So, I'm having a debate on reddit with a rather high profile person I respect in the UBI community, and LVT came up, and I decided to criticize the idea. But, I kind of recognize that my numbers on the LVT are kind of out of date, so I would like to do redo of exploring the LVT as a possible funding mechanism for UBI. It should be noted this guy is not a crazy georgist extremist. He's not a single taxer and like me, he kind of sees the limit of funding a UBI via LVT at around 5%, while drawing the rest of the revenue from other sources.
And I figured that some of the numbers I used in the debate are significant enough that the idea deserves another look, as last time I was expecting an average $4500 tax burden for a $4600 UBI.
Key numbers
So, there's a few key numbers worth mentioning.
Median home value: $428,700
I recall the last time I discussed the LVT, the median home value was $300k. But I recognize it to be a dated number, so I looked it up again. We're now at $428,700. Yikes, that's a lot of inflation in housing.
Land value: 20% of a home's value
I mean, it varies, last time I looked this up, I got a number at 30%, but this time I'm seeing anything from 15% to 30%. And seeing how this is from SF where I would expect land values to be absurdly high on average, eh, if THEY say 20%, then let's go with 20%.
Closer to where I live in Philly, they say 26-30%. Of course when we actually discuss my own home later on (which I plan on calculating based on estimated values I've come across, to calculate my own LVT burden), it was down at 15% last I checked. So it varies.
A third estimate shows anything from 20-33% in their examples. But yeah, I'll go for 20% to go on the low side to give the benefit of the doubt to the LVT advocates here. We can adjust the model as we go to account for different estimates.
LVT amounts: 1-5%
This UBI advocate is rather sane as far as his LVT advocacy goes, calling for a relatively low burden.
UBI amount: $15,000
He actually advocated for the $14590 figure which is....fair. That's the poverty line. I go for the larger flatter number so I'll go with this.
Total Land Value in the US: $32.65 trillion
So, a 2015 estimate put land value at $22.98 trillion. At the time this was considered 1.4x the GDP. And yes yes, I know this article is also criticizing LVT advocates but again, single taxers. That says nothing for having an LVT for smaller amounts like 1-5%. If anything the article's criticism is that that won't raise the revenue for the entire government, to which I say, "yeah, no crap."
But anyway, I think that the 1.4x the GDP number is interesting because I can use the current GDP numbers to estimate the current value of the land that way. US GDP is currently at $23.32 trillion, so if the land value is still 1.4x the GDP, it is worth $32.65 trillion.
Putting it all together
That said, let's put it all together.
With an average home value of $428,700, and land value being, say, 20% of that, is going to be $85,740.
A 1% LVT would give us $857.40 in taxes.
A 5% LVT would give us $4,287 in taxes.
Nationally, the 1% number would raise $326.5 billion, and the 5% number $1.6325 trillion.
Distributed among the 251 million adults (not gonna bother with the children for this demonstration), that will amount to $1300.80 for the 1% figure and $6503.98 for the 5% figure.
This means that at 20% land value, much more conservative than my previous 30% estimate, that roughly 66 cents of every dollar of the UBI will go back to the tax, meaning for an individual person, you're talking a net value of $443.40, or $2217 for adults.
In a $15000 UBI, we're talking a loss of 5.7% for the 1% figure and 28.6% for the 5% figure.
That's not really acceptable to me. I know he seemed to frame it from the perspective that less than 30% of your value going to rent is acceptable, and therefore 30% of the UBI goes back to this tax is acceptable, but I REALLY dont like the idea of taxes eating into the UBI itself. People should get the full value of their UBI, they should only be paying it back as they earn more money. And if you just own a home, and you arent using it for profit, I don't see why you should have to pay LVT at all. It seems to go against my idea that freedom comes from economic security. This is why i dont like LVT as a mechanism to pay for UBI. If UBI is supposed to give people freedom and economic security, LVT zeroing out your UBI is just coercing you back into the labor market. And that should not be acceptable. I understand that people will say it's only fair you pay your fair share due to the property system and denial of the commons and blah blah blah, but let's get out of ideological lala-land here and focus on the reality of the situation. The reality is, people need a place to live. We're not in a hunter gatherer society any more. Home values are expensive. Land values are expensive, and taxing people for occupying 3D space is counterintuitive to my own ideological goals. And keep in mind, this is just 20%, a relatively conservative value. Let's now look at how this scales with different land values.
Scaling with different land values (all assuming 1% LVT as it doesnt matter either way)
15%- $64,305 LV - $643.05 LVT - 49.4% tax rate on UBI
20%- $85,740 LV - $857.40 LVT - $65.9% tax rate on UBI
25%- $107,175 LV - $1071.75 LVT - $82.3% tax rate on UBI
30%- $128,610 LV - $1286.10 LVT - 98.9% tax rate on UBI
YIKES on the 30%, that's why I was completely against it there. As I said last time I investigated this topic, what's the point of giving everyone $4600 if they have to pay $4500 back?
Even the 15% figure isn't that impressive. Youre still giving half of the UBI derived from LVT back.
Honestly, there are reasons to have an LVT in some situations but to fund a UBI is not one of them.
Even with a full UBI of $15,000, you're still potentially giving back as much at 43% of it, and that's before you get to labor income. Speaking of which, how would this work with my UBI and the tax rate on income?
How LVT would affect my UBI model
I needed to raise $3.320 trillion from income in my UBI plan, which with a $16.595 trillion tax base, led to a 20% tax.
If LVT oriented UBI were to lighten the load, what would be the impact?
1% LVT- 18.0% income tax rate (-2%)
5% LVT- 10.2% income tax rate (-9.8%)
And how would that impact real world people?
I don't want to go into overkill with it, but let's examine this. I'll focus on 5% here since the impact on 1% is marginal.
Someone working minimum wage likely doesn't own property.
UBI: $15,000
Income: $15,080
Income tax: $1,538
Net income: $28,542 (+5%)
However let's assume they do now, because someone might own a home but not have the same income they used to in the past:
UBI: $15,000
Income: $15,080
Income tax: $1538
LVT: $4287
Net income: $24,255 (-10%)
And that's the kicker with LVT. It doesn't care how much income you earn. It taxes you regardless. If you earn zero income, it hits you hardest, which is exactly what LVT shouldn't do. If you have lots of income but little land, it probably helps you.
Of course, the logic is that those with more income live in better more valuable homes with better more valuable land, and while there may be a correlation there, that isn't ironclad. It makes the same fallacy of the lockean proviso, that everyone is better off, but it ignores dissenters and those who just want to be left alone. And it could actually make things worse for them.
If we were to discuss a more "average" situation though, let's discuss median household income with a median home value with a typical 2 adults 1 child setup.
UBI: $35,400
Income: $70,181
Income tax: $7,158
LVT: $4,287
Net income: $94,136 (+3%)
Again, average ends up better. But what about those with no other income but UBI?
UBI: $35,400
Income: $0
Income tax: $0
LVT: $4,287
Net income: $31,113 (-12%)
As long as the average family makes an average income, LVT helps them if anything. But again, it tends to hurt those who don't fit those averages. If everything in your life is according to a theoretical model in which everything correlates with each other perfectly, LVT probably helps you over income. But everyone's life DOESN'T correlate to that model. Financial situations change. That home you bought 40 years ago might still be valuable, but your income situation will be different. And people will fall through the cracks.
It's the same problems with welfarism and the social contract in general. It makes sense in random averages and formulas but it tends to ignore the noise and variation in the data. These systems have flaws, cracks that people tend to fall through, and an LVT would hurt them. I mean, we live in casino capitalism. One year you could make $70,000 a year, then $140,000, then $15,000. People lose their jobs and abandon their fields for whatever reason. They bounce all over the spectrum sometimes. UBI is supposed to act as a stabilizer. But if that tax is consistent in your living situation, it hurts the most when you need the UBI the most, and it helps the most when you need UBI the least.
UBI is supposed to be that iron guarantee that no matter what youre taken care of. it's supposed to fill in those cracks, and give people the freedom to live as they want, and defy "the model", which is based around a certain life script you're expected to live your life to (and that life script implies work).
This isn't to say that your UBI is worthless under an LVT, but it is significantly devalued, with the median homeowner in a family of one with no other income (worst case scenario) losing up to 28.6% of their UBI's value to taxes before they even get it. Perhaps LVT advocates will say that's just as you should spend 30% of your income on rent anyway, but I think that imposing this system on people is unjust. We shouldnt be turning the government into a landlord. This is a step backwards, and not forwards.
Is it really worth helping the average family be 3% better off if it makes the worst off 12% worse off, or even 30% worse off? I don't think so. Even as a utilitarian, I value diminishing marginal utility, and the value of the bottom matters more than me to the value of the middle. The worst among us will miss that 12-30% more than the average will miss that 3%. If you disagree then I have to wonder why you are for UBI in the first place.
You might say they chose this, but we currently have a system without an LVT. if the LVT hurts them, is that a good thing? And why should "choice" matter any way? This is just the same "personal responsibility" spiel that the right pushes in the first place. And "taking responsibility" in their worldview often means obeying life scripts and participating in de facto forced labor.
Again, my values just go against the logic behind LVT. I see where its advocates are going with it, but I personally find it unjust. An LVT funded UBI might help people with more money, even a potential majority of people, but it will hurt those at the bottom most if they dare own a home or any property at all.
Full disclosure: examining my own tax burden under LVT
So, I took the liberty in looking up my own LVT burden. Without going into too many details, my own home is estimated to be valued around $150,000, significantly less than the average, with a land value rate of 15%, also toward the bottom of the spectrum. So my LVT burden should be rather light. How light? Well...
$150,000*0.15= $22,500 land value
1% LVT: $225
5% LVT: $1,125
Even under the worst case scenario, living alone, no other income, I'd still have $13,875 in UBI under my plan (8% loss). Not bad.
If I worked a minimum wage job with the 5% LVT:
UBI: $15,000
Income: $15,080
Income tax: $1,538
LVT: $1,125
Net income: $27,417 (+1%)
If I worked a $15 an hour job
UBI: $15,000
Income: $31,200
Income tax: $3,182
LVT: $1,125
Net income: $41,893 (+5%)
So yeah, I would be better off under the LVT version of my UBI plan if I worked at all. But, again, UBI is to protect people when they have no other income, and given that under either of these UBI plans we would be getting a significant boost in income over the status quo, I'd prefer the UBI plan that gives the person with $0 other income a slightly better deal. Because they're the most vulnerable, and the goal of UBI is to give people an iron clad bottom to secure their financial well being and by extension freedom.
Also, it's not like it really matters much either way. Even if we had LVT implemented in my UBI plan, the result wouldn't be devastating for the jobless. I just hate the idea of giving people money and taxing it back when their other income is zero. They should be given the full UBI. That said, assuming we keep LVT to these kinds of parameters, like 5% with a UBI of at least poverty level, it wouldn't be that bad. I mean, VAT does stupid things like this too, and this isn't MUCH worse than that. But yeah, I can't support this as a mechanism to support UBI over income for the most part. I admit, a lot of people would be better off under this system, but it would come at the expense of the worst off among us. So I can't rubber stamp this idea.
Conclusion
So, this was a revisit of the LVT as a funding mechanism for UBI. I did not investigate the single taxer fantasies again, I figure my old article is sufficient for that. But I did investigate the 5% LVT plan again and I still can't support it as a funding mechanism for UBI.
When you give someone a UBI, you want to ensure that the worst off among us are economically secure. You want them out of poverty, you want them to have their needs met, and you want to ensure that they are not coerced into the economic system. While UBI is giving money for being alive, LVT is taking it away. And I would honestly expect around 66 cents of every dollar of UBI raised to go back to LVT at the median home value. And I would expect 29% of a $15,000 UBI funded from a 5% LVT and other sources to go back into the LVT and be unusable. That's not good. I admit the tax burden would be far less on many who actually dont have much income, including myself, but honestly? I can't support that. Even if the plan is good for most people, if it is bad for the worst among us, I'm talking the worst case scenario, and it can potentially cause people to fall between the cracks, I just can't support that.
Still, did this exercise make me a bit less combative toward an LVT? Well, as long as we're talking about someone who actually knows what they're talking about and isn't a cray cray single taxer, sure. The dude I was discussing this is knowledgeable, I respect him a lot, I may or may not have actually analyzed his UBI plan previously on here. But, again, I can't support LVT here to a point I'd actively make it a part of my model. If we did implement it, would it be the end of the world? Probably not. But still, given some among us could face losses up to 30%, and they're the people we don't want to face such losses...eh....yeah no. Not good.
The only way I would really get on board with this is if the $15,000/20% model was unacceptable and needed to be scaled back any way, possibly due to a large work disincentive. In that case, swapping to LVT could be said to save the $15,000 UBI, as the UBI would functionally be less for those who do not work, but would also incentivize work through a lower tax rate on labor. So maybe an LVT based UBI could save UBI if only a partial UBI is viable, maybe. I could get behind it in that circumstance if it were necessary. But for me, this is like plan B, or C. It's not my preferred model.
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