From the comments in in part 14...
Sobers:
I think the answer to that is that people make their decisions based on the system we have now, not one that we might have in the future. It is unfair in my view to propose that the whole basis of the tax system is removed and replaced with a totally different one that will undoubtedly put many people at a disadvantage through no fault of their own. Changing tax rates is one thing, changing what is taxed entirely is a different matter.
Its like the old Irish joke, how do you get to Limerick; well, I would start from here! Given the current political, tax and planning systems, and the history involved, there is no way in hell that any govt is ever going to implement such a scheme, not least because it would involve a massive reduction in State power and tax revenue. If you were designing a tax system from new, for a new country, then LVT would make sense. But we aren't, so it doesn't (for us).
Good points, of course. Which is why my original plan of three years ago was to replace all property or wealth-related taxes (Council Tax, Stamp Duty Land Tax, TV licence fee, Inheritance Tax, Capital Gains Tax, VAT on domestic fuel and improvements, Insurance Premium Tax, Home Information Packs etc) and all property related subsidies (VAT zero-rating for new builds, Housing and Council Tax benefit for privately-owned properties) with a flat rate tax on residential property values (averaged out a bit over postcode sectors so that we don't need to value every single property), like they introduced in Northern Ireland in 2006 (where the flat rate is 0.78%, but it only replaced Domestic Rates, not all the other rubbish).
The fiscally neutral rate, at today's property values, would be about 1% per annum. Even if we only compare this with existing annual taxes (Council Tax & TV Licence Fee) a third of households would be better off, a third would notice no difference and a third would pay more. But even this third aren't worse off in the long run, as they save the 4% Stamp Duty Land Tax hit when they buy/sell and they don't need to worry about Capital Gains Tax (which in itself leads to misallocation of resources) or Inheritance Tax (which generates as much income for the tax-planning profession as it raises in tax) any more. If a pensioner owns a home where the LVT bill is significantly higher than the Council Tax, then they can ask their heirs to pay it or just roll it up to be repaid on death.
So that's how we get to Limerick from here. It's a massive simplification (with corresponding cull of civil servants), with more winners than losers, and worst case it would be no more disastrous than a 1% increase in mortgage interest rates - or do readers really thing that the base rate will stay at 0.5% for ever? From there on in it's just a question of cutting taxes on incomes and production; higher net incomes will automatically feed through into high property values and hence higher property tax receipts, even if the property tax rate were kept constant.
Anonymous said...
The current system penalises people, and so it's ok if LVT penalises people. Uh?
As I have explained at length before, the existing land-use-restriction system and the fact that income taxpayers subsidise property owners, penalises people who aren't on the ladder. And the only way for them to get on the ladder is to take on an extortionate amount of debt; it is a massive Ponzi scheme that has led to successive booms and busts over the past forty years.
LVT is like a user charge*; core functions of the state have to be paid for somehow, and it only seems fair to make property owners pay for those functions that enhance property values. By all means, argue that these costs should be divided by the number of adults and argue for a Poll Tax (which bears absolutely no relation to 'ability to pay') but we tried that and it was a disaster; and seeing as richer people live in nicer houses and vice versa, surely LVT is far more closely related to 'ability to pay', but without being a tax on income (hence having none of the deadweight costs of taxes on income, natch).
Peter, what externalities do you mean? You have to clarify. I thought I'd covered those, like the deadweight costs of land-use-restrictions, the lack of deadweight costs of property taxation compared to taxation of incomes.
Finally, DBC Reed nails it. Maybe people would be so repulsed by the idea of paying an ear-marked tax that property prices would remain so low and stable that the tax wouldn't raise much. That counts as a storming result in my book.
* Think about taxpayer-funded, State provided education. It's a disaster. The income taxpayer, the parent and the schoolchild are all being penalised. What would happen to net incomes and education standards if we scrapped it all, cut taxes and left everybody to fend for themselves? Would you count that as 'penalising sub-standard teachers, paper pushers, meddlers and conscientious parents on low incomes'? Probably yes, so what? You have to look at the sum total happiness of the largest number of people.
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5 comments:
Yes, you have covered externalities. I should have been clearer. Some of the arguments in the comments seem to be denying the reality of these, both positive and negative.
The same thing goes for the division of labour (pins and pencils).
The idea that you can just sit in a Scottish smallholding and drill for your own water, generate your own electricity, using tools you've made yourself because you're not buying anything because you choose not to work seems, well, bizarre.
Would LVT naturally suppress house prices? Given that under your scheme this would be the only, or major, income stream for govt, while individuals might not want to pay more LVT, the govt might artificially boost land prices, by increasing the money supply/lowering interest rates etc so as to increase its revenue.
I cannot see any govt EVER allowing themselves to be tied to one tax, that would be very visible, involve people having their money from employment, then having to pay it out again. This would have a massive downward pressure on tax ( a good thing of course), but what govt (or civil servant) is ever going to implement a system that will probably put them out of a job?
LVT would hit the buffers the first time that the govt needed more money, but there wasn't any from current revenue. The temptation to raise the rate would be huge. This would happen every time more money was needed, until it became politically impossible to raise it any more. Then they would start to tax other things as well (starting with the 'rich' and working down). We would end up with LVT and all the other taxes as well.
Sobers, as to your first para:
1. yes it would keep property prices low and stable.
2. This govt has spent the last twelve years inflating a property price bubble doing exactly what you say, and restricting supply to amplify it and keep the NIMBYs happy.
3. The 'single tax' system is not my scheme - you can go back to Adam Smith, David Ricardo or Tom Paine, they thought it up. This is just a teeny tiny fairy step in the right direction.
As to your second and third paragraphs, yes, that is the clear and present danger, and that's exactly how we got in the mess we're in - see parts one to three of my Brief History of UK tax.
@sobers
Looking at it more positively,you could envisage the situation where the Sentinel LVT would kick in when the Keynesian fiscal stimuli you refer to begin to get diverted away from consumption/production into the inflationary sump/residuum of land values.That is in fact the intention: to rehabilitate Keynesian demand management from successive housing bubbles.In 1936 (when his General Theory was published) people were saying that Keynesian Freed money would only work if it was prevented from going into land ( compensated land nationalisation was the idea then).
I am not bothered by LVT replacing a lot of other taxes as a source of Gov revenue.Keeping land values down and Keynesian cheap money up
should induce prosperity of theselves.
As to rates of tax: it will be very apparent whether the optimum rate has been hit because property prices will stay level (like they did in 50's and 60's with the not totally dissimilar Schedule A).The tax would probably have to be localised to take in local variations.
I have always thought that tax should be raised by a depoliticised body like the MPC.
I am starting to get into a lot of trouble in the financial planning 'profession' by banging on about this. That is, how all the tax bureaucracies main job is to create work for itself and us and that we would be doing a lot more for our clients if we lobbied for LVT. 'But how would we make a living' they say. The answer to the unasked question is in that question. That is what the Hell do you do for the clients now?
The FSA's new bit of power includes a levy on us to pay for financial education for 'consumers'. Use LVT and flat taxes and basically the problem of popular ingnorance evaporates.
So LVT has a lot of knock on benefits, not just the obvious ones.
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