Killer arguments against LVT, not (31)

Yesterday, I outlined the system of Domestic Rates in Northern Ireland, which is a property value tax of 0.78% per annum (i.e. not a million miles from Land Value Tax).

I suggested that instead of capping the value to which the rate is applied at £400,000 (which benefits people in larger houses) while retaining the jealousy surcharges Stamp Duty Land Tax and Inheritance Tax (which hurt people who buy or sell larger houses, or who have a large house, or indeed a small house but lots of other assets), it would be much simpler and better to simultaneously scrap the £400,000 cap and scrap the jealousy surcharges (let's assume that this would be more or less fiscally neutral for the sake of this discussion).

Once you think along these lines, it would be quite easy to get rid of all the other wealth/property related nuisance taxes like Capital Gains Tax, the TV licence fee, Insurance Premium Tax and VAT on domestic energy bills as well - each of these raises around £2.5 across the UK, so to replace the lot would involve hiking the tax rate by about 0.25%, in other words, you could get rid of the lot and increase Domestic Rates to 1% per annum. This would reduce collection costs and reduce distortions, while improving collection rates (it's difficult to evade property value taxes, although they are quite easy to avoid - you just move somewhere smaller or cheaper or take in a lodger and split the bill two ways).

Dearieme duly trotted out the time-honoured objection:

"[this would enable us to] shut down the departments at HMRC dealing with SDLT and IHT": you naif, starry-eyed optimist, you.

Others have raised this as well, the idea if a system of property value tax were in place, the government would just keep increasing the rate and increasing the rate, but without replacing or reducing other taxes. This notion is, frankly, complete and utter nonsense, neither in theory nor in practice (it has not happened in Northern Ireland, or in Taiwan or on Sark or anywhere else that has property value taxes, has it?). I responded thusly:

D, that's the beauty of property taxes. Apart from being the economically least damaging taxes, they are the very opposite of stealth taxes; people know what they are paying and object violently (but irrationally) to every penny (unlike true stealth taxes like VAT or National Insurance, which are economically very damaging but people don't seem to care). So the only way a government could push through a £1 increase in property taxes is by demonstrably cutting other taxes by at least £2.

No doubt somebody will come along and say "The government wastes so much money, they should just cut the waste and cut other taxes by £2 but without increasing property taxes by £1", to which I reply "Nope. Of course wasteful expenditure should be cut, but if there's £2 to spare, we would still do better by cutting taxes on economic output by £3 and increasing property taxes by £1" and I'd keep going until either wasteful spending has been reduced to £nil or taxes on economic output have been reduced to £nil.