A better world is possible - Global Commons Institute

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Copyright Bruce Nixon 2010. All rights reserved. This electronic copy is provided free for personal, non-commercial use only. www.brucenixon.com payment to access the benefits it provides -- cutting out the something-for-nothing payment to the landowner. A landowner either charges tenants for what government, the community and nature provide, or gets those benefits by using the land himself. Land value is the exact measure of how much more benefit the landowner expects to get than he expects to pay in taxes - i.e., how large a net subsidy he will receive from the community. As land rent amounts to about 1/5 of GDP in typical industrialized countries (more in densely populated ones), private land ownership has the effect of transferring an enormous quantity of wealth every year from workers, entrepreneurs and investors in capital goods - buildings, machinery, etc. -- to landowners, in return for nothing. The subsidy to landowning is thus the major cause of the working-class poverty, unemployment, low wages, social problems and great inequalities of wealth typical of capitalist countries. LVT recovers the land subsidy for the purposes and benefit of the public that provides it, rather than letting landowners take it in return for nothing. LVT consequently has an important but widely misunderstood effect: requiring the landowner to repay the benefits he gets from government and the community just by owning the land reduces its value, because it reduces the net subsidy the landowner receives at the expense of taxpayers and the people. If all the publicly created land rent is recovered for public purposes and benefit, the land will have no value at all as an asset: it will have rental value only, because the owner will not be getting any net subsidy. LVT Can Provide a Citizens Income -- for Free LVT clears the way to implement an effective citizens' income – see below in Part 3 - without having to raise any additional tax revenue to fund it: a flat, universal, personal LVT exemption for every resident citizen - adult and child – in owner occupation, similar in concept to the personal income tax exemption, and applicable only to land the recipient is using. Land rent accounts for half or more of the poor's average living expenses, so replacing current taxes with a revenue-neutral LVT with a modest universal personal exemption would effectively lift almost all the poor out of poverty at a stroke, while costing the public treasury -- i.e., taxpayers -- no more than their current taxes. In addition, because high housing costs are always driven by land value -- the need to either pay for land up front, or pay mortgage interest in addition to land rent -- reducing land value towards zero by LVT tends to remove mortgage interest from the housing cost equation. As LVT also stimulates the best use of each location, it increases the supply and quality of built space, dramatically improving the supply, quality and affordability of housing, especially for the poor. So paradoxically, taxing land value at a high rate with a flat, universal personal exemption eliminates the unearned profits of land speculators, but makes owning a decent home far more affordable for the great majority of people. LVT: Better for Communities, Business and People A high LVT rate dampens boom and bust cycles based on land speculation. LVT makes development more compact by stimulating the most productive use of high-value downtown sites, revitalizing blighted areas, and reducing sprawl. If land is not designated for development, taxable value of sites will be low: LVT is 'Development Plan led'. Providing the whole Plan-making and Plan-managing processes of government are open and transparent, for example by using land value maps that are kept up-to-date and publicly available, opportunities for corruption of public officials should greatly reduce and quality of involvement of the public 138
Copyright Bruce Nixon 2010. All rights reserved. This electronic copy is provided free for personal, non-commercial use only. www.brucenixon.com in planning decisions should improve. Denser development of central business districts makes public transit and other services more affordable by increasing utilization rates. Even parks pay for themselves by increasing the land rent of surrounding areas, which is then recovered by LVT. Would LVT encourage over-development of land? The only people who pay LVT are those who own land. Tenants (domestic or commercial) will cease paying Council Tax or Business Rates to government - but will pay land rent to the landowners who pay LVT to government, whether the land is used or not. A universal personal LVT exemption, similar to income tax allowance, would relieve those owner-occupiers who use little desirable land -- i.e. mainly the poor -- of any tax burden. There are only two ways to "dodge" LVT: one is by moving to less valuable land, which benefits less from government spending on services and infrastructure; the other is to sell the land to the user, who can claim his or her personal allowance. The few people who use land that has no value at all, like remote wilderness, are not benefiting much by government spending anyway: for all the benefits they get, there might as well not be any government. LVT's effect on business is independent of the size of the business, though abolition of unfair and destructive taxes would be more favourable to small businesses, as they are generally less able to game the current tax system because they can't afford to pay top tax lawyers and accountants to find ways to avoid paying taxes. Land can't be moved, and it can't be hidden, so LVT is effectively impossible to evade. Its effect on any given business depends much more on whether the business is actually productive, or is just pocketing publicly created value. LVT makes the latter unprofitable, freeing capital and labour for genuine productive activity. Many businesses operate inefficiently on land owned by the business, because the present tax system turns them into 'speculators' (i.e. 'pocketing publicly created value') more than 'producers'. Unless the accounts of the business (especially the asset valuations in the balance sheet) record "market value" as opposed to "value in use", they are liable to be asset-stripped. LVT encourages all economic activities to be sited in the most efficient locations for the business. Of course, planners can designate land for uses below the 'highest and best' - or economically optimum - use, for social or environmental reasons, which will then be reflected in taxable value. How LVT could benefit small businesses Large companies with substantial liquid currency assets are likely to have a monthly account for its tax payments (VAT, income tax corporation tax). That means there is a lot of money in its accounts that is due to be paid to Government. There is usually at least a month before it needs to be paid. So companies play the short-term money markets with public money, often employing a whole team of staff to do nothing else. This team is a 'cost centre’ which is given targets to make money on the transactions it undertakes. Small business (10 employees or less), with far less liquid cash to play with, certainly cannot afford to have someone in house doing what large firms do. They generally have to pay an external accountant to handle their tax affairs, whose fees can account for more than the firm's total tax bill. Research at Bath University in 1996 showed that whilst a large firm (1000 employees or more) on average made a profit out of "Treasury", small firms on average spent £250 per employee, on top of their tax bill, handling their tax affairs. This is an inbuilt advantage for large firms, nothing to do with the efficiency of their core operations and entirely to do with the deadweight burden of current taxes. With LVT there is no equivalent inbuilt advantage to large businesses. If anything, it would favour the 'nimble' operation, such a start-up business which needs land, 139
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