Written evidence submitted by the Coalition
for Economic Justice (CEJ)
EXECUTIVE SUMMARY
1. The Coalition for Economic Justice came into
being in 2008 as a result of the economic crisis. The CEJ consists
of a number of organisations across the political spectrum together
with charities and faith groups, all of whom are committed to
working for the establishment of a taxation system based on fundamental
principles which will encourage an enterprise economy. This brief
response makes the case for the introduction of an annual land
value tax based on such principles while, at the same time, reducing
other inappropriate taxes.
THE KEY
PRINCIPLES THAT
SHOULD UNDERLIE
TAX POLICY
2. As the classical economists, including Ricardo
and Adam Smith, laid down, taxes should:
— bear
as lightly as possible on production;
— be
cheap and easy to collect;
— be
difficult to avoid; and
— bear
equitably on taxpayers giving each no unfair advantage or disadvantage.
THE ABILITY
OF TAX
POLICY TO
BEST SUPPORT
GROWTH
3. The main method of achieving growth through
taxation is to limit as much as possible taxes that fall on production,
that is those that put a brake on labour and enterprise. Taxes
such as income tax and corporation tax are a direct onus on employees
and employers. The best way is to tax unearned rather than earned
income and wealth.
STRUCTURING THE
TAX SYSTEM
TO SUPPORT
OTHER SPECIFIC
POLICY GOALS
4. The tax system should be designed to avoid
the boom/bust cycle, create much greater equality and ensure secure
revenue for government provision of infrastructure and other public
services.
TAKING ACCOUNT
OF THE
EASE AND
EFFICIENCY OF
IMPOSING AND
COLLECTING TAXES
5. The easier a tax is to impose and collect
the better it is for the HMRC and the Treasury. As indicated,
this is one of the key principles of taxation. Taxpayers
respond more favourably to clear systems of payment.
In consequence, this is an important aspect of a well designed
taxation system.
THE ASPECTS
OF THE
CURRENT TAX
SYSTEM WHICH
ARE PARTICULARLY
DISTORTING
6. The present system is hugely distorted because
the huge bulk of taxation is taken from earned rather than from
unearned income and wealth. The main taxes that take a proportion
of unearned income are national non-domestic rates (the "best
worst" tax), council tax (which has serious anomalies because
it is based on 1991 valuations and discriminates in favour of
the more expensive homes) and inheritance tax. Income tax, national
insurance and corporation taxes distort the system by undermining
production. VAT is regressive and reduces demand, therefore limiting
production.
SO WHAT
ARE THE
SOLUTIONS?
7. The unearned income referred to above
is that derived in the main through private ownership of land.
Companies with property portfolios derive a financial advantage
within their declared profits and dividends from the economic
rent of land and natural resources. Likewise, a proportion of
corporate and individual debt interest conveys the same advantages
to the creditor. The land value is created by the community as
a whole but the gain from this goes to the fortunate owners of
land. By introducing an annual land value tax (LVT) at the same
time as reducing other inappropriate taxes the tax system becomes
more manageable.
8. An annual LVT complies in full with
the principles of taxation set out above. Its introduction would
lead to the more efficient use of land and thus an improved environment,
would promote more sustainable economic development, could finance
infrastructure and other public services and help to solve the
housing crisis and the North/South divide. Since the credit bubble
was created by investment in the housing market LVT would be a
major factor in avoiding future booms and busts. It is distinguished
from the various development land taxes which failed because they
delayed development and did not collect the necessary revenue.
9. To introduce LVT, ownership and valuation
of all land would have to be achieved, neither of which is difficult.
In the meantime, there are short term measures that could be
applied. These include a strong series of measures by government
to clamp down on tax avoidance and evasion, action that requires
more rather than less employees in HMRC, and a fairer grading
of existing taxes such as council tax and income tax.
CONCLUSION
10. Above is set out in brief the case for introducing
an annual land value tax. LVT complies with all the key principles
underlying tax policy. It is easy to collect, is difficult to
avoid, bears equitably on taxpayers and, importantly, does not
bear on production. It may be that other organisations, members
of our coalition and others, will produce more detailed proposals
in favour of LVT, based on the fundamental principles which should
underlie tax policy.
January 2011
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