In my previous post I explained, using real life evidence, that hedge funds are busily relocating to Switzerland because of lighter regulation/interference and the lower income tax rates; they are indifferent to the fact that Switzerland has property taxes that amount to around one per cent of property market values, because that makes properties cheaper to buy (so the tax costs a purchaser net nothing) and you are relieved of the liability when you sell (thus reducing the risk of ever ending up in negative equity).
Weekend Yachtsman played The Poor Widow Bogey yet again:
"Well up to a point, Lord Copper. That point being the point at which you've paid off the mortgage and retired. But guess what, the State still wants its pound of flesh - and you no longer have an income with which to pay. Hard luck. Hand over your property. What's that? You'll end up on the street? And your problem is? Don't you realise that everything belongs to the State anyway?"
Where's the evidence to support this? Are the streets of Swiss cantons lined with wealthy-but-homeless pensioners? Is there an equal and opposite number of wealthy Swiss retirees flocking to the UK (with its low property taxes) to offset the flow of UK hedge fund managers going to Switzerland (with its low income taxes)?
Er, nope.
Are the streets of any of the following countries, all of which have some form of progressive property tax or land value tax lined with wealthy-but-homeless pensioners:
Denmark?
Northern Ireland?
Many states/municipalities in the USA (especially Harrisburg)?
Many states/municipalities in Australia?
Hong Kong?
Taiwan?
The Isle of Sark?
Or, taking a leap back in time, the United Kingdom back when we still had Schedule A taxation* & Domestic Rates?
Er, nope. Now ask yourself why?
Maybe, because people have the good sense to save up a larger pension to see them through? Maybe pensions are more generous in those countries? Or because they are allowed to roll up or defer the tax to be repaid on death? Or they take out an equity release mortgage of some sort? Or because they get their heirs to pay it ("If you want to inherit the house you can pay my tax bill": seems like a fair deal to me)? Maybe they trade down to free up cash on retirement? Maybe they take in a paying lodger? Maybe people just buy a smaller house than they otherwise would? Or maybe because the modest downward pressure that such a tax exerts on prices means that for most pensioners it is affordable anyway?
I'd guess all of these things and plenty more besides. It's not bloody rocket science is it?
* @ Umbongo, no I don't know how Schedule A tax worked in detail, I've never managed to track that down or find anybody old enough to remember paying it.
Put On Your Big Boy Pants, Maybe?
3 hours ago
13 comments:
OK, OK I'm sold. Sign me up for LVT, if only to stop MW beating us all over the head with a 4x2 about it!
Seriously though, its no good banging on about how good LVT is, if you don't face the reality that govts (of any colour) WILL NEVER abolish all the other taxes you say it should replace. As LVT will have a calming effect on house prices the only way to get more revenue will be to increase the rate, which would be electorially unpopular (much as tax rate rise are). Govts love ways of increasing tax revenue with minimum taxpayer revolt. Fiscal drag etc. Anything that makes the whole system more transparent will be avoided like the plague.
I know you'll say they could increase revenue by making the area worth more, but when have govts ever been able think that long term? They want cash NOW for their pet social engineering projects, and waiting is not on the agenda!
And on a completely separate note - as tenants will not pay LVT (I think you said landlords will) does this not create a democratic deficit? A large group of people who can vote to increase spending (and tax rates) but not pay the extra themselves? Much in the way businesses used to suffer before the uniform business rate? At least council tax is paid by everyone, so there is some downward pressure at the ballot box.
Sobers, "as tenants will not pay LVT (I think you said landlords will) does this not create a democratic deficit?"
Nope. you have to think this through. I'm a tenant, I have a landlord. In economic terms, he pays my Council Tax anyway (if our council tax went down, he'd be able to put up the rent). So if the law were changed so that he has to pay the council tax (and cannot cross charge it to me by private agreement), then what happens (the same applies by analogy to LVT)?
1. To the extent that the council spends the Council Tax on something sensible that adds value (like street lighting, road maintenance, bobbies on the beat, refuse collection) then the amount I am prepared to pay in rent goes up relative to a house in an area where the council wastes it on (like five-a-day advisors, street football councillors, racial awareness monitors, twin town visits to Timbuktu, gold plated pension for CEO's).
2. As most people would vote for the party that promises to spend council tax receipts on something sensible (because we prefer well-lit streets to five-a-day advisors), our interests are aligned with those of the landlord, who wants the council to spend it on something sensible because that means he can charge more in total rent.
3. In any event, private tenants are outweighed by owner-occupiers by about seven-to-one.
4. Furthermore, the real democratic deficit in the UK is because over half of all UK voters derive most or all of their income from The State (Pensioners, Public Sector Employees and Welfare Claimants, in descending order of numbers).
I'm old enough to remember the budget that scrapped Schedule A.
Me: "Dad, is scrapping it a good thing?"
Dad: "It is for us, son, but probably not for the country."
D, I remember that you posted that at Alice's (who didn't reply to my recent email, BTW), it's one of my favourite blogger comments of all time.
Sad to hear Alice didn't respond.
It's a lay down misere in Swisspersonsland anyway. Although they might be wondering on what their economy will now rest with the Swiss selling out on data to the U.S.
Also sorry that Miss Alice is still AWOL, let's hope she's on holiday.
On the Swiss thing, as far as I can see what makes Switzerland attractive to those with piles of wonga is the overall burden of tax rather than the details of how taxes are levied. There might be more on property but less on income, more on income but less on capital gains, more on capital gains but less on property; the precise balance doesn't seem important - it is the total people pay that matters.
Above a certain level of overall taxation people will say "sorry boys, that's too much". Those with the capacity and inclination to do so will move elsewhere whether it is income, capital gains, property or any other taxes that cause them to reach for passports and in-flight support hose.
Those left behind will face the burden. That is why the little old lady argument is sound (although, like all arguments, it loses weight if overstated). Shifting the balance of tax liability from cash actually received and onto the value of capital assets which have not been liquidated raises a very serious issue which cannot be dismissed with a glib "Churchill dismissed it ninety years ago". Churchill also spoke about many other things and reached conclusions we would find inappropriate to the modern way of life.
It doesn't have to be a little old lady, it can be anyone. A change in the taxation regime which imposes a liability that might not be payable out of current income is a serious change.
On the "democratic deficit" point raised by Sir Garfield, it seems to me there are two points.
First, there is a serious risk of the sizable number not affected directly by LVT feeling it gives them money for nothing and voting accordingly. This is part of the reason the current government has already set in motion an increase in income tax for those on £150,000 and above and is bleating about legislation to limit bankers' bonuses. They think there are votes in "we'll raise more money from those rich people, don't worry proles it won't affect you but if you don't vote for us the extra money will have to come from you."
Secondly, I don't see how increases in LVT won't be passed on to tenants. Letting property is like any other business. If your costs go up you have to pass on that increase or take less profit or go bust. LVT will rise at the same proportionate rate throughout whatever area is covered by it, whether national, county, borough or parish. Anyone wanting to rent in a particular area will be met with landlords who all face pretty much the same increase and they will all want to pass it on.
Are you accusing me of repeating myself?
Are you accusing me of repeating myself?
I had seen two or three article in comment area. I thinks that they have mind it that make a short sense to convey their massages.
"A change in the taxation regime which imposes a liability that might not be payable out of current income is a serious change."
Hear hear! My point exactly.
And those who are already pensioners don't have the option of winding back the clock and "saving more for a better pension". The State would probably take it off them anyway - if not directly, then by debauching the currency.
MW
I agree with what (I think) the Fat Bigot states (if not - my apologies) which chimes with my point in another comment about "politicians being politicians" ie the practical objection to LTV is irrefutable. If LVT is in theory wonderful, in practice it would be used as an add-on tax not a replacement tax. Further FB's point - that for a jurisdiction to be attractive or not depends more on the level of tax not necessarily how the aggregate is derived - is a sound one.
Evidently my faith in democracy and politicians in the UK doing what the electorate wants is significantly less than yours (cf EU, capital punishment). As to my point about oldies being expelled from their homes: effectively this would occur since, given my belief that in practice LVT would be an add-on not a substitute tax, the oldies on reaching retirement age would find the LVT insupportable (which is OK with you since it compels them to sell their home) and still be subject to all the other taxes our rulers can dream up. I'm not saying that you advocate this. All I'm saying is that (in my experience of the real world of politics and our proud democracy) this is what would happen.
WY, there are dozens of ways of sorting out pensioners (see earlier post). Please point me to evidence that there are high numbers of wealthy-but-homeless pensioners in the countries I mentioned and then we can debate this further.
And who do you think is paying all the old age pensions (£100 billion a year)? It's nominally 'the State' but they are collected the money from working age people; from the productive economy.
If 'taxation is theft', then aren't pensioners already living off the proceeds of crime? The LVT I have proposed would replace Council Tax etc and raise about £36 billion a year, of which pensioners/their families would pay about a quarter = £9 billion.
U, TFB's argument about the overall level completely misses the point. We know that VAT/income tax/National Insurance/corporation tax raise £300 billion per annum, Council Tax raises £20 billion. If a brave politician cut VAT etc by half (to £150 billion) and doubled Council Tax to £40 billion, people still would not be happy, would they? It is an unholy alliance between people who don't mind paying stealth taxes and politicians who love imposing them.
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