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Land and Taxation

Economists know that the optimum conditions for private enterprise are achieved when taxes on the earned incomes of labour and capital are reduced to zero but, because neoclassical economic theory insists on treating land as capital, they dismiss the obvious alternative to taxing labour and capital – the unearned income from land.

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Understanding Land-value Taxation

Over the last year or so there have been a number of articles broaching the subject of land-value taxation in the national press. The Economist (9th August) even suggested ‘The time may be right for land-value taxes’, but
there is also much misunderstanding about that a land-value tax (LVT) is.

In the first place it is not a tax. A tax was defined by Hugh Dalton, later Chancellor of the Exchequer, in his Principles of Public Finance as “a compulsory contribution imposed by a public authority, irrespective of the amount of service rendered in return”. An example will illustrate: the Jubilee Line extension to the London Underground system cost the taxpayer £3.5 billion. Millions of taxpayers who contributed to its cost will never use it. Those who use it for their daily commute or to go shopping pay for its use through their fares, but the big beneficiaries are the land owners along the route. They will have contributed to the cost as all other taxpayers, but the huge uplift in value of their land within a 100 metre radius of the 11 stations along the line was estimated to have been £13.5 billion. Properties beyond the 100 metre radius would also have benefited, but progressively less the further they were from the stations. The cost was born by all taxpayers but the ‘service rendered’ was not reaped in proportion to ‘contribution’. This is the nature of a tax.

With a Land-Value Tax (it is more accurate to regard it as an annual ground rent) there would be an equivalence between ‘contribution’ and ‘service rendered’ – the greater the services received, the higher the
contribution. The ground rent is a market estimation of the value of the services rendered. For example, the existence of a good school in a neighbourhood will increase property prices in exactly the same way as proximity to a station. It is not an arbitrary amount decided by government. LVT is therefore unlike a tax.

LVT differs from taxes in another respect. It does not distort economic activity. Some taxes, the so-called ‘sin taxes’ on tobacco, spirits and petrol, are introduced with the deliberate intent of discouraging certain behaviour by making it more expensive, but all taxes have this negative effect. They reduce economic activity. For example Stamp Duty discourages people from downsizing and affects adversely labour mobility. VAT makes goods 20% more expensive, thus reducing sales and affecting the viability of small businesses.

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A History of Land-Value Taxation in New Zealand

New Zealand holds a rather special status in that it was notably the first country to introduce a system of land-value taxation for raising revenue. It was adopted in 1849, some 30 years before Henry George published Progress and Poverty, and finally abandoned in the 1980s.

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Land Reform through Taxation in South Africa

Further Reading: Our Land, Our Rent, Our Jobs by Stephen Meintjes and Michael Jacques “How do 52 million South Africans share equitably in their 122 million hectares, especially when those hectares vary so enormously in value?” asks the Johannesburg Star. The danger of not getting the answer right was revealed in the Mail and Guardian in an open letter to Richard Branson from Andile Mngxitama, the Economic Freedom Fighters’  (EFF’s) commissar for land and agrarian revolution. He accuses Branson of having bought stolen property: “The consequence of your witting or unwitting participation in this illegal transaction is that the EFF policy of land expropriation without compensation may, in the near future, affect your investment adversely”. Read the full article here. In their new book, Our Land, Our Rent, Our Jobs, Stephen Meintjes and the late Michael Jacques show how a reform of taxation can lead to a more equitable distribution of land, while at the same time stimulating the economy and job growth. As the veteran anti-apartheid campaigner, Peter Hain, comments, it provides “Lateral ideas on tax raising to generate social justice for all South Africans whilst maintaining international investor confidence”. In the Foreword, Nobantu Mbeki writes “This book is, in a sense, immediate and topical and in another, universal and timeless”. Our Land, Our Rent, Our Jobs will be published in July...

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Why people fail to understand Land Value Taxation

To those who know and love Land Value Tax (LVT) the case for it seems self-explanatory, compelling and unanswerable. Yet strangely it all too often turns out to be a very hard sell. Present economic theory rests on false assumptions established so long ago that people have forgotten what they are. So the difficulty in explaining the immediate relevance of LVT is that one has to clarify first principles at the same time. This is not so easy. An audience waiting to hear how to revive the economy will not want to be asked to revise basic concepts they think they already know. Read more...

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Why Clegg and Cable Favour Land-Value Taxation

Further Reading: The People’s Budget by Geoffrey Lee Re-Solving the Economic Puzzle by Walter Rybeck Standing for Justice by John Stewart Prime Minister by John Stewart Recently The Sunday Times reported that the ‘Lib Dems want a land tax on rich’, arguing that ‘proposals aimed primarily at wealthy landowners, property magnates and foreign millionaires are likely to hit middle class landowners’. After this misleading and emotive opening, the article mentioned that Nick Clegg was in favour of a tax shift and that Vince Cable recognised the need for a ‘proper examination about how a land tax could be made to work’. Clegg and Cable are harking back to a policy of the Liberal Government which won a landslide victory in 1906 and sought to bring in a Land-Value Tax (LVT) in the famous People’s Budget of 1909. This is not so much a tax on the rich, as implied in the article, but a different way of raising taxation – this is the shift referred to by Clegg. Taxes as currently levied fall on economic activity and impede growth – a recent example being the Chancellor’s windfall tax on the oil and gas industry on which he had to back track to some extent because of the damage to investment in the North Sea it would have caused. An infamous example from earlier time is the window tax which led to the...

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Action for Land Taxation and Economic Reform

Further Reading: Land-Value Taxation by Kenneth C. Wenzer Land and Taxation by Nicolaus Tideman The Liberal Democrats’ Action for Land Taxation and Economic Reform (ALTER) policy has been formulated with a view to its being part of a more sustainable and just resource based economic system. Their justification for Land Value Taxation is that land value is created by the efforts of the community at large and not the land holder. Land values rise because settlements are created and developed. With agriculture, land value is also a reflection of the natural advantages of a locality such as favourable climate or soils, which no land holder can claim to have created. Land Value Taxation regards land value as a public resource and hence the natural fund out of which public expenditure should be drawn. In his Foreword to The Case for a New People’s Budget Vince Cable states: ‘Land Value Taxation has far-reaching effects on breaking down monopoly land-holdings, on encouraging new enterprises and raising the levels of earnings, on recovering the cost of major and minor public works, on supporting small-scale farming and the cultivation of marginal land, on stabilising house prices and, perhaps most importantly, reducing the disparity between the rich and the poor. ‘These are large claims but they spring from a fundamental view that the wealth produced over the centuries by the efforts of the community...

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Henry George and Land Value Taxation Video

In this YouTube clip, Joshua Vincent, executive director of the Henry George Foundation of America, introduces himself, his organisation, and his mission, and asks why, in the richest country in the world, does poverty exist?...

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Coalition government and the prospects for land value taxation (LVT)

Author Details: Mark Braund has worked in the private, public and voluntary sectors, and spent three years as an advisor to the government of Mozambique.  His first book, The Possibility of Progress is the product of several years’ research and a deep interest in what motivates people, how individuals shape society, and the future prospects for humankind. If the claims of David Cameron and Nick Clegg are to be taken at face value, here in the UK we now live under a radical transforming government unprecedented in its progressive ambition.  Of course, there is nothing in the coalition agreement to justify the hyperbole, but there may be a glimmer of  hope. For the first time since long before the last coalition was dissolved in 1945, the cabinet now boasts three members who are on record as supporting the principle of land value taxation (LVT), a radical and potentially transforming policy if ever there was one. If you visit the website of Lib-Dems ALTER (Action for Land Taxation and Economic Reform), you will discover Chris Huhne is its president, and Nick Clegg and Vince Cable are both vice-presidents. Huhne and Cable have a long record of speaking out for LVT: In his 1990 book Real World Economics, Huhne wrote, “the morality of taxing gains in land value seems very clear”.  And in his forward to Tony Vickers 2007 book, Location...

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Land Value Taxation

This collection of essays by a distinguished interdisciplinary group of scholars examines various aspects of Henry George’s argument and considers how relevant they might be to current concerns. It includes four previously unpublished essays by the 1996 Nobel laureate, William Vickrey.

ISBN 9780856831829 | Price: £14.95

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The End of Taxation

Further Reading: Public Revenue Without Taxation by Ronald Burgess Land-Value Taxation by Kenneth C. Wenzer By Dr Peter Bowman The market mechanism provides the most efficient way of allocating the resources of an economy. Yet public services, which can count for around half of economic activity, are charged for indirectly through taxes which have no direct connection to what the payer receives in return. These taxes have many adverse effects on the economy, depressing growth, distorting costs and prices and providing perverse incentives which greatly distort the market and prevent it from operating optimally. Public services could be paid for through a market mechanism. To achieve this it needs to be recognised that landed property values have two components. The private component relates to the buildings on any particular site but the second, the location value, is a public component since it quantifies all the external benefits the occupier expects to receive from the location. If these location values were used to replace taxes to fund public services at local and national level it would effectively bring the public sector into the market mechanism. People would pay directly according to the services they received. Removing the burden of taxation from production and trade would bring greater freedom and provide opportunities for genuine wealth creation. Read more From Land & Liberty Winter...

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