Why Land Value Tax and Universal Basic Income need each other

Land Value Tax can generate the funds needed to introduce a Basic Income, while a Basic Income makes the clearest case for taxing land values.

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There are many people and groups now lobbying for the introduction of a Basic Income (Also referred to as an Universal Basic Income, Unconditional Basic Income, Citizen’s Income, Citizen’s Dividend, Negative Income Tax) as a means of reducing poverty, increasing the welfare of the lowest paid, boosting the incomes of workers, improving labour market flexibility, coping with a more fluid economy, reducing bureaucracy, improving equality, rewarding carers, assisting adult education and re-training and supporting those people who cannot take full advantage of the economic opportunities that the modern economy offers.

However, very few of them set out the means by which the Basic Income will be funded. Some call for higher personal taxes or even money printing, while a few have come up with costed plans (see the excellent work done by the Citizens Income Trust and the RSA)  that tend to propose a combination of transferring current welfare spending, along with the elimination of existing tax thresholds and credits that working people enjoy. This potentially helps generate the funds, but justifying the expenditure in relation to current arrangements hardly makes the case for the new payment, and leaves it dependent on a huge range of potential taxation variables.

Proponents of a Land Value Tax (like the Land Value Tax Campaign) often make the case for it in terms of benefits for the wider economy, plus the ability to use the revenues to reduce the taxes levied on the productive economy. But in making those cases, the advantages to the individual (especially the individual homeowner) are not always obvious.

Why Basic Income needs LVT

  • It is the most secure way to provide funding for a Basic Income
  • It doesn’t distort economic decision making so will allow Basic Income to be part of a growing, functioning economy
  • If Basic Income increases incomes of recipients, there is a danger that those increases will be captured by rent-seeking landlords and others (i.e. rents or interest rates will just go up till they have absorbed all the extra money). If this happens, LVT will allow society to recoup most/all of the revenue captured by rent-seekers and push it back to Basic Income recipients.

The key to providing a secure and justifiable revenue to fund a Basic Income is a Land Value Tax, along with licences from Common resources such as minerals, airspace, spectrum bandwith, sea resources, public risk underwriting and government licences (which for the purposes of this Deal, we will collectively refer to as ‘Land Value Tax’, although they might more accurately be described as ‘Public Resources Value Tax’).

This would not only provide sufficient funds for a Basic Income to all adults at a reasonable level – £4.5k per year for those ages 21+, £7.2k for those over 65, £2.7k for 16-21 year olds – but also bring an end to private profiteering from public or common resources.

The Transformation Deal currently provides enough revenue from LVT and Commons Licences to fund the proposed Basic Income for all adults. The remaining payments to Children and benefits recipients will be met by other areas of taxation, however, it would be desirable for these also to be met by LVT and related charges on rent extraction.

This funding is more reliable than general taxation as it is based on resources that are unlikely to disappear. The land and these other resources might reduce in value but that would suggest a wider fall in economic activity and a fall in Basic Income would reflect that. However, with an increase in the value of our collective resources would see an automatic increase in the level of Basic Income paid out.

A common criticism made of the Basic Income model is that an increase in the income of the average person will simply result in higher rental costs in the economy, which would absorb part or all of any Basic Income payment. If that were to happen, LVT would capture part or all of the increase in rent. The degree to which the increased rent was captured would depend on the level at which LVT is set, but in principle this would provide a simple mechanism to ensure that the population as a whole was benefitting from increasing wealth, rather than just those who have the means to extract rent payments.

Why LVT needs Basic Income

  • Simplest and most transparent way to share the rents that LVT collects on behalf of citizens
  • Politically will make it more sustainable – LVT will be very unpopular among many property/land owners (63% of UK households) but political will can be maintained by those who receive the revenues from LVT (100% of households). LVT revenues will not go to government; they will go directly to ordinary people
  • It establishes very clearly the reason for charging LVT: to share national wealth with all citizens.
  • It provides revenue for people should they not possess the income to pay the LVT

Let’s be under no illusions, home ownership and ever-increasing house/land prices are the sacred cows of UK politics and the Transformation Deal will be presented by opponents as a major threat to both. If you have based your entire life-time financial plan on buying a home and watching it rise in value, as millions of people have, why on earth would you support a Land Value Tax which will almost certainly reduce the market price of your home, or at the very least prevent the kind of price rises we have seen in the last 50 years?

The answer is simple: because it will make you financially better off.

Under the terms of the Transformation Deal, the entire revenue from LVT/Commons Licences will be paid to citizens as the Basic Income.

As a result, the average owner-occupier household in the UK will pay a Land Value Tax of £5,600. In return the average household will receive just over £12,000 in Basic Income plus other cash benefits. Even if you ignore these other benefits, the average Basic Income payment per household will be over £10,000 (this is calculated by dividing the total amount paid out under the Basic Income – £326bn/£285bn without other benefits – and dividing it by the number of UK households – 27million).

This means that using the structure outlined here, the average owner-occupier household will be between £4,400 and £6,400 a year better off once both LVT and Basic Income have been taken into account. Households who rent will potentially do even better as they will not be liable to pay LVT, but will still receive their Basic Income payment.

It also makes it easier to increase LVT in the event of higher rent extraction as owner occupiers will receive a disproportionate increase in their Basic Income payment compared with their higher LVT payment.

A common question asked of LVT is “what if a landowner/homeowner does not have the income to pay it?” The presence of a Basic Income at least provides a financial reserve from which people can pay their LVT if necessary. Another way to look at it is that homeowners can offset the Basic Income against their LVT liability, so in the ‘average’ example above the household would receive £4,400 and have an LVT bill of zero.

The losers here will be landlords and non-citizen/non-resident landowners who are paying LVT, but not receiving  the basic income in return. However, their return is the rents they are receiving from their land and/or use of common resources, or in the case of non-citizens, the ability to own property here..

Perhaps the most important political support that LVT brings to the Basic Income argument is that rather than Basic Income being a ‘benefit’ paid out to people by a benevolent government, it is in fact each citizen’s share of the nation’s natural wealth.To provide a citizen with anything less would be to rob him/her of her rightful inheritance.

Why they are mutually supporting

  • One raises the revenue, one distributes it once collected
  • One makes demands on land/home owners, the other provides support
  • UBI improves incomes of ordinary people, LVT makes sure it isn’t swallowed up by landowners and other rent-seekers
  • Each requires the other to be fiscally, socially and politically sustainable
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10 Comments Add yours

  1. Doesn’t really address the 1% problem where immense chunks of the value in the economy are owned by people who can choose to own little to no land at all. The assumption seems being made that the ultrarich have lots of land, which seems so absurd that the idea of calling lvt a progressive tax should be anathema – don’t you think they’ll unload the liability the moment its taxed? Skipping such a large portion of the value in the market and not taxing it at all seems intensely regressive to me. Perhaps if there were exemptions for farmland and your smallest owned property it could work, but I don’t see people talking much about that.

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    1. Enriched says:

      Land is with a capital “L” and refers to land and all natural resources (forests, rivers, coal, copper, gold, etc.) and it also includes economic zones (fishing, oil, diamonds, etc.) and commoditized economic inputs like radio wave spectrum, aircraft and satellite overflight, etc.
      .
      The idea that they “unload the liability the moment it is taxed” is the point. Either use it productively, or release it back to the market, so that others can use it. The reason people can’t afford houses, and the gold price rises, is because a monopoly has been created by people hoarding a finite resource. Hoarding is in no way adding to the improvement of the planet or the economy. We want people putting their capital back into the system in a productive way.
      .
      Land is taxed on it’s “Economic Value”, not it’s size. Farms (rural areas) have extremely low economic value, but in the current business models, land in rural areas is in fact over-taxed and it’s therefore more difficult for people to create jobs in those areas, which is why people move to cities, where land is under-taxed.
      .
      LVT would make cities become denser but less populated, releasing more land to other purposes like market gardening, recreation, parks, etc., but would also lead to repopulation of rural areas, spreading economic activity across the country, and that would make other economically failing industries like rail transportation more economically viable.
      .

      Liked by 1 person

      1. martinfarley says:

        Well said – you put it better than me 🙂

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  2. martinfarley says:

    You raise a number of point, so let me respond in turn.

    While not all the mega wealthy (more like 0.1% btw) will own land, most of them do. In addition they usually pass their loot through the many tax loopholes that exist currently and that will be mostly removed by the Flat Tax (see that section for a quick description). The principle of LVT carries over into the Commons Licences mentioned, thus capturing non-land public assets too. If you can suggest any other areas of Common resources that contribute towards private profits, I’m happy to add them to the list

    If they do ‘unload the liabiity’ by selling the land, then the next owner will simply be liable for the tax, presumably after paying a price that is adjusted for that liability

    As for ‘skipping a large portion of the value in the market’, the Transformation Deal is trying to move away from taxing ‘value’ (we want more of it not less) and towards taxing wealth extraction/rent. This is progressive as it provides more reward for those who do the work, and less for those who simply own the assets. Landowners have received £trillions from the productive economy in recent decades and now it is time for it to be returned.

    Small holders won’t require exemption as the Basic Income they receive will, on average, more than compensate for the LVT.

    However, I’m happy with the idea that relatively high earners who actually earn their income will be better off. This agenda is not about clubbing the 1% or whoever, it is about shifting the rewards away from the owners of land and other assets and towards those who are doing the work and adding the value, while still making fair provision for those who are not in work.

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  3. pperrin says:

    I object to tax as it requires an income to pay it – without a tax free allowance you are obliged to work for the state to receive tender to pay the tax. The citizens income must be sufficient to pay the tax on enough land to be run as a self-sufficient way…

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    1. martinfarley says:

      This would only be the case if you own a lot of land (or valuable land) or are profiting from Common Resources, and in either case that should provide you with more than enough income to pay the Land Value Tax

      The article also makes clear that the average household will receive sufficient Basic Income to pay the average LVT bill and still have at least £4,400 left over. Also if you rent your land, then you won’t be liable for the tax so it is a non-issue

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      1. pperrin says:

        But land only ‘provides you with an income’ if you rent it out. Otherwise you have to use it to create something to sell – it provides nothing on its own, you’ll need customers.

        I am also unclear on how land with ‘resources’ would be taxed – if I have land with gold or oil is that taxed at a different rate to identical land without those resources?

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  4. martinfarley says:

    If you own land then, yes, you need to have an income or make the land work. The Basic Income will provide everyone with an income (albeit at a fairly low level) which they can use to pay the LVT if they own land. Obviously there is no need to own land in order to live happily, but that choice will stay with the individual (I’m not seeking to make it for them)

    Land with resources (such as minerals) will have a higher value than farmland (for example) so will have a higher LVT applied. There’s no need to tax twice or have a different rate – the land will simply be ore valuable. The exception to this might be a Carbon or Pollution tax on whatever is taken out of the ground, if it is known to cause damage that needs to be compensated for.

    In the Transformation Deal, I have made the LVT for commercial land much higher than that for residential (more than double – at the moment business rates are about 4 times higher than council tax, so the precedent is there), in order to allow us to abolish all taxes on productive business activity. Overall, businesses will receive a significant tax cut.

    I still need to set out how LVT will be levied, so watch this space…

    (For some reason, it wouldn’t let me reply directly to your comment)

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