A familiar premise to those of us who err on the side of libertarianism is the axiom that we should "tax wealth, not work". Other than anarcho-capitalists, we all believe that government needs some revenue in order to function.
One school of thought which appears to be gaining traction with liberally minded people is a land value tax, which would be levied at a percentage of the value of any land one might own on an annual basis. This is portrayed as a tax that would hit the rich hardest, but actually its advocates do not understand that it would likely affect the rich the least.
So who would it affect the most? Let's take a few examples and determine who would be most ill affected by a land value tax in the UK.
The value of the UK housing stock is approximately £3.75 trillion. In order to raise last year's tax revenue of £550 billion using a land tax alone, we would need to set a flat tax of 14.6% of land value per year. Yes, that's not a typo, the cost of this tax on residential property would be absolutely eyewatering.
So, let's consider the case of the private landlord. He owns ten houses, each of which is worth £100,000 a year. Eight of them are filled by tenants who were previously paying £1,000 a month rent (£12,000 x 8 = £96,000 rent). Now, the private landlord has a new bill for £146,000 a year, so he has to increase the rent prices on those eight people from £12,000 a year to £30,250 a year in order to maintain his profit margin.
Overnight, rent prices have been increased by 150% because of the new land value tax.
But these renters were previously paying tax. Assuming they're medium earner families of two, earning £25,000 each, they would previously have been paying £5,638 each in income tax & national insurance, or a total of £11,276. They would, on top of this, likely pay around £2,000 in fuel tax & VAT, for a total of £13,638. Under the land value tax, their total tax bill would be £18,250. It would not be addressed to them, but their outgoings which end up with the exchequer would increase by around £4,800 a year.
By contrast, the landlord's outgoings would not have increased at all.
Whom else would the land value tax negatively affect? Pensioners would be the obvious answer. Take a grandad on the state pension. He bought his council house, now worth £120,000, via the right to buy scheme, and now lives on the state pension of around £7,000 a year. His tax bill under the current scheme is simply VAT on his non-necessities. This is likely to be at or about £1,000 a year.
The land value tax would impose a tax upon him of £17,520 a year, or just over 250% of his income. Unless your goals in taxation are to make your grandad sell his home that he spent his whole life working to pay for, the land value tax is not a progressive way forward.
Some advocates of the land value tax would like to tax land which is not categorised as housing (much of which is owned by businesses, particularly farms). This may seem like it would reduce your grandad's tax bill, but obviously any tax on farmland would come straight back to us in food prices. Likewise, a tax on factory land would come back in product prices. These also tax work rather than wealth, which usurps the entire reason to propose a land value tax.
Even if housing was only 1/5 of the taxed land, your grandad would still pay more than 300% of his original tax bill, and nearly 40% of his income, in tax.
It may seem like the natural answer would simply be to give people a tax free allowance of land, but although this would help the pensioner in the above example, it would drive up the flat rate applied above the allowance (in order to bring in the same revenue), and would in fact hit the poorest of all (renters) hardest, because they own no land at all but would receive the full liability of the even higher main rate from their landlords, who own far more than the allowance.
The best way to tax wealth is a consumption tax, particularly a consumption tax on luxury goods. This could be applied to the purchase of high value individual properties, yachts, expensive cars etc. without affecting your grandad or the average earning renter. It would also be a tax of the most voluntary variety (nobody needs a yacht or Lamborghini, everybody needs a home) and as such one of the most compatible with libertarian ideals.
I ask anybody who thinks a simplistic land value tax is the answer to the UK's dilemna to think again. Taxing pensioners & renters in order to stick two fingers up to aristocrats is a simplistic and unworkable solution.