LVT Hong Kong hokum (Re: What the LVT is, and what its advantages are - must read

In which we meet the true life results of the real world LVT in
action....

On Tue, 16 Jan 2007 17:25:50 -0500, S. Doo <none@xxxxxxxxxxxx> wrote:

On Mon, 15 Jan 2007 07:16:28 -0500, Bob Kolker <nowhere@xxxxxxxxxxx>
wrote:

Michael Price wrote:

Well why is concentrating the ownership of land in the hands of the
government less obnoxious than having many landlords? Monopolists
are generally more obnoxious than other traders.

It is very amusing, that.

Single Taxers regularly damn politicians for peddling "land" -- all
natural resources, to them -- at below cost to their cronies, and also
for slapping exploitative regulations and development-killing zoning
rules on it for their cronies, etc., all for their own greedy kickback
and political gain.

And indeed politicians do just that all the time!

Yet then these same Single Taxers pose as their remedy dropping *all*
land into the hands of the same politicians, and making taxation of
its lease value these politicians' *only* source of revenue -- thus
*vastly increasing* the incentives they have to further rig the land
market by taking land out of the market and grossly restricting other
land's use to artificially reduce supply, thus increasing lease rates
and their own direct income, while giving them *monopoly power* to
make crony deals with developers, constituents and interest groups.
;-)

This is Monopoly Behavior 101. Yet it never enters the single taxer's
mind that politicians -- as selfish as they are today at abusing the
land they hold in public trust -- would ever, ever, do such a thing
when granted vastly more power and greater incentives to so in their
imagined world.

And they certainly never bother to look to see if such things happen
*right now* in jurisdictions that actually have land taxes today even
at modest rates. No point in bothering with that!

Because bad things do not happen in one's own Utopia.

All the incentives that politicians have today suddenly disappear in
Single Tax Utopia. ;-)

I've never seen a Single Taxer say a word about them.

You know, to have socialists who are looking for the next version of
their system to try out thinking this way one could sort of understand
-- but the idea that people who bill themselves as "libertarians"
would buy into this ... it's just mind boggling.

....
So in light of all the many land taxes that exist today and
have existed throughout history, just where is the one that has
evolved into a Single Tax? Or even one that has evolved into anything
like a 100% tax on land value, plus other taxes too???

Answer: Uh...

And why "Uh?". (If you say "world-wide conspiracy for a couple
hundred years", you just might be a crank!)

The real answer is that land taxes *exactly like all other taxes* have
costs that rise with the tax rate only more rapidly than the rate: by
increasingly hampering open markets and creating black markets, by
increasing administrative and litigation costs (with appraisal-based
tax systems being by far *the worst* at this, for reasons obvious to
anyone with a functioning frontal lobe) by increasing the ability of
and incentives for politicians to profit by using their power to
manipulate the system for self-gain, etc. etc.

With the result being that the maximum payoff for real-world land
taxes maxes out at a modest rate time-after-time-after-time -- in
fact, 100% of the time.

Or to put it another way, 100% of the time pigs don't fly.

I thought it
might be preferable to the system we have now where government meddles
in every aspect of our lives. Perhaps, perhaps it is worth a try.
It sort of worked in Hong Kong for a long period of time.

Hong Kong??? Of all places. How do the Single Taxers succeed in
selling this nonsense?

How do they even manage to fool themselves?

Look, there's nothing wrong with a land tax per se, as long as it is
imposed at a *moderate rate* and is considered as one option on a menu
of taxes that keeps the maximum rate for all of them down. (Since the
harm done by taxes rises *faster* than the tax rate, it is a 101
policy objective for all real-world tax professionals to keep top tax
rates down by using a range of lower-rate taxes instead of a few
higher-rate taxes to collect the same revenue -- which is of course
the exact opposite of the Single Taxer's simple-minded fantasy world
policy.)

That kind of reasonable-rate land tax has, like all kinds of taxes,
its own benefits and costs.

The benefit is that it reduces the supply of the item being taxed less
than most other kinds of taxes would be expected to.

The costs are that appraisal-based assessment systems are a costly
bitch -- so the assessment system always resorts to some kind of
shortcut that compromises the fundamental claimed benefits for land
tax -- *and* the politicians obtain powerful incentives to rig the
market and restrict land usage, both to artificially increase the
lease rates they tax and to give themselves greater leverage in
forging crony relationships with developers at the citizenry's
expense.

As to these downside costs, Hong Kong happens to be the world's famous
#1 textbook example among real tax professionals working down here on
Earth. Those costs nearly did in Hong Kong's economy about ten years
back.

Of course, the idealist Single Taxers floating up there in the aether
contemplating the Platonic forms of imaginary tax policy aren't
interested in noticing such lowly things.

Bob Kolker

Hey, let's look at land tax in action in the real world -- in one of
its most acclaimed Georgist success stories! ... Hong Kong!

First we'll note that any argument that Hong Kong was built on or runs
on land value tax is nonsense. Hong Kong has diversified tax revenue
and always has -- it collects through income taxes about the same
percentage of GDP as the US. It also collects a host of other taxes,
as politicians everywhere choose to do.

It does have a land tax too -- but this raises an interesting
question: has Hong Kong thrived *in spite* of the land tax harming it?
The people in Hong Kong clearly think the answer is "yes", as they've
been diversifying revenue *away* from land tax as qucikly as possible
for reasons they are very happy to explain, ever since they had a near
fiscal meltdown a decade ago.

Now, what were the traits I gave as the problems particular to land
taxes?

The costs are that appraisal-based assessment systems are a costly
bitch -- so the assessment system always resorts to some kind of
shortcut that compromises the fundamental claimed benefits for land
tax -- *and* the politicians obtain powerful incentives to rig the
market and restrict land usage, both to artificially increase the
lease rates they tax and to give themselves greater leverage in
forging crony relationships with developers at the citizenry's
expense.

Let's see how that fits Hong Kong.

The land tax was enacted only in 1940 as an emergency war financing
measure (taxes were going up everywhere around then!)

After the war, the government kept the tax coming in -- as governments
everywhere kept collecting the taxes that people got used to paying as
war financing measures. (Why should the politicians cut them merely
because the war was over?)

But it was impossible to collect the land tax on actual *value* by
appraisal, due to all the reasons I've given before (as easy as
appraisals are!)

So they assessed the tax using a short-cut based on rental or lease
income derived from the land. The assessed value of land is determined
by a formula applied to rental income received on it. No rental income
= no tax on the land, regardless of its actual market value. Ergo no
tax on land under homes, on empty city lots, stretches of empty land
bought in the countryside for "speculation", etc.

That is, the Hong Kong tax really is a land *rent* tax (LRT) not a
land value tax (LVT).

Well, that's OK, a step in the right direction at least (the Georgists
obviously think, or they would mention it!) -- although it does rather
significantly compromise the benefits claimed by the Georgists for
this particular land tax. And it pretty much puts the kibosh on the
claims they like to make regarding Hong Kong -- that it is so
developed because of the tax on empty land, and all that. Eh?

But still, revenue from land is and was pretty significant -- back
when the fiscal crisis hit a decade ago, land accounted for about 40%
of government revenue through the *combination* of land tax and
government *sales of land* to developers.

Sales of land?

Yes -- you see when the government receives a substantial part of its
revenue from taxing lease income, it has a very powerful incentive to
keep land *off the market* to restrict supply of leasable land and
manipulate lease prices upward to increase its tax revenue. And as a
monopoly seller of land, it at the same time has the opportunity make
sales of land above what would be the market prices if the citizenry
had access to all land through a free market. Classic monopoly
behavior. (Think of Saudi Arabia manipulating the marginal price of
oil, through all the oil reserves that it keeps off the market).

Of course, politicians with such monopoly power over land make the
land sales they do make to their few selected favorite political crony
developers...

The whole story is told in standard public finance texts ...
( E.g _Laws of Taxation in the Hong Kong SAR_ by Berry Fong-Chung Hsu
-- the whole Part II describes the "painfully regressive" land tax
system and the need to get away from it.)
.... but we can hardly expect Georgist true believers to go to the
library to seek out such boring tomes by professionals, when they are
so much more attuned to being convinced by their own Wiki pages and
each others' web sites!

Fortunately, though, it's no problem at all to find contemporary
analysis and news accounts of the effects of Hong Kong's land
management policies dating from the crisis a decade ago, even on the
web. E.g.:

~~~~
One of the main drives of Government policy is to keep land prices
high so that the yield from the various land taxes remains high. Crown
land is released in a controlled manner at auctions with care taken to
ensure that the market is not flooded. A reserve price is posted and
the land withdrawn if this is not reached...

This policy takes precedence over other Government policies, e.g. even
when the Government adopted a policy in 1994 of encouraging lower land
prices, it still maintained its policy of reserve prices at auctions
and withheld land on numerous occasions even though this had the
effect of keeping prices higher than they would otherwise be...

The implications of the high land price policy are far-reaching:

* Generally, land prices are higher and less land (or accommodation
space) is available for people and business in Hong Kong under the
policy than would be the case without it. The social and economic
effects of this policy are very significant.

* Maintaining the policy drives the Government into an "unholy
alliance" with the property developers and the banks who all have an
interest in maintaining prices as high as possible.

* The policy encourages an unhealthy reliance by the Government on
administrative measures rather than market forces. So, for example,
the Government chose to make its intervention in the property market
in 1994 by administrative measures, e.g. by making presale of flats
difficult, rather than by "open market operations", i.e. by releasing
more land. This sets an ominous precedent.

* To compensate for the distorting effects of its policy, the
Government is forced into further intervention in the market process
by widely providing public housing. It is astounding that in a
supposedly free market economy, more than 40% of the population live
in public housing - all owned by a single landlord. This policy is
even being extended by the so-called "sandwich class" housing support
programme...

http://www.hkdf.org/pr.asp?func=show&pr=
~~~
[And from Time Magazine...]

The root cause of Hong Kong's problems is its land policy. It has
nurtured a system in which a few developers are given the privilege of
underwriting, directly and indirectly, the 40% of government revenue
that derives from real estate. The developers serve as both de facto
tax collectors and as a construction arm for the government, for which
they receive profit margins and privileges few monopolists dare dream
of.

.... the handful of developers exacerbate a housing shortage by slowing
down construction because they and the government are the only two
builders in town. It's legitimate because no rules forbid it. It's
rational because they want to maximize profit. Developers sit on an
inventory of land sufficient for at least five years of private
production of space...

In the United States, prosecutors are aggressively pursuing
Microsoft's Bill Gates for earning "monopolistic" profits. But Bill's
"evil" gains seem modest compared with those of Hong Kong's
developers. The software giant's pre-tax profit margin averaged 42%
over the past five years, compared with 133% for Cheung Kong and 71%
for Henderson Land, two of Hong Kong's largest developers. Microsoft
pays an average of 35% profit tax, compared with 12% for Cheung Kong
and 15% for Henderson. While Gates has to worry about antitrust suits
brought by the government, Hong Kong's property tycoons serve as the
government's proxy....

http://www.time.com/time/asia/asia/magazine/1999/990215/shaw2.html
~~~

Ah, the Georgist ideal come true in action in the real world!

Just how free-market, honest-government, libertarian can one get? ;-)

Hey, will we ever see these traits of the *real life* functioning land
tax mentioned on the LVT page at Wikipedia?

I doubt it. We don't see them there now, do we? And they aren't
exactly *new* news.

But maybe somebody like Mr. Perlsø will finally get around to adding
them?

.

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