[For IanB] Let's make all taxes voluntary!

OK, let's respond to IanB's accusation that a tax on land values is a tax on imaginary values.

As background, over at Tim W's, IanB said that "The [economic] situation is only likely to [improve] when western mankind stops thinking it normal to pay a hundred thousand pounds for a pile of old bricks" so we are agreed on that. Now all we have to do is educate people as to the drawbacks of basing the economy on house price bubbles, and suggest a system that will prevent them arising.

Lesson One: Some Taxes Are Voluntary

If you know about the history of tax, you will know that Stamp Duty on contracts and share transactions used to be an entirely voluntary tax. The gimmick was, if you did not pay the 0.5% of the contract value, you could not later sue the other party under the terms of the contract, so most purchasers paid it. Sometimes the vendor paid it if, for example, the purchase price was payable in instalments.

Lesson Two: Let's Make All Taxes Voluntary

Here are a few ideas on what it would look like if taxes were voluntary:

1. An employee can choose whether to pay Employee's National Insurance or not. If he doesn't want to pay it, then he is not entitled to unemployment benefit, state pension etc. For lower paid workers, the state pension is actually a good investment; for higher paid people it is a lousy investment.

2. An employee can choose whether to have income tax deducted from his salary. If he doesn't want to pay it, then he is not entitled to take his employer to an industrial tribunal for unfair dismissal, is not entitled to statutory redundancy pay, statutory maternity/paternity pay etc. I suspect that unless you are taking a job with an employer who is likely to go bust, or you are planning to start a family in the next few months, most people would prefer to pocket the extra 20 or 40 per cent of their income.

3. If you buy goods, you can choose whether to pay VAT on top. If you do, you get the benefit of 'consumer protection', i.e. you can sue for faulty goods etc, and the local council will collect and dispose of your old goods for no further charge. So it's a bit like insurance, take it or leave it. Seeing as I am happy to pay a tenner to have an old mattress taken away, and usually laugh off suggestions that I take out 5-year cover for an additional 5 per cent of the purchase price, 17.5 per cent looks lousy value to me.

4. A business can choose whether to pay corporation tax on its profits; if it does not do so, then it cannot take its customers to court for non-payment and cannot take its suppliers to court for faulty goods or non-delivery etc. On the 'customer' side, they can just make sure the customers pay cash in advance; and on the 'supplier' side, they can either just risk it (by paying on delivery); or just choose to deal with suppliers who have also opted out of corporation tax, so these transactions would operate on the basis of trust, reputation etc.

I happen to know of a large Japanese corporation, which as a matter of tradition and policy, Does Not Sue, no matter how flagrant the breach by a customer or supplier. They just put the word around, and refuse to ever deal with them again. If that corporation is sued, it will always settle out of court.

5. Finally, let's imagine we rolled all wealth and property-related taxes into a tax on land values. Instead of paying Stamp Duty Land Tax when you buy, Council Tax, TV licence fee and Insurance Premium Tax as you go along; and capital gains tax when you sell a non-main residence or Inheritance Tax when you die; we could have a flat tax of (say) one per cent of the value of the land and buildings that are registered in your name at HM Land Registry. This would be fiscally neutral, by the way.

If you don't want to pay the land tax, then 'the state' is no longer required to fulfil its part of the bargain, and deletes your name from HM Land Registry and the land becomes common land again and defaults to the state. If you remain there, you lose the right to have other people evicted from what you considered to be 'your' land, in fact the state can evict you yourself unless you are paying market rent. Similarly, if you stop paying and later kill a burglar, that is not self-defence but straightforward murder.

Lesson Three: Which Taxes Would People Pay Voluntarily?

It strikes me, that if we made all taxes voluntary and matched them up with the benefits that arise to you under whichever transaction or state of affairs give rise to the tax, the only taxes that people would pay would be Employee's National Insurance (as a government-insured savings scheme for the lower paid); they might pay VAT on new goods (if the rate were dropped to about 1 per cent, which covers the cost/hassle of refuse collection and the likelihood of them being stolen and the police recovering them undamaged) and the land value tax.

Of course, the 1 per cent property value tax that I suggested is a derived figure - but seeing as revenues from all the other taxes would plummet and the state has got to get money from somewhere, it would keep nudging up the rate (to different levels in different areas, depending how desirable they were) until it reached a level where receipts started to drop again, i.e. because people actually abandoned their house and went to live with relatives. Those are not imaginary values - that is how monopolists operate (bearing in mind that 'the state' by definition is a monopoly).

It would be almost impossible for the tax to ever go past the top of the Laffer Curve, where houses are abandoned, seeing as the receipts from the tax would be used to defray the small amount that 'the state' actually spends on core functions, and the rest would be paid out as a Citizen's Income, so by definition the average family in the average house would be neither net taxpayers nor net welfare recipients. it would amount to a modest net transfer from people who want to live in a desirable area or who want to have a big garden to people who want to/can only afford to live in a less desirable area or live in a block of flats.

Lesson Four: Somebody Is Bound To Leave A Comment Saying...

"... yeah but what about my lawnmower? Will you make me pay tax on that, because if it is stolen, the police will track down and punish the thieves and return it to me? So 'the state' protects my title to the lawnmower!"

Well, in practice, the police probably won't, and 'the state' doesn't. Secondly, if you are of a nervous disposition, you can take out voluntary private contents insurance; if the lawnmower gets stolen (or damaged) then you can claim back on the insurance.

If you wanted, we could roll this into the bundle of state-provided benefits that you would get if you paid VAT on it when you bought it. If you think that a one-off payment of £35 on a £200 lawnmower is a fair price for [the probability it will be stolen in the next twenty years] x [the likelihood of the police recovering it undamaged], then feel free to pay it. Or you might think that an annual insurance premium of £100 (or whatever) to insure all your family's worldly chattels against theft, fire, accidental damage etc is far better value and go for that instead.