Michael Hudson on Land, Banking and Socialism

[edh]

sidicks said:

Nothing was inherited so no inheritance tax was due.

That's kind of my point... IHT easy to avoid with trusts

[edh]

Tuna said:

edh said:

Tuna said:

edh said:

btw LVT would enable the abolition of IHT. It's a much better way of collecting tax from the Grosvenors who paid £0 on £8.3bn estate under IHT.

I assume (perhaps wrongly) that the Grosvenors' £8.3bn estate is not economically inactive and therefore pays tax continuously?

Sorry I don't understand your point?

My point is that we do collect tax from the Grosvenors estate, continuously.

I'm not an economist, but surely also removing some proportion of that estate (either through LVT or IHT) actually reduces the proportion that is economically active, thus effectively borrowing against future taxable income?

I have no idea whether the Grosvenor estate pays tax. (they may collect VAT and payroll taxes I guess.. who knows what (perfectly legal I'm sure) offshore structures exist to squirrel away profits?) Why should it exempt their assets from IHT or other meaningful taxation? Particularly in these cases when these assets acquire most of their value from their location not through the work of their owners.

Tuna said:

There's an additional point that much of the upset about land value is due to there being an asset bubble due to very low lending rates. The idea that you can extract that value by putting LVT seems slightly wrong - if it's a bubble, there's inherently no value in there, and taking money out through something like LVT is just consolidating effective debt into the government from where the individuals will not be able to reclaim it.

In other words, if you pop the bubble by converting it into magic money, you either consign much of the population to huge debt (negative equity) or have to pay it all back out again in rescue packages.

I think you should read up a bit more about how LVT actually works. Try Friedman or possibly the IEA or Tim Worstall if you want a right wing flavour, or Churchill perhaps?

Wikipedia says: "Land value tax has been referred to as "the perfect tax" and the economic efficiency of a land value tax has been known since the eighteenth century.[1][3][4] Many economists since Adam Smith and David Ricardo have advocated this tax, but it is most famously associated with Henry George, who argued that because the supply of land is fixed and its location value is created by communities and public works, the economic rent of land is the most logical source of public revenue.[5]"

Your other stuff about a "bubble" doesn't make sense to me - if there is one it exists with or without LVT and will "pop" anyway. LVT is for life, not just for a "bubble"

[edh]

Tuna said:

Notes to myself as I read this..

Ahh, so this isn't an argument for LVT, it's an argument against neoliberalism. Riiight...

If you describe neoliberalism as rent seeking and financialisation, then yes.

Tuna said:

"The effect is to bid up land prices toward the point where the entire rental value is paid as interest." - pretty sure that's not true. Land value is a small part of the cost of putting rentable accommodation on a plot. If that weren't the case, the idea of people building up 'land banks' would actually be losing them money.

Check out the rebuilding cost on your home insurance... Land value will be a major element in some parts of the UK otherwise an identical house in Middlesborough or Kensington would have a similar price.

Why would you lose money holding land when the cost of holding it is effectively zero?

Tuna said:

"The fact that ... natural resource extraction are practically free of income taxation shows that democratic political reform has not been a sufficient guarantee of socialist success." What? If I dig coal out of the ground, I don't pay any tax when I sell that coal?

Depends where you dig it out from, what subsidies / tax breaks you've "extracted" from govt I guess.

Tuna said:

"The aim of public investment was not to make a profit, but to lower the cost of living and doing business so as to minimize industry’s wage and infrastructure bill." - the (massive) assumption here is that public investment costs less than an efficient market to deliver infrastructure. There's no clear proof that this is the case.

Is there proof to the contrary? Is PFI a roaring success? "efficient market" is a big assumption also

Tuna said:

"[Under Russian Socialism] The state bank created money and credit, so there was no need to rely on a wealthy financial class." From what exactly did it create money and credit? We know that printing money causes inflation.. this is magic money tree territory.

Do you know how money is created? AFAIK 97% of UK money is created by banks, who will charge you for that privilege. BoE has some good primers on money creation. Money (and debt) creation is a necessity for our economy. Money creation is not "printing money" - although it can be - not that QE has supplied much inflation (yet).

Tuna said:

"China is the leading example of socialist success in a mixed economy."... Not according to many articles that say productivity is plunging and debt has doubled in the last five years.

yet you argue below

"over the last century, it has delivered the largest leap in living standards globally, in health and extension of the human lifespan and the lifting out of absolute poverty of the largest proportion - and the largest number of people in the history of mankind."

Surely China is a major element here? Is it a success or not?

Tuna said:

etc. etc. etc.

The core problem here is the presumption that accumulation of wealth with some proportion of the population is bad for society. The counter argument as I understand it is that allowing the market to compete for that wealth encourages efficiencies and innovations that outweigh the cost of a small proportion doing particularly well.

One example would be Wallmart - where their aggressive expansion has delivered a wider range of cheaper goods to the whole of America. I believe that the founders' fortune is something like 3% of the value of the company as a whole. In return for that small percentage 'extracted wealth', we get massive public good in the form of easy access to low cost food and goods. Another would be Amazon - where the fight to innovate has revolutionised distribution and provided massive public infrastructure (in the form of web services) at a fraction of previous costs. For this, Bezos is made wealthy - and (another public good) promptly spends it on space transport. Both of those models appear to be reliant on the very land ownership and 'monopolisation' that the author considers to be so damaging. No socialist economy has demonstrated similar leaps in availability of and public access to food and goods.

Walmart is a pretty nasty example - if that's the best capitalism has to offer... Reliance on govt to subsidise its staff wages and real estate / infrastructure costs.. you're right, both rely on "monopolisation" - most capitalists also think monopolies are bad.

Tuna said:

The whole argument against neoliberalism is predicated on the idea that it stifles growth and social improvement. The only problem with that is that over the last century, it has delivered the largest leap in living standards globally, in health and extension of the human lifespan and the lifting out of absolute poverty of the largest proportion - and the largest number of people in the history of mankind.

I think you're describing capitalism / state capitalism (China). Best years for growth / living standards in the western world were post WW2 when our model wasn't "neoliberal"? Unfortunately the more recent "neoliberal" approach has resulted in lower growth. Some evidence now suggests that the rate of innovation is slowing (fewer startups for example) as the big tech firms are too powerful & can easily wipe out the new entrants.

Tuna said:

I'm not an economist, but this seems to be student level debating - the reason socialism hasn't worked is because they weren't doing it properly... sigh.

Edited by Tuna on Tuesday 24th October 22:15

I don't really think that's his point, but anyway as you point out, you aren't an economist, nor am I (but he is). We've had enough of experts though... (Apart from Patrick Minford, not sure if he qualifies for that term)

Edited by edh on Wednesday 25th October 18:39

[edh]

loafer123 said:

As well as normal taxes, the Grosvenor Estate pays a real LVT of 6% of value every 10 years, and as a result doesn’t pay IHT.

Interesting, thanks. A quick Google threw up a telegraph article that suggested it was between 2 and 6 % with opportunities for deductions. Better than nothing. I guess we won't know what the actual figure is / was.

[edh]

Tuna said:

edh said:

Interesting, thanks. A quick Google threw up a telegraph article that suggested it was between 2 and 6 % with opportunities for deductions. Better than nothing. I guess we won't know what the actual figure is / was.

If a business had £3bn worth of assets, what would it pay on those assets each year? Nothing - a business can retain assets indefinitely without paying a penny. In contrast, the Grosvenor payments could be around £300 million.

This hypothetical business had better not have any physical footprint that might result in a liability for business rates... Anyway, it's not that relevant.

Who knows what the Grosvenor payments were.. commercially confidential no doubt.

Tuna said:

And I suspect you don't have a clue how an estate of that size runs. They have 1000 staff to manage the place, who will be paid and paying tax themselves. They will pay tax on income from that estate. They will also be paying a small fortune in upkeep and maintenance. Basically, unlike your house, an estate of that size is a business, and like any business will be both generating value and employment and paying (sizeable) taxation.

If you re-read the discussions on LVT, the arguments are about the most efficient use of land - *not* that an estate like Grosvenor's isn't generating value. In fact a large estate would be better able to pay LVT (being run as a business) than you might (as your house generates no value of its own). It's a fundamental misunderstanding to think that LVT would level the playing field between the super rich and us mere mortals.

You have spectacularly missed the point. Grosvenors main assets are the real estate holdings in Mayfair. Their main business is collecting rent. Their country pile is neither here nor there really, nor is my "clue", as you so kindly put it, about how it runs.

btw if their country estate is a business, it is exempt from the periodic charge.

https://moneyweek.com/how-the-duke-of-westminster-...

[edh]

Tuna said:

edh said:

Who knows what the Grosvenor payments were.. commercially confidential no doubt.

You seem to be insinuating they're some sort of evil masterminds?

No. Just that you plucked some figures out of the air. I would expect them to structure their affairs perfectly legally but in a way that minimises their tax liability. For obvious reasons they would be likely to keep those sums confidential. Not evil, possibly masterminds (they can afford good advice..)

edh said:

Tuna said:

And I suspect you don't have a clue how an estate of that size runs. They have 1000 staff to manage the place, who will be paid and paying tax themselves. They will pay tax on income from that estate. They will also be paying a small fortune in upkeep and maintenance. Basically, unlike your house, an estate of that size is a business, and like any business will be both generating value and employment and paying (sizeable) taxation.

If you re-read the discussions on LVT, the arguments are about the most efficient use of land - *not* that an estate like Grosvenor's isn't generating value. In fact a large estate would be better able to pay LVT (being run as a business) than you might (as your house generates no value of its own). It's a fundamental misunderstanding to think that LVT would level the playing field between the super rich and us mere mortals.

You have spectacularly missed the point. Grosvenors main assets are the real estate holdings in Mayfair. Their main business is collecting rent. Their country pile is neither here nor there really, nor is my "clue", as you so kindly put it, about how it runs.

Tuna said:

All that I said still applies. Their rental properties generate taxable income, require staff for management and maintenance, cost a fortune in upkeep and repair (particularly listed properties in Mayfair) and pay local council taxes in accordance to their value. This is not an economically inactive business. My frustration with your view is that you appear to see people who are 'unfairly rich' and believe the lazy cliche that they sit on a pile of money doing nothing but evading tax and stealing from the poor.

Where have I written that? I do believe landowners are operating within the current legal framework which is weighted in their favour without them needing to act in any way illegally. My view is that we should shift the balance of taxation from work and consumption onto land. BTW council taxes are not really in accordance with value and the incidence is on the tenant / leaseholder. Business rates probably has more incidence on the landowner.

Churchill's views on the idle landlord apply though...

Tuna said:

Not only does land value tax not change their wealth (the arguments for it are for efficient use of land, not who owns that land), it may reinforce monopoly holdings - in that LVT is more easily dealt with by estates that run large numbers of properties as a business, than by individual house owners who only have LVT as a cost.

The arguments for LVT are many and also include the capture of rent and planning gain. An outcome should be efficient use of land. Individual house owners should, in general, be better off as their taxes on work and consumption are reduced. Large property owners would not necessarily have commensurate tax reductions.

Tuna said:

LVT *could* be an instrument to prevent businesses sitting on land banks that could otherwise be developed, but that has to be considered in the light of unforeseen consequences. The amount payable depends on the permissions granted on the land, so it may benefit businesses to buy up (for instance) agricultural land and leave it as such (LVT cannot be set to make agriculture unprofitable) meaning that we see land with permissions deliberately being allowed to lapse. Thus we end up in the situation where companies still run land banks, but the land available for immediate development actually decreases.

I'd take that risk... let's see the brownfield sites get developed, let's see housing being put to optimum use, rather than just build on agricultural land.

I think we should move on from LVT now, I'm going to pick up some of BV's other points

[edh]

del mar said:

Skimming through the thread.

Is the idea of a LVT in additional to Income tax and NI at their current levels, or would there be a changing of the current tax levels / structures ?

I did say I would move on but...

Every LVT proponent would advocate for significant reductions on taxes on work and on transactions - so VAT, SDLT, probably IHT would also be in the frame. Some people propose LVT as the single tax.

drainbrain said:

loafer123 said:

Rents are set by affordability, demand and supply.

Landlords could not arbitrarily increase rents and expect to get them if their taxes rise, as we have recently seen.

So what do you think the landlord reaction to LVT would be, assuming it fell on owners not occupiers? Just suck it up, accept profitability slashed and get on with business as usual (albeit less profitably)? Or what?

1. Why not just increase your rents today? if you can't, why will you be able to in the future just because you have additional costs?

2. Suck it up? yes, probably.

In low land value areas it won't be significant. You might even be able to charge more as your tenants will no longer be liable for council tax so will have more disposable income.

In high land value areas, land should get cheaper, so renters will find buying a more affordable option. New landlords will also be able to outcompete you on price.

[edh]

sidicks said:

None of the quoted taxes appear to be ‘work’ taxes...

Read the original question and note my use of the word "also"...

[edh]

MDMetal said:

That's only valid because if one landlord raises his rents then renters just go elsewhere, there's no rental cartel just lots of individuals of different sizes, rents are governed by demand as much as costs, most properties have rents above the mortgage payment costs so money is being made. However if you put a large "global" increase into the market all the individuals will raise there rents by a similar amount, renters will have little choice, of course some undercutting will still occur but prices will be above current levels clearly.

Find me an economist who would support this assertion... it's one of those "common sense" ideas that doesn't stand up under examination.

[edh]

sidicks said:

edh said:

Read the original question and note my use of the word "also"...

[edh]

In an attempt to broaden the debate again

Stiglitz on monopoly & its damaging effect in the US..
https://www.thenation.com/article/america-has-a-mo...

I thought it was interesting.....

[edh]

Luther Blissett said:

Relevant video
https://renegadeinc.com/j-is-for-junk-economics/

Very good - a touch hyperbolic though.. Like all economists he's very certain he's right..

I liked his comments on "free markets" and how this has been distorted over time.

[edh]

nikaiyo2 said:

Isn't taxation the biggest rent seeking we are subjected to?

No

Could you explain why you think taxation is economic rent? (perhaps after watching Michael Hudson who explains it quite clearly)