John McDonnell, the Shadow Chancellor, has indicated that he’s interested in a land value tax. Georgists everywhere celebrate and dance in the – publicly funded – streets. Except that’s not really what he’s saying at all. For the point about LVT is that it’s a more efficient method of raising the necessary revenue, not a method of raising more revenue. This is an important distinction:
A land tax, where a percentage of the value of the land is levied annually, is popular with some economists, who say it is a logical approach to taxing individual wealth.
No, that’s not the point at all – the point actually is that no one’s making land any more. Thus a tax upon land values is not distortionary. We don’t get less land because we tax it – unlike everything else, where the moment you tax incomes you get less incomes being made, tax wealth there’s less wealth, tax economic activity there will be less economic activity. That is, the act of taxing everything other than land makes us poorer in general as well as making those actually taxed poorer. Thus, if we tax land values, instead of taxing those other things, we’ll be richer in general and it will only be those coughing up the tax, rather than all, who are poorer.
Yes, obviously, at least some of the things taxes are spent upon also make us richer. The LVT argument is not, at least not necessarily, an anarchist or minarchist one. It’s one about the efficiency of revenue raising.
But that’s not what McDonnell is saying at all:
But McDonnell told the audience at the event organised by the Resolution Foundation, where he set out Labour’s plans to boost household incomes, that the crisis in the funding of local services may have opened a window of opportunity.
“I think we are at a stage where the decline in terms of funding to local government and the consequential effect on local services – many of them are in crisis – means, I think, that people are now willing to consider more radical solutions than they have in the past.”
He’s talking about raising more tax revenue from the economy by having a new tax. This is not the same thing at all.
An LVT is a good idea but it should be matched by a reduction in other more damaging forms of tax. Which isn’t what is being suggested now, is it?
But then who is surprised at John McDonnell arguing for “Moar Tax!” He does know Richard Murphy after all.