically create
riches for society as a whole. Indeed, it has huge costs because it diverts
funds from productive investment—while the resulting boom and bust can cause
havoc. Taxing land could curb property bubbles, and encourage productive
investment elsewhere.

It would work by valuing all land holdings every year (based on recent
market transactions in the same area) and imposing a charge. If this was
raised when land values were rising fastest, it would take the steam out of
any bubbles without affecting the rest of the economy, as interest rates do.
And whereas taxing income from work is wasteful—if less is produced, no tax
is raised on the lost output—land supply is fixed. No matter how heavily you
tax it, land cannot be spirited away to a tax haven.

Land already accounts for the bulk of property values, especially in
expensive places like central London. But taxing its value, rather than
property or any improvements to it, would not penalise people who do up
their home. It would also encourage the development of vacant and derelict
land. Unlike stamp duty, a land-value tax would not be a tax on property
purchases, so it would not discourage people moving. And it needn’t force a
granny in a big house out of her home; payment could be deferred until her
death if necessary.

Critics say the tax is problematic because land is hard to value. Nonsense.
Property changes hands all the time and estate agents and surveyors
routinely value it. Land-value taxes could be collected easily and cheaply.
Hong Kong and Singapore both derive a large share of their revenue from
variants of this system and have very low income taxes as a result. Denmark
also has a tradition of land-value taxation.

Most importantly, land taxes are also fair. In most countries history means
the distribution of land is highly unequal. Land in Britain is more
unequally distributed than in Brazil: there 1 per cent of the population
owns 49 per cent of the land; here 0.3 per cent owns 69 per cent. Britain’s
biggest private landowner, the Duke of Buccleuch and Queensberry, owns
277,000 acres because he descends from a man who seized vast swathes of
Scotland. Far from being taxed, he is rewarded with huge handouts from the
common agricultural policy. What’s more, the value of land increases each
year not through landowners’ striving, but that of others. Mayfair and
Belgravia—originally 300 acres of fields passed down to successive Dukes of
Westminster—are now worth an estimated £6.5bn. Better, therefore, to tax
that windfall gain rather than the work of those who really generated it.
And since the distribution of land is unequal, taxing it would be
progressive too.

Likewise, when a government builds a new railway line and the value of the
surrounding property soars, surely it is right that this unearned wealth be
taxed. When the Jubilee line extension to Canary Wharf was built, property
values adjacent to its stations rose hugely—by £2.8bn at Southwark and
Canary Wharf alone. Land-value taxes would pay for—and thus encourage—public
investment in valuable infrastructure. It could fund, for instance, the
high-speed rail network that Britain so desperately needs. Conversely,
landowners would be partly compensated for new developments that reduced the
value of their land.

The concept has a fine pedigree. David Ricardo, the founder of modern
economics, was a fan. So is Martin Wolf, the Financial Times’s chief
economics commentator, while the Liberal Democrat shadow chancellor, Vince
Cable, has proposed a “mansions tax,” which would target the richest
homeowners. Perhaps the most eloquent case was made by Winston Churchill in
1909. “Roads are made, streets are made, services are improved… To not one
of those improvements does the land monopolist, as a land monopolist,
contribute, and yet by every one of them the value of his land is enhanced…
he contributes nothing to the process from which his own enrichment is
derived.” A century on, the rest of us would benefit from facing down the
ultimate vested interest: the big landowners who still own most of Britain.

"We hear men speaking for us of new laws strong and sweet /Yet is there no
man speaketh as we speak in the street.”
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