The UK Guardian had an article of this title today.
Amid all the talk of rebalancing the economy, there is little mention of the most powerful lever the government could pull to generate growth, which involves a switch from taxing income to taxing wealth.
It is a subject that tends to get little coverage, mainly because its supporters are considered on the fringes of the political spectrum. Ultra-lefties support wealth taxes for obvious reasons. Ultra-capitalists support them because they understand that allowing the rich to ring-fence much of the nation's assets and protect the mechanisms that allow values to increase without any serious government interference robs their children, and everyone else's, of any incentive to work harder.
What they are all talking about is the adoption of a land value tax. Purists would abolish all current taxes and replace them with an LVT that asked for a payment in line with the value of land under ownership.
Someone earning £40,000 a year would stop paying around £7,000 in income tax, £1,000 to £2,000 in VAT, £1,600 council tax and any of the transaction charges that fill the exchequer's coffers. No more capital gains tax or stamp duty on property sales or the sale of shares. Instead they would pay a fixed annual sum, to be paid monthly, on the value of their land, which could have a wide range, depending on how much the land is worth.
Move out of town and work locally, and your overall tax bill could be a fraction of its current total. Buy an expensive piece of real estate in the city centre and you would probably pay more.
Under the proper working of the council tax, increases in property values, as opposed to land values, lead to higher taxes, which is a disincentive to carry out those improvements in the first place.
Mark Wadsworth is an economist, blogger, sometime Tory Bow Group adviser and campaigner for land value taxes. He recently told Economic Voice website: "I'm an economist not a politician, and I can only repeat what all the great economists have said down the centuries: taxes on land values are the least bad taxes because they do not depress or distort economic activity, ie wealth creation. Land value tax is easy to assess, cheap to collect and impossible to evade.
"Not only that, LVT is an entirely voluntary tax: you decide how much you are willing to pay and you choose a house or a flat within that price range. Only, instead of handing over all the rent or purchase price to the current owner, the location value would go to the government."
What he means by this last sentence is that property prices would necessarily settle at a lower level because a buyer will deduct the location value, knowing they must send it to the exchequer in the form of a tax.
Yes! Think about the ramifications of this: as a buyer, you'd be paying the seller only for the value of the house itself, not the site on which it sits, which he did not create. A, say, 10% downpayment would be affordable to many more people, and, because one would not need to borrow from a mortgage lender to pay off the seller, that credit would be available for other purposes --- entrepreneurs could invest in the goods that would make their business work better.
The article goes on to report that the OECD wants to keep the VAT too, apparently in an attempt to influence consumer behavior -- I assume by discouraging it.
What we tax, we get less of. What do we want less of? Land speculation, or jobs?
Who chooses? Whose interests do they have at heart?