Monday, 21 May 2018

Killer Arguments Against Citizen's Income, Not (16)

Those on the left (and authoritarians generally) say that a flat rate UBI of £4,000 a year, payable to each UK resident (or whatever the rules are) working age adult on a no-questions asked basis would a) leave existing claimants worse off (it wouldn't actually, if you leave Housing Benefit as a separate payment) and b) it's not right to pay it to wealthy people/high earners.

Fair enough. That does not change the basic principle, which is to get marginal withdrawal rates down as far as possible.

I set up a spreadsheet with HMRC's figures for taxpayers' income percentiles and my estimate of incomes of non-taxpayers. For a given total payout, there is of course a mathematical trade-off between how high the basic amount is and what percentage would have to be clawed back via PAYE codes. This reflects the political trade-off (low earners should/should not get more than £4,000) and the economic trade-off (the lower the marginal withdrawal/tax rate, the better for everybody, unless you are loony left wing).

The answers are:

£4,000 - zero %
£5,000 - 5%
£6,000 - 10%
£7,000 - 16%
£8,000 - 23%
£9,000 - 30%

Even paying £8,000 a year with a 23% withdrawal rate would be a vast improvement over the Universal Credit headline withdrawal rate of 63%, which is on top of any PAYE/NIC you have already had deducted.

Also, at £8,000 a year basic entitlement, there is clearly no need for Housing Benefit/council tax rebates any more, and is much the same as the current full state pension, getting rid of yet more layers of crap. Win-win.

Friday, 18 May 2018

The Regional Skills Gap

Something else that has been bothering me for a while is the notion of the 'regional skills gap', as mentioned for example here.

Productivity and Skills for West Midlands Combined Authority (WMCA) region are one of the biggest challenges for the regional economy. GVA per head in the WMCA is currently at £19,423, nearly £3,500 [less than the UK average] for each of the 4 million WMCA residents leading to a £14bn output gap compared to the national average.

WMCA report that the components of the output gap highlight issues across all the productivity drivers with insufficient skills, too few in employment and the quality of the indigenous WMCA business base.

* Skills: % of number individuals with qualifications at NVQ4+: in the West Midlands Region is 27.6% against a national picture of 34.9%

* Employment: employment rate in the West Midlands Region is 67.2% against a national picture of 71.5%...

It is essential that Education and Business work together, not just through the Corporate Responsibility Agenda and supporting students develop the essential work ready skills but also to:

* Shape academic programmes and content to reflect the needs of regional sectors

*Identify the key growth areas across the region to ensure that training and development reflects the local economy

It's a bit like the notion that you can get house prices down in the South East by building more homes - it only makes sense if you ignore the fact that people can migrate freely within the UK.

If you assume that people growing up in the West Midlands intend to stay there, then sure, train them in things which will get them a job locally. But they won't.

It's a circular problem.

1. Those with the initiative to undertake education and training want to do whatever will earn them the most money, which is unfortunately not the productive sector but the non-productive sector, finance, insurance, real estate, legal and accounting (i.e. little old me).

2. The best paying jobs are in London, which is why, apparently, nearly half of recent graduates from UK universities move to London.

3. So the reason why relatively few people in the West Midlands have NVQ4+ qualifications is not because there's anything wrong with their education system, but because many of those with NVQ4+ qualifications bugger off elsewhere.

4. The less ambitious/less qualified remain in the West Midlands, inevitably, productivity and output declines, exacerbating the effect; businesses do worse, meaning fewer well paying jobs, meaning people are more likely to bugger off.

5. If the West Midlands offers more education and training, that makes it even easier for people to bugger off.

As an aside, Flipchart Rick did a post a while back called "Why a richer Africa means more migrants" explaining that this is effect is observable on an international level.

To paraphrase, few people from really underdeveloped countries emigrate because nobody wants them. Developing countries try to lift themselves with their own boot straps and invest what little surplus they have into improving their education systems - but that makes it easier for their people to emigrate (Filipino nurses, for example) instead of staying and helping grow the economy. So for some decades, this is a net loss to the country. It is not until the economy has developed to the level where there is less incentive for people to move abroad that their economies really benefit; but you can't grow an economy until the better-educated people stay there etc etc in a vicious circle.

Thursday, 17 May 2018

Killer Arguments Against LVT, Not (442)

From 1984: "To know and to not know, to be conscious of complete truthfulness while telling carefully constructed lies, to hold simultaneously two opinions which cancelled out, knowing them to be contradictory and believing in both of them, to use logic against logic, to repudiate morality while laying claim to it, to believe that democracy is impossible and that the Party was the guardian of democracy.

To forget, whatever it was necessary to forget, then to draw it back into memory again at the moment when it was needed, and then promptly to forget it again, and above all, to apply the same process to the process itself.

Here's a real life example, armchair twat @RomanchukBrian on the topic of LVT:

"So your plan is to have city centres consisting of 40-storey blocks surrounded by the ruins of abandoned buildings? And you are wondering why economists are not endorsing this?

"It's rarely been tried because it's a policy that is obviously a disaster. If it makes sense in *your* model, *your* model is wrong.

"The owning firm goes bankrupt and nobody is stupid enough to pay the LVT in a deliberately sabotaged city core? You end up with abandoned buildings.

"North American city planners have been struggling for decades to rejuvenate city centres. Imposing a tax to wipe out the economic viability of the core would not exactly help.

"And away from city centres, you would tax a small farm across the road from a new development with a couple dozen houses on the same amount. So you would wipe out those farmers as well."

As you can see, in *his* model he completely contradicts himself. His imaginary waves of destruction start with the outer fringes of the centre, leaving just 40-storey buildings in the very centre, which then in turn are abandoned for exactly the same reason that they were built in the first place... the waves spread outwards and ultimately, farmers are driven out of business. He didn't make the final leap and claim that with cities and farmers ruined, the entire tax burden would fall on the couple of dozen houses, which would also promptly be abandoned. Which is a shame really, as it would complete the circle of nonsense. If he'd stuck to one or the other extreme (either people rush to the centre; or people rush away from the centre) then it wouldn't be so immediately obvious that he is a complete idiot.

Logic* is alien to these people, as are actual facts - most economists do endorse LVT; it is not a hypothetical, whenever and wherever it has been implemented it has led to more development in city centres; and as land would be taxed on its optimum permitted use (which 99 times out of 100 is its actual use), the tax on the farmland would be very low, much lower than one the houses across the road. DoubleThink is so much easier when the mind is unclouded and unburdened by actual facts!

* The logic is easy. In an LVT-free world, the rental value, selling price and mortgage repayments if you want to occupy/own any particular plot are set by normal market forces - supply and demand etc. Taxes on earnings and output are arbitrary amounts taken from you by the government.

LVT is, from the point of view of the land owner/purchaser, exactly the same as an interest-only, variable-rate, non-recourse mortgage on the land element. The LVT simply replaces the mortgage repayments on the land element AND some or all of all the arbitrary taxes on earnings and output, making it a double-win for those who don't own any land and a break-even for most of those who do.

With a normal purchase mortgage, there is a risk that the interest rate increases and/or the potential selling price of the land falls, potentially getting you caught in a nasty vice. LVT completely de-risks this. The quasi-interest payments only go up if the land value goes up and as the LVT liability attaches to the land, not to you personally, you can never end up hugely out of pocket.

Wednesday, 16 May 2018

Daily Mail on top form

Pensioner tells of terror as Virgin hot air balloon with 14 passengers crash-landed in garden of her £700,000 Hampshire country house

Killer Arguments Against LVT Not (441)

Here's a synthesis of a couple of wailing and bleating emails I've been sent recently, it's all boilerplate stuff:

Why go after little landlords like me? I've only got two buy-to-lets which I need for security in my old age (1). Would you rather I be a burden on the state?(2) If you want to get more tax, why not go after the big targets - home builders who own enough land with planning permission to build a million homes? (3) What about companies like Facebook or Google who make billions and don't pay a penny in tax?(4)"

Arrant nonsense if you actually think about it for two seconds.

1. Two is plenty. The trajectory is that one-third of households will be landlords with two buy-to-lets each and the other two-thirds of households will be their tenants. What security will the tenants have in their old age?

2. Old age pensioners get a state pension, and quite rightly so, it's a good template for a Citizen's Income. Are they all 'burden on the state'? I've not heard many people dare say it out loud or many landlords offer to waive their state pension entitlement. In any event, what happens when all those tenants retire and two-thirds of pensioners need housing benefit to keep their landlords in clover? Isn't that going to be a colossal 'burden on the state'? Landlords are already collecting nigh on £10 billion a year in Housing Benefit (twice as much as they pay in income tax).

(This segues into the Poor Widows in Mansions, who will be priced out of their homes and become a burden on the state. Glossing over the roll-up and defer option for that minority, if getting money from the taxpayer is a burden, then anybody who collects an old age pension without wanting to pay their fair share of LVT is also a burden on the rest of society).

3. At present, the home builders aka land bankers own land with planning permission for a bit less than a million homes, and I agree that politically, they are an easy target. But the UK's private landlords own five million actual homes - the land and the finished building. The total value of the land bankers' land is a tiny fraction of the total value of the landlords' land and buildings. Who's the bigger target here?

4. UK landlords collected gross £50 billion in rent last year, the banks took half in interest, minus bits and pieces, leaving them with £14 billion in net rental income. (Skip back a step - two-thirds of landlords' net rental income is taxpayer-funded Housing Benefit!). Facebook made worldwide profits of £4 billion-odd. Even we could identify (and tax) the UK element of Facebook's profits, it'll only be a hundred million or so. UK landlords' net rental income dwarfs Facebook's UK profits by a factor of a hundred-to-one. Ditto Google, Apple, Amazon and the rest of them. Who's the bigger - or easier - target here?

Tuesday, 15 May 2018

Outbreak of Common Sense

A new report by the TaxPayers’ Alliance details the enormous savings to British taxpayers by legalising cannabis. The UK could save at least £891.72 million a year in reduced spending by police, prisons, courts and the NHS through pain relief treatments.

Yes, this is all old hat and sane people have been saying it for years, I'm just pleasantly surprised that the TPA, the staidest and most small 'c' conservative of all pressure groups would even broach the topic.

(A list of their recent donors might give a clue as to why the sudden change of emphasis...)

Sunday, 13 May 2018

Many Killer Arguments against Citizen's Income are equal and opposite to Killer Arguments Against LVT.

Let's take two main Killer Arguments Against Citizen's Income first:

1. If you set the CI rate 'too high', far fewer people will want to work. Implicit in this is the acknowledgement that if you set the CI at the correct rate, it will have little impact on people's willingness to work, and it ignores the fact that in real life, paying out a CI tends to increase people's willingness to work, especially if it replaces the bulk of the existing UK welfare system, which discourages from taking low paid work and rather bizarrely, subsidies wealth (farmland subsidies, housing benefit for private landlords, higher rate tax breaks for pension savings).

2. Faux Libertarians, self-appointed hard core Georgists and many on the left (whether LVT sympathisers or not) argue that paying out a CI will just go into higher land rents.

The equal and opposite Killer Arguments against LVT are:

3. 'What about the semi-retired whose home has appreciated massively in value, due to circumstances outside their control? They will be 'forced' to move into a ghetto'. Implicit in this is the acknowledgement that the gain is entirely unearned. In many cases, these people 'want to leave their valuable home to their children', for whom the gain is an unearned windfall gain on two levels.

4. 'Landlords will just add LVT to the rent and/or housing costs will increase and/or LVT will not make housing more affordable'.

5. 'If you impose LVT, the wealthy will all flee the expensive areas, so revenues will collapse'. This is inherent nonsense, it's like saying if the government offers 'free' education for kids and a 'free' NHS, high earners (and mugs) won't send their children to private school or take out private health insurance. Be that as it may, if the rental value of the top couple of percent of homes flattens off at (say) £30,000 a year (instead of £100,000s for the swankiest streets in Westminster), this only reduces total LVT revenues by a few percent or so.
Stage one, under the Six Thinking Hats technique is to put your white hat on and write down everything you know.

As it happens, and as a matter of fact, the entire cost of cash welfare payments (state pension, Working Tax Credits, child benefit, disability benefits, housing subsidies), plus the cash value of the tax free personal allowance and tax breaks for pensions saving is approx. equal to the total site premium of all UK land (housing, commercial and farmland) i.e. about £250 billion a year.

So the obvious thing to two is keep welfare spending roughly constant, but with no, or much less, means-testing, and much flatter and simpler (such that most households are little better or worse off on a completely static basis) and pay for this out of LVT receipts.

This means that existing taxes on housing and 'wealth', plus the worst taxes on output and employment (VAT and NIC) which currently raise £250 bn (after deducting dead weight cists) a year or so can be scrapped. This would leave us with two flat taxes - LVT and flat income tax (I am indifferent between a) a low flat rate and no personal allowance vs. b) a higher flat  rate and a higher personal allowance).

Then for administrative simplicity and to reduce fraud, error, under- and overpayments, we net off each household's LVT bill and CI entitlement at source.

Simple maths tells us that the average household in the average home in an average area will have an LVT bill that equal to their CI entitlement and simply pays and receives nothing. The cost of buying or renting the average home, from their point of view falls dramatically.

We also know that the least desirable areas in any country have a site premium/land rental value of zero. This applies to housing and commercial premises in the poorest areas and, to be honest, most farmland.
To put some hard numbers on it, here's a chart of the site premium - measured at today's rent levels - of an average 3-bed semi (or large-ish terraced house or large flat) in the first 96 percentiles of English and Welsh postcodes. Rents go pretty vertically upwards after that, up to £100,000s a year!

If paid out in full as a reasonable Citizen's Income (children £40/wk, working age adults £80/week and pensioners £160/week), then the CI entitlement of an 'average' household (one and a quarter pensioners, or two adults and one child) would be £10,000:

Households in the cheapest ten percent of homes will gain a few thousand pounds more CI than they pay LVT, maybe enough for a bare subsistence level. The break-even point is three-quarters of the way up; households in the top ten per cent most expensive areas will have to pay LVT in excess of CI of £15,000 or so, a bit less than they would be paying in rent. There is no reason to expect any mass internal migration, it will all just settle down.

Pensioners who want to stay put can go for the roll-up option; young people who are much more mobile will make the usual trade-off between higher wages and higher rents etc.

The one-third of 'young adults' who are currently 'forced' to stay at home and their long-suffering parents will be laughing and can split the gains.
Now, let's skip to the blue hat and think things through:

Even if KCN 1 and KLN 3 had substance, they cancel each other out. If the semi-retired couple want to stay living 'in the family home with all the treasured memories and pass it to their children', then all they have to do is go back into paid work; or ask their potential heirs to do a bit more overtime and pay it for them. LVT encourages work! So therefore LVT must be a good thing, from the point of view of the idiots who argue that a CI discourages it.

Even if KCN 2 and KLN 4 had substance, they cancel each other out, even though superficially they say the same. They must cancel out, or else rents would increase to £infinity which is clearly nonsense. There comes a stage at which people say, sod the extra bedroom; the bigger back garden; the shorter commute, we'd rather spend the money on a new car, nicer holidays etc. Even if the landlord can hike the rent all he likes, then LVT increases, the CI increases and an average household wonders what all the fuss is about as it still breaks even.

KLNs 4 and 5 clearly cancel out. It is impossible for rents to increase and collapse simultaneously.

Even if KCN 1 and KLN 5 had substance, they cancel out. Let's say all the foreign kleptocrats abandon their central London homes and all the semi-retired trade down, that means LVT revenues fall, so the CI falls in equal measure. The average family is barely affected (maybe a couple of hundred quid a year worse off). But people willing to work who were previously priced out of moving to somewhere nicer, or to somewhere where they can earn higher wages, now find it easier to trade up. So many 'average' families end up better off.

Those who thought they could game the system by moving to a low-rent zero-LVT area, banking the CI payments and living on a bare subsistence level (not bothering to work) now find that they have less 'free' money to live on, so are more likely to be willing to work. Hey presto, housing is, in aggregate, even more affordable for working people and more people want to work.
To cut a long story, there is an equilibrium to all this, and there are at least two fixed points.

i. Start in the middle, with an average income, average sized household in an average home in an average area, for whom the answer is always "zero". This is a fixed point. And then work outwards in any direction (smaller or larger household; better or worse area; bigger or smaller home; higher or lower earnings etc).

ii. Another fixed point is low-rent, zero-LVT areas. It is impossible for landlords in the worst areas to increase rents; the unemployed and unemployable; those wanting to game the system end will be getting a CI that is just enough to pay the bricks and mortar rent and to live on. There is no surplus to go into higher rents! That nails down rents/LVT at the bottom end. At the top end, the additional rental value/LVT bill cannot be any more than the extra wages that people can earn by living in a commutable radius of where the best paying jobs are (plus or minus a bit for subjective amenity value).

Here endeth.

Friday, 11 May 2018

Reader's Letter Of The Day

Emailed in by the author:

CAN someone explain why anyone who criticises a religion risks prosecution, while insulting a political party is OK?

The idea that religions have benefitted humanity more than political parties is very debatable.

For example, various Muslim groups in Syria are responsible for a hundred thousand deaths in recent years, and over a million refugees.

As for the Church of England, that is traditionally referred to as “the Tory Party at prayer”: i.e. the C of E has spent most of life ingratiating itself with the rich and powerful.

In contrast, it’s political parties that arguably have brought the really big benefits: e.g. the Labour Party helped give us the NHS and state pensions. Religion cannot match that achievement.

It’s the height of cheek for the anti-free speech non-entities in Westminster to tell ordinary people what they can and can’t say about religion.

Ralph Musgrave, Durham

Thursday, 10 May 2018

This unexpected response was mentioned in 'Freakonomics'.

From the BBC:

Fining parents for taking children out of school in term time in Wales has had no effect on overall absence rates, a review has found. It shows the number of unauthorised family holidays actually increased after fixed penalty notices were introduced in 2013...

Several respondents said that the level of the fine was too low to encourage behaviour change. They said this was particularly the case for unauthorised absences for holidays in term time because some parents preferred to pay a £60 fine compared to the price of going away in the school holidays.

One respondent said "in this deprived area many families cannot afford the costs of a holiday out of term time. If they can, they soak up the cost of the fine as part of the holiday cost (which means the fine has zero effect)".

This phenomonen was mentioned in the book 'Freakonomics', here's an article from 2013 explaining it:

In Haifa, day care centers almost uniformly closed at 4pm, and simply depended on the good intentions of parents to pick up their kids on time. Somehow, this worked: parents picked up their children on time and rarely, if ever, came after 4:30pm.

Why were parents rarely late? As Uri will tell you in our book, being late meant relying on the generosity of one teacher, who would inevitably stay late to look after your child. Being late meant facing that same teacher and having to apologize to her for the inconvenience of waiting.

All of which prompted us to wonder: what would happen if these day care centers stopped relying on generosity and started relying on a financial incentive — like a fine — to discourage parents from showing up late? Few would have predicted what we found: introducing a financial penalty for showing up late actually caused parents to do just that. Parents stopped showing up on time entirely.

To come to our surprising conclusion, Uri ran an experiment: Out of 10 daycare centers across Haifa, they randomly chose six and introduced a small fine for parents who showed up more than 10 minutes late in each of them. In day cares where the fine was introduced, parents immediately started showing up late, with tardiness levels eventually leveling out at about twice the pre-fine level. That is, introducing a fine caused twice as many parents to show up late. What about the remaining four day care centers that remained fine-free? Tardiness didn’t change at all.

The picture that emerged from this experiment, co-authored with Aldo Rustichini, was that parents had a whole set of non-financial incentives for being on time – incentives that were completely incompatible with money. Like, for example, avoiding the guilt of inconveniencing the day care workers. As soon as parents had the option to pay a small fine and avoid that guilt, they took it en masse.

Wednesday, 9 May 2018

Reader's Letter of Last Week

From The Metro:

If the Supreme Court finds that Daniel and Amy McArthur discriminated for refusing to do a 'gay cak' (Metro, Wed), does this mean halal butchers can be forced to provide port to customers if asked?


Possibly not the best analogy, but surely there is a Muslim cake shop somewhere we could use as a test-case? Ask them to lace a cake with alcohol and decorate it with a pig?