Killer Arguments Against LVT, Not (494)

I haven’t done one of these for ages, mainly because I’ve done them all and Sobers isn’t trying to invent new ones. However, I tend to ramble on a bit with my rebuttals, and would like to simplify them as much as possible.

Here’s a classic KLN:

“LVT would discourage improvements, like the Window Tax did. Buildings would fall into disrepair.” Sometimes expresed as “Developers would all go out of business.”

Short answer: only if the tax payable on each plot were directly related to the current condition of any buildings and improvements on them. As long as the owner’s actions have no impact on their tax bill, they will just get on with making the best of things (or not, according to attitude and available cash).

I have always said that valuations will be based on comparisons between similar buildings/plots in different areas and some form of banding and averaging within each smaller valuation area. Any difference in selling prices or rental values for similar buildings/plots between these smaller areas is due to location alone, which is what LVT should be taxing. The amount payable for all similar buildings/plots with each smaller area will be exactly the same, regardless of the condition of the building itself.

This has the merit of simplicity/cheapness if nothing else. Whether those valuations are based on total selling price or rental values, and whether they are adjusted down to ignore the likely value of the buildings and improvements are secondary issues on which I am heartily indifferent, I don’t think it really matters.

While we’re on the topic, there is a long list of features of the current tax system which actually do discourage improvements, with which I won’t bore you. These reduce the after-tax benefit of making them by about half.

The follow up KLN is then this:

“But the LVT will take money out of people’s pockets, leaving them less to spend on improvements.”

All taxes do that, that is the while point of taxation. Whether you’ve paid £1,000 income tax, NIC, VAT or LVT leaves you the same net cash. At least with LVT, you know that you get twice the bang for your buck if you do pay for improvements. And a large part of the tax money spent by govermnent goes back into maintaining location values. With LVT, that would be a primary aim of govermnent – they are like a landlord business trying to maximise their rental income (on behalf of their ‘owners’, being every single voter in the country, who gets dividends in cash or in kind) by keeping things as nice as possible.