Monday, 31 May 2010

Killer arguments against LVT, not (42)

Whereby I finally get round to dealing with IanB's claim that a tax on land values is a tax on imaginary values:

... you're taxing something imaginary; that is the hypothetical rental value of land which is not rented, or the hypothetical sale value of land which is not for sale. If you object so strongly to profit from land, why don't you tax rents or sales of land? Then you can still capture all that nasty unjustified rent profit you hate so much. Why tax something hypothetical instead of a real transaction? Why tax estimated "value" instead of actual values measured by the economy during rental or sales transactions? Answer me that question Mark, please.

My initial response was thus:

I believe in substance-over-form. Let's imagine a tenant agrees to buy the house he is living in from his landlord. It is the same person living in the same house, and probably paying a mortgage to the same bank. Can you please explain why you think it desirable that, from that transaction onwards, the owner of that land no longer has to pay any tax? Do you not think that at the very least this is a massive distortion, and indeed tilts the playing field away from the much maligned landlord?

To which he replied:

Value only exists during transactions, Mark. It doesn't exist at other times. You do realise that?

Well, no, I don't accept that, as I hope my simple example showed.

1. Never mind, if you can be bothered to read this thread, it is pretty clear that even between ourselves, Land Value Taxers have never really agreed how the tax would be calculated (even though I have strong views on how to get the ball rolling).

2. The answer is in fact quite simple provided you remember The Golden Rule: The tax should only be on the total rental value above beyond the rate of return on the bricks and mortar. There is no magical formula; it requires very little by way of maths or even expertise, and the tax can be set in the same way as any monopolist sets his price, i.e. by trial and error.

3. By definition;
i) the only reason why the selling prices (or rents) for physically similar houses in different parts of the UK differ so wildly is because some locations are more desirable and others less so.
ii) residential property is very lightly taxed in the UK (compared to incomes and production, which are far too heavily taxed),
iii) a large part of the location rent is capitalised into selling prices.

4. Therefore, if the tax rate were set correctly in each postcode sector, we would observe that capital selling prices of land and buildings are equivalent to the replacement cost or value of the bricks and mortar; and that the capital selling prices of physically similar properties would be very similar across the UK (with the exception of particularly run down areas, where the selling price may be less than the rebuild cost).

5. Seeing as the bulk of UK properties fall into a dozen or so broad categories (three bed semis built between 1920 and 1960; Victorian or Edwardian terraced houses; office blocks; industrial units etc) it would be quite easy to work out what the rebuild cost/value of each of these is (e.g. by using the ABI rebuild cost calculator and knocking off a third because they exaggerate), it can't be rocket science to continually monitor selling prices (which is what HM Land Registry and the DCLG already do, of course) and adjust the tax rate in each area up or down annually.

6. We can simplify all this even further by just taking the average build density in each area, e.g. 0.3 for most residential areas, which means you can build a 120 sq yd house on a 400 sq yd plot, multiplying that by an average bricks and mortar replacement value of £720 per sq yd, so the selling price of a house on a 400 sq yd plot 'should be' 400 x 0.3 x £720 = £86,400.

7. So if older three-bed semi-detached houses in an area sell, on average, for more than £86,400, then the tax per square yard must be 'too low' and gets hiked a bit in that area; if they sell for less than that in another area, then the tax is 'too high' and the tax is reduced. Thus by pure trial and error, the tax would pretty much = the rental value of the location. I happen to know that there is a colossal disparity between different parts of the UK, in some areas the rental value may be £1 or less per sq yd per year (for agricultural land it is more like 10 pence, which is part of the reason why it is not worth taxing) and in prime central London it is over £1,000 per sq yd per year.

8. The willingness (or otherwise) of people to pay the tax gives us a continuous stream of transactions (dealing with the second limb of IanB's objection), which indicate the rental value of the plots of land themselves; if you decide to stay living somewhere, you are tacitly accepting that the tax is not 'too high'. If the tax were 'too high' in an area, then selling prices would fall below rebuild cost/value and the tax drops again. It's like a glorified part-rent-part-buy scheme, is all.

9. And of course, the aim of all this is to replace taxes on incomes and production; if and when those have all been eliminated, any surplus the government makes is dished out as a Citizen's Dividend (or you can be a bit more paternalist about this and dish it out as earmarked payments, like old age pensions and school or health vouchers, different topic).

10. And yes, such a tax would be wildly unpopular with some people, but that is yet another advantage - 96% of respondents to this Fun Online Poll said that they preferred in-your-face taxes to stealth taxes, for the simple reason that the government finds it harder to raise money from in-your-face taxes.

Missing Words Round

I read the article on the BBC's web site about a tropical storm that has hit Central America, and I can't find the bit where it says: "Such storms are expected to become more common over the next few decades as industrial carbon emissions force up global temperatures."

Hmm.

Bashing ASH = missing the point

Dick Puddlecote and Velvet Glove often do posts criticising the taxpayer-funded anti-smoking propaganda spewed out by ASH, but it strikes me that they are going after the wrong target.

I'd completely agree with them that what's behind it all is lobbying by providers of 'righteous' nicotine (patches, gum etc) in order to take market share from the providers of 'unrighteous' nicotine (tobacco), and that this has precious little to do with 'public health' and a lot to do with corporatism.

As a general rule, when it comes to creating false markets, encouraging government subsidies and then creating barriers to entry, the European Union is behind it - for example white asbestos removal, using windmills to generate electricity etc. I don't think that the EU has any coherent approach to any of this, apart from jumping on any bandwagon heading vaguely in the direction of 'righteousness', and if the tobacco companies upped their game and offered even bigger backhanders than Big Pharma, the pendulum may well swing in the other direction

Simply Googling the phrase European Union smoking ban produces 319,000 hits, the second one on the list being this:

EU countries urged to pass tougher anti-smoking laws.

The commission is calling for an EU-wide ban on smoking in public places by 2012. Currently all EU countries have regulations of some kind designed to protect people from second-hand smoke and its harmful effects. But the rules vary widely from country to country.

The UK and Ireland have the strictest laws - a complete ban on smoking in indoor workplaces and public places, including public restaurants and bars. Bulgaria is due to follow suit in 2010*. Greece, Italy, Malta, Sweden, Latvia, Finland, Slovenia, France and Holland have introduced smoke-free legislation that still allows special enclosed smoking rooms.

The EU is now proposing that uniform laws be drafted for all 27 countries to regulate smoking more strictly in public areas and workplaces.

Second-hand, or passive, smoke has been linked to heart disease and lung cancer. Back in 2002, some 19 000 non-smokers are thought to have died in the EU due to second-hand smoke at home or at work. Tobacco is the leading avoidable cause of death in the EU, claiming some 650 000 lives a year. One in three Europeans - about 170 million - uses tobacco.

As part of a new anti-smoking campaign, the EU is inviting people to upload videos showing how they kicked the habit. Hundreds have responded and their work can be seen on the campaign website.


Just sayin', is all.

* Update 1: Spartan in the comments informs us that the Bulgarian parliament are not playing ball for the time being. Don't worry, the EU will get its own way sooner or later.

Update 2: Dave A reminds me that the World Health Organisation (part of the United Nations) is behind this as well. Given the WHO's talent for whipping up hysteria and ordering governments to spend billions on ineffective treatments, e.g. swine flu, this all fits the pattern.

Sunday, 30 May 2010

Mr Blobby

Rant Of The Day Decade

Mr Flibble, comment number 7 on a thread at HousepriceCrash:

... I'm not Scottish, I'm English, but I'm not blinkered as to what goes on or how people interact with each other.

You cannot drive anywhere without some Muppet on your bumper, you cannot buy anything without some clown outbidding you using borrowed money, you cannot do anything without someone jumping down your throat or being abusive. The 6 x income house ownership racket has made society into a cesspit where nobody has any time for anyone but themselves. No time, no patience, no morals, no scruples.

We have become a nation of people who work jobs we don't enjoy, commute monumental distances each day, all so we can live in cramped little houses that cost more than virtually anywhere in the world. When a nation sacrifices everything it ever stood for to obtain one thing then that nation is indeed lost.

25 years ago you could sit on a till down the local supermarket and buy an average house with your average single wage, now that same house requires a couple of university educated people working careers to afford it.

If this isn't a case of eating your young then I'm not sure what is. I'd love to say England is a great place but it simply isn't, the constant competing and fvcking over the next guy has been a price too much.

The result of all this house-owner-ism and the associated greed that goes with it is a wrecked currency, an eye-watering debt pile, a £3bn a week deficit, near zero international confidence in us, and the cherry on the cake, houses still at 6 x income and the powers that be doing all they can to keep them there. Some may say we are a bunch of fvcktards and it would be hard to argue with them...

And you wonder why I occasional take a pop at the English *lol*


I think he has has summed it all up quite succinctly. Nothing to add, except technically it's "Home-Owner-Ism" and not "House-Owner-Ism".

Danny Alexander: Yours to cut out and colour in.

Damn! Nazi fighter pilot look-a-like replaced with Scottish blob.

Saturday, 29 May 2010

Songs that are the same all the way through

Friday, 28 May 2010

I can't be bothered drawing him again, so I'll just repost this one, seeing as of how he just hit the headlines...

Arise, Lord ... er... no seriously, get up, you fat bastard.

Killer arguments against LVT, not (41)

Longrider lays into Oliver Kamm's thought experiment about extending capital gains tax to people's main residence here.

(On a practical level, I agree with LR's objections. My view is that replacing as many publicly collected taxes as possible with levy on privately collected taxes, i.e. Land Value Tax would be far better, but the main thrust of the comments seems to be "privately collected taxes = good, publicly collected taxes = bad".)

Never mind, returning to the topic, Andrew Duffin, in the comments, chimes in with this:

My house is nice (I would think so, I built it myself!), I have no idea what it’s worth because it has never been sold, and I don’t really care anyway, since I have no intention of moving.

I don’t keep it because it makes me rich (how could it? And it’s quite the opposite when the maintenance bills roll in), but because it’s mine lock stock and barrel, and nobody can take it away from me however impoverished I may become in future old age. That’s security, and it’s important.

Of course, if some toad comes along and imposes Land Value Tax, I’ll possibly be out on the street. Naming no names, you understand…


OK, fair enough. If he doesn't care about its value and has no intention of ever selling it or of becoming 'rich' from having owned it, what possible objection could he have to a capital gains tax on his never-to-be-realised-profit, even if the rate were one hundred per cent? He can always build a new one somewhere else. Hey, how about we allow everybody to build a house wherever they like, that'd be fair at least?

Answers on a postcard.

Policy based evidence

From the BBC:

Toxicology tests have shown that two teenagers whose deaths were linked to mephedrone had not taken the drug. The deaths of Louis Wainwright, 18, and Nicholas Smith, 19, in March 2010 sparked concern about the synthetic stimulant, which was then legal. The Labour government banned the so-called "legal high" in April, making it a Class B drug alongside amphetamines and cannabis...

Yup, that's right folks. It's not just that they couldn't "prove" that mephedrone was the cause of death, these two hadn't even taken it. The article goes on to say:

Mephedrone has been implicated in the deaths of 34 people in the UK - 26 in England and eight in Scotland. But so far, the drug has been established as a cause of death in only one case in England, that of John Stirling Smith.

Whereby "implicated" means, er, what, exactly? Further, the ratio of English-to-Scottish cases looks out of whack, seeing as the population of Scotland is only a tenth of that of England. Are there really three times as many drug-users in Scotland per capita or is there merely three times as much "implicating" going on? And finally, with such a small sample size, how on earth can you "establish" anything at all?

More empty gesture politics*

From the BBC:

Plans for directors to submit to an annual shareholder vote form part of an overhaul of the code of conduct for the UK's top 350 listed companies. It is a seen as a way to increase accountability, as directors are currently re-elected every three years...

1) There is absolutely no rule that directors have to put themselves up for re-election every three years. It was included in the standard Table A articles, but shareholders have always been free to stipulate a longer or shorter period.

2) It does not matter how often the vote is held, it matters who votes. It would be far, far better if we reinstated the small-shareholder culture that existed before the system was manipulated to favour 'institutional investors' (pension funds, unit trusts, insurance companies etc), seeing as small shareholders are more likely to kick up a stink, whereas those empowered to vote on behalf of the 'institutional investors' are in cahoots and interchangeable with the boards of directors of the companies they own.

We reinstate the small-shareholder culture by simply scrapping all the tax breaks for owning shares via a pension fund etc. and giving those tax breaks (primarily exemptions from Capital Gains Tax and higher rate tax on dividends) to ordinary investors instead. Cut out the middlemen, if you see what I mean.

3) The article then wails on about 'diversity' in the boardroom. Big deal. If you want there to be more female directors, then you can buy shares in a plc and vote for female candidates, and so on. This might improve things, it might make them worse - we'll never know until we try it.

That's that fixed. Next.

* That's probably a tautology.

In the absence of any good cow attack stories this week...

From Field & Stream: "Dusky Grouse Attack Leaves Wildlife Photographer Don Jones With Bloody Lip".

There's a lot of clicking involved as the article consists of twenty-two photographs with a short narrative for each. My favourite is photograph 13, but photograph 20 isn't bad either.

Via my Pensions Minister, Former Tory.

Missing Words Round

From an article titled Rates must be set to control inflation - Cameron:

In excerpts released in advance of the speech he was due to give later in northern England, Cameron said the economy had been heading in the wrong direction for years, was over-reliant on welfare and increasingly hostile to enterprise.

"As a country we have become indebted on an unprecedented scale. Our huge public debt is the
clearest manifestation of our economic mistakes -- the glaring warning sign overhead telling us we have taken the wrong route"...

Cameron said he believed Britain could rebalance economic power, inject new life into the private sector and move to an economy built on savings and investment rather than debt.


Click and highlight to reveal what he would have said without his Home-Owner-Ist blinkers on:

Cameron said the economy had been heading in the wrong direction for years, was over-reliant on welfare, ever rising house prices and increasingly hostile to enterprise.

"As a country we have become indebted on an unprecedented scale. Our huge public debt and our huge mortgage debt mountain, which dwarfs public sector debt [are] the clearest manifestation[s] of our economic mistakes -- the glaring warning sign overhead telling us we have taken the wrong route"...

Cameron said he believed Britain could rebalance economic power, inject new life into the private sector and move to an economy built on savings and investment rather than a debt-fuelled house-price spiral.

We Own Land! Give Us Money!

An excellent bit of Home-Owner-Ist cant in The Daily Mail:

Homebuyers could be battered by a credit clampdown next year if a £300 billion black hole in mortgage funding is not plugged.

Experts have warned that borrowers face higher interest rates, bigger fees, tougher credit scoring and a greater risk of being rejected. Loans to those with small deposits could be withdrawn or carry such high interest rates that they would become unaffordable. All this could bring the recovery in the housing market to a shuddering halt and send prices crashing in parts of the country. Some economists predict a staggering 20 pc plunge in prices, wiping £34,000 off the average £167,802 home.

OK, let's not forget that the so-called '£300 billion black hole in mortgage funding' is currently being bridged by the government using taxpayers' finest. Let's assume that their logic is correct, and that if the government insisted that the banks fulfil the terms of the original taxpayer-funded bridging loan and start repaying it in April 2011 (scroll down to One fly in the ointment, depending on whom you believe, about a fifth of that bridging loan will have to be written off), house prices will fall by 20%.

There would be a small number of losers from this (i.e. net sellers of housing - people who inherit a property they don't need; landlords who are scaling down; people who want to sell up and move abroad; or people who over borrowed and are repossessed); there will be a lot of people not affected (people who intend to stay where they are or who are trading up or down slightly) and...

... an enormous number of winners; i.e. the millions of people aged thirty-five or below who have hitherto been priced out completely, or who are stuck somewhere much too small to start a family (and if the right-wingers are going to harp on about 'encouraging marriage and stable families', then let's be consistent at least, eh?).

So that £300 billion 'taxpayer funded bridging loan'/'funding black hole'* is just another mechanism of transferring wealth from the productive economy and young people to people who already own housing and land.

Most of the comments under the Mail article are surprisingly sensible. If you want to read some real Home-Owner-Ist bile, try the comments at the end of this article in The Times - inevitably, some commenters deride Oliver Kamm as a "Socialist", which is nonsense. Centre-right think tank Policy Exchange have published a lot of his musings on liberalising the planning system. A very nice chap he is too and a Socialist he is not.

* Delete according to personal preference.

Thursday, 27 May 2010

Supply and demand

From The Metro:

Just a third of students expect to find a ‘graduate level’ job after graduation, researchers said. ‘With a record number of students due to complete degrees in the coming weeks – and tens of thousands of last year’s graduates still looking for work, there is widespread concern on campus that competition for graduate jobs has never been fiercer,’ said Martin Birchall of High Fliers Research, which commissioned the study... This year’s graduates will also have average debts of about £17,900, up from an average of £11,600 in 2008.

From The FT:

Mr Darling claimed that Mr Laws's package would undermine a "fragile" recovery... The former chancellor also claimed that the scrapping of the child trust fund and a cut of 10,000 additional university places went far beyond his promise to curb "waste and inefficiency".

So we have a massive surfeit of students, who can't get the kind of job they'd hoped for, but who still end up with 'average debts of £17,900', and The Badger is complaining that the Lib-Cons didn't increase (let alone cut) the number of such people by ten thousand?

Government Data Loss Of The Week

From the BBC:

The private financial details of up to 50,000 people who claim tax credits have been mistakenly sent out in the post by HM Revenue & Customs (HMRC).

Claimants were sent their annual tax credit award notice, along with personal details of other claimants. One woman from Hyde in Greater Manchester has told the BBC her letter included her neighbour's earnings. She also got the bank sort code and the last four digits of the bank account number of another claimant. The HMRC has said the mistake was caused by a printing error and it will be apologising to all the people affected.

"Ministers to outline 'radical' agenda to preserve status quo"

From the BBC:

The government is to lay out its plans for what it calls a "root and branch reform" of Britain's welfare system. Work and Pensions Secretary Iain Duncan Smith is set to create a welfare to work programme and make benefits more conditional on willingness to work. He told the Guardian that at present the rewards for choosing to work were "very minimal" or even "none at all"(1).

In families where unemployment was widespread, those who did try get a job were often seen as "morons", he added. Mr Duncan Smith, brought back into frontline politics by Prime Minister David Cameron, has spent several years in opposition (2) preparing a blueprint for the future of the welfare state...

Labour sought to increase incentives to work and introduce penalties for those unwilling to do so (3) but the Conservatives said reforms must go further and faster to tackle the problem of long-term unemployment, which they say underpins many of the country's most deep-seated social problems...

The proposals are also likely to include paying welfare-to-work providers on a results-basis (4), loans to help unemployed people set up their own businesses (5) and local work clubs where people out of work can share skills and make contacts (6).


1) What's the point of that then? If they want to increase the relative rewards to working relative to the dole, then how about just reducing the marginal withdrawal rates (between 70% to 100%), or reducing the administrative barriers to changing from out-of-work to in-work benefits (i.e. by replacing the lot with a Citizen's Income and taking away their 'tax free' personal allowance as a quid pro quo)? This'd save between £5 billion and £10 billion in admin costs etc. Even more fundamentally, how about reducing the burden on employers? Scrap the National Minimum Wage; scrap National Insurance; scrap Working Time Directive; maternity leave stuff etc?

2) *ahem* "Has wasted several years" */ahem*

3) Before we dream up penalties for not working, can't we just get rid of the penalties for taking a job (see 1) and see how it pans out?

4) Great news for fakeprivatecompanies!

5) Get the poor buggers even deeper into debt?

6) They used to be called "pubs".

In The Metro, IDS said he was appalled at the number of children living in workless households. That's easily fixed. Stop fire-hosing money at "single" mothers.

Wednesday, 26 May 2010

"Should"

From the BBC:

A network of national funds should be introduced so the cost of bank failures are not met by the taxpayer, the EU internal market commissioner has said. Michel Barnier said such funds would provide part of a broader system aimed at preventing future financial crises. Banks would be required to pay a levy into the funds which would not be used to bail out failing banks, but manage failures in "an orderly way"....

Mr Barnier said: "I believe in the 'polluter pays' principle. It is not acceptable that taxpayers should continue to bear the heavy cost of rescuing the banking sector. They should not be in the front line,"

And the EU report said that any levies that banks were made to pay should not be passed on to their customers in the form of higher charges.


Nice one, Barney.

The first 'should' means "We think it desirable... and therefore it will happen".

The next two 'shoulds' are worse. He pretends to be sticking up for taxpayers versus the Big Bad Banks, even though the EU-driven and taxpayer-funded Greek bail-out was, indirectly, a way of bailing out the French and German banks who had lent Greece money.

The last 'should' means "It would be nice if, and we're not taking the blame if it doesn't work out like this". Is he or is he not aware that it is nigh impossible to design a banking levy that is not somehow reflected in higher interest rates and charges for borrowers or lower interest rates paid to depositors?

(Debt-for-equity swaps, that's the way forward - it's tried and tested and it works; it's what happens in the absence of any government meddling. And of course tweaking the tax system to prevent house price bubbles, for without an asset price bubble there cannot be a credit bubble. And as I said earlier, before we start inventing new taxes and levies on UK banks, let's make them repay the £400 billion that the taxpayer has stumped up and then make up our minds what to do next, if anything.)

At least you're not alone...

From The Metro:

More than half a million staff turn up to work with hangover on any given day, claims a report. And it is only going to get worse when the World Cup starts, said Drinkaware, which is teaming up with Bupa to advise employers about workers’ drinking. Figures show that on an average day around 520,000 workers in the UK are suffering from the night before...

Interestingly, there's no rent-a-quote from Alcohol Concern in that article. NB, Drinkaware is not a fakecharity, it is funded by the alcohol industry as a PR exercise (which is fair enough).

Badly Worded Headline Of The Day

From The Metro:

New disabled benefit system 'unfit'

On the road again

I'll probably be thinking about fuel duties, and how they ain't such a bad tax either...

Tuesday, 25 May 2010

... 98, 99, 100! We're coming! Ready or no-ot!

Killer arguments against LVT, not (40)

Congratulations to Bucko, whose comments here form the basis for the landmark episode 40 in the series:

He says that taxing income is preferable to taxing land values because "My house does not give me a lump sum at the end of each year from which I can pay my tax, however my job does."

For clarity: the idea behind LVT is not just to replace income tax, VAT, corporation tax, National Insurance etc (a worthy aim in itself), but to tax land rents at close to 100% and to dish out the proceeds as a Citizen's Dividend. So by definition, for an average household in an average house LVT = CD and they net off to plus/minus nothing (you just pay rent or mortgage on the bricks and mortar element of a couple of thousand pounds a year).

If you're worried about job security (which Bucko advances as an argument for taxing incomes - if you lose your job, at least you are not paying tax; but of course you would still have the rent or mortgage to pay), then you can always rent or buy a smaller or grottier house and the Citizen's Dividend will pay the whole of your rent/mortgage for you.

And yes, as the world's second best accountant, I am perfectly aware that a house does not generate a (cash) lump sum for the occupant, but it very much generates a lump sum for the landlord (if you are renting) or for the bank (if you are paying a mortgage). Somebody somewhere at the other end of the system is getting that lump sum. Even if you have paid off the mortgage, all the money you have paid over the lifetime of the mortgage will have ended up in somebody else's account and will be earning him "a lump sum" every month. Those are the cash flows which LVT would capture.

So instead of taking on a huge mortgage to pay for the land element, you'd take out a much smaller mortgage for the bricks and mortar, and the land element would cost you plus/minus nothing. When you've paid off the mortgage, the LVT and CD would still net off to plus/minus nothing. When you die, your kids inherit exactly the value of what you have paid for - the bricks and mortar.

Finally, of course, you wouldn't be paying any income tax at all. This, my friends, is as close to a "tax-free society" as you are ever going to get, once you accept that there is such a thing as privately collected taxes (primarily the rental value of land, but there are other examples).

1984 (21): Home-Owner-Ism (3)

As we well know, the best way of running things is some form of democratic, small government free-market liberalism. The good thing about Socialist experiments is that they tend to go bankrupt after a while, and by and large are replaced with something slightly better (although question mark over Russia). The bad thing about 'capitalism' is that it goes nearly bankrupt every couple of decades (the so-called 'business cycle' or 'credit cycle') but seeing as we know the alternatives are worse, we plough on doing the same thing.

Actually, the these cycles are not inherent in free-market liberalism, they come from a much older and more deeply engrained school of economic masochism, a particularly malign form of corporatism/self-perpetuating privilege which I refer to as 'Home-Owner-Ism'.

For clarity: this has nothing to do with having a wider spread of homeownership, which is broadly agreed to be A Good Thing. In fact, it tends to lead to the opposite (the percentage of homeowners in the UK is down one or two per cent over the last fifteen years) - and boils down to the belief that 'house prices can only go up and rising house prices are good for us'. But by dressing itself up as free-market liberalism, it is what we always fall back on, even after the most dire of recessions.

So just for fun, let me illustrate this by doing a 'track changes' on an excerpt from The Theory And Practice Of Oligarchical Collectivism, which is a book-within-the-book '1984' by George Orwell:

After the revolutionary period of the fifties and sixties, society regrouped itself, as always, into High, Middle, and Low. But the new High group, unlike all its forerunners, did not act upon instinct but knew what was needed to safeguard its position. It had long been realized that the only secure basis for oligarchy is collectivism making everybody think that they are wealthier than they really are.

Wealth and privilege are most easily defended when they are possessed jointly even the Middle and Low believe that they have a share. The so-called 'abolition of private property nationalized industries and social housing' which took place in the middle years of the century 1980s and 1990s meant, in effect, the concentration of property in far fewer hands than before: but with this difference, that the new owners were a group instead of a mass of individuals included, albeit briefly, a significant number of the Middle and Low. Individually, no member of the Party very few Home-Owner-Ists own anything, except petty personal belongings, some bricks and mortar and a few hundred square yards of land, more often than not subject to a crippling mortgage debt.

Collectively, the Party Home-Owner-Ist coalition owns everything in Oceania The United Kingdom, because it controls everything planning permission and land use, down to the last brick, and disposes of the products as it thinks fit via heavy taxation of incomes and subsidies to homeownership and the banking system. In the years following the Thatcher Revolution it was able to step into this commanding position almost unopposed, because the whole process was represented as an act of collectivization privatization. It had always been assumed that if the capitalist class were expropriated nationalized industries were privatized and council housing sold off (in exchange for votes), Socialism capitalism must follow: and unquestionably the capitalists had been expropriated they had been sold off, often at a massive loss to the taxpayer.

Factories, mines, land, houses, transport -- everything had been taken away from them 'the state': and since these things were no longer private state property, it followed that they must be public private property. Ingsoc Home-Owner-Ism, which grew out of the earlier Socialist Conservative movement and inherited its phraseology, has in fact carried out the main item in the Socialist programme which had spawned The Corn Laws in an earlier century; with the result, foreseen and intended beforehand, that economic inequality has been made permanent.


OK, I'm hamming it up a bit, but it strikes me that Home-Owner-Ism is the antithesis of free-market liberalism, and in practice has a lot in common with Socialism.

Discuss.

Killer arguments against LVT, not (38, 39)

Just to set the scene, people like Henry George realised that not all 'taxes' are collected by the government. My view is that "All money that changes hands purely because of existing laws (as distinct from free exchange) counts as 'tax'. " (and eighty per cent of respondents to an earlier Fun Online Poll agreed).

As a simple example of the similarity between publicly and privately collected taxes, consider this: it makes little difference to the outside world whether:

a) The rate of VAT on taxi journeys is increased (prices will go up; quantity demanded will go down; and some taxi drivers will be put out of work), or

b) Whether the local council restricts the number of taxi driver permits (quantity supplied goes down; people who would otherwise have become taxi drivers can't find work; and taxi drivers with a permit can charge higher prices). The permit system doesn't even benefit future taxi divers; before they embark on their taxi-driving career, they have to buy a permit on the grey market, so they have to hand over a large part of their future super-profits on Day One and then spend the next few years earning it back.

The former, VAT, is a publicly collected tax; the latter (restriction on the number of permits) is a privately collected tax, aka 'super-profits' aka 'rent'. Full post with pretty supply-demand curves here.

While I oppose publicly collected taxes on incomes and production, I have to break ranks with the Home-Owner-Ists and Faux Libertarians because I also oppose privately collected taxes - the most significant privately collected tax being the returns to land ownership. So, even more left field, I simultaneously support the view that 'Private land ownership is theft'* and the view that 'Taxation of incomes is state-sanctioned theft'. I square the circle quite easily by suggesting we make the punishment fit the crime - scrap income tax (and VAT etc); tax land values instead; and dish out the proceeds as a Citizen's Dividend (so by definition, the average household in an average house would be neither a net taxpayer nor a net claimant).

So to every argument against LVT there are two opposite counter-arguments. To illustrate this, let's look at two comments which stalwart LVT-opponent IanB left on a recent post:

You are forcing them to pay a rent to the State, assessed by the State, under threat of being dispossessed. What the state assigned tenant thinks the land is worth doesn't come into it. You (as the State) set the rent arbitrarily, and if they can't afford it they get kicked out.

Notwithstanding that he overlooks the Citizen's Dividend bit, which would cover the rent on most houses (i.e. you are indifferent if LVT goes up because your CD will go up in line), I batted this back as follows:

Let's look at land 'ownership' first: "You are forcing [tenants or mortgagees] to pay [rent of mortgage repayments] to the [landlord or the bank], assessed by [the landlord or the bank], under threat of being dispossessed. What the [tenant or mortgagee] thinks the land is worth doesn't come into it [but at least he can move out]. You [as the landlord or bank] set [the rent or mortgage repayments] rent arbitrarily, and if they can't afford it they get kicked out."

Now let's look at income tax: "You are forcing [wealth creators] to pay [a large proportion of the wealth they create] to the State, assessed by the State, under threat of being dispossessed. What the [wealth creator mutually agrees with his customers or employer] doesn't come into it. You (as the State) set the [income tax rate] arbitrarily, and if they can't afford it they get [put out of business or made unemployed]."


IanB followed up with this:

The issue is why you demand that the State extract a rent from every square foot of land in the nation, in perpetuity.

To which I would have responded (had I been able to summon the energy):

Let's look at land 'ownership' first: "The issue is why you demand that [private landowners] extract a rent from every square foot of land in the nation, in perpetuity [without compensating society in general]"

Now let's look at income tax: "The issue is why you demand that the State extract a [tax] from every [penny of earned income] in the nation, in perpetuity."


So that's two more supposedly 'killer arguments against LVT' dealt with, no doubt the next one will be along soon (perhaps you can be lucky number 40! Maybe play the Old Widow Bogey again, or something?).

I tell you, four years ago, I stumbled across LVT and considered it more an intellectual curiosity than anything else (a tax which had positive knock-on effects), and I wasn't really too fussed; what has really steeled my resolve is that none of the hundreds of arguments I have heard against it stack up in the slightest - especially if you compare those arguments with arguments against private land ownership and/or arguments against taxation of incomes and production.

* For clarity: I have nothing against people having state-protected exclusive possession of land; society would break down without it (I do happen to live in the real world, y'know). But those who benefit from the state-imposed restrictions on others ought to compensate those others. The bitter irony is that the main reason we have private landownership in this country is because of the profligacy of the state in centuries gone by, different topic.

Monday, 24 May 2010

The "Freedom Bill"

The ConDem coalition agreement reckons "the British state has become too authoritarian", promises to "roll back state intrusion" and proposes a "Freedom Bill" to repeal unwanted labour legislation.

Well, in a few weeks, Business Minister Edward Davey is going to have the results of this consultation in his red box. It will more than likely recommend that his department enact regulations empowering local government officers to fine businesses thousands of pounds without the hassle of having to prove anything in court.

Will he do it? Or will the 'Freedom Bill' repeal the sections of the Regulatory Enforcement and Sanctions Act 2008 that allows for local government regulators to bypass the judiciary? Bets?

"What would you cut?"

I've added to the lists being compiled over at Man In A Shed and Capitalists @ Work.

Fun Online Polls: England's Future & Fergie

Thanks to everybody who took part in last week's Fun Online Poll, there was a good turnout of 158 voters.

As we do these things by simple majority, there appear to be only two supra-national organisations of which England would remain a member:
The United Kingdom - 99 votes (although possibly as a looser federation)
European Free Trade Association - 90 votes


England/the UK will be leaving the following (the number of votes are votes to stay in):
NATO - 69 votes (I'm surprised, but pleasantly so)
United Nations - 46 votes
G7 to G20 - 44 votes
World Trade Organisation - 42 votes (I don't agree on this one, but that's democracy)
IMF and World Bank - 31 votes
European Union - 13 votes


England/the UK will not be joining:
Schengen Area - 9 votes
Euro-zone - 5 votes


The computer was playing up when I set up the poll, so in my rage and frustration I missed off 'Commonwealth', i.e. a putative 'Commonwealth Free Trade Area'. Seeing as the UK alone dwarfs EFTA, I suppose it wouldn't so much be a question of the UK joining EFTA but the Commonwealth Free Trade Association concluding a mutual free trade agreement with EFTA. Details, details.
---------------------------------------
It appears that Fergie is in trouble again. What puzzled me is that she says she will repay the $40,000 that the undercover reporter gave her. In her position I'd make the best of a bad job and keep it.

What would you do?

Vote here or use the widget in the sidebar.

More Corporatist Fun

Mummylonglegs looks at Tesco and minimum alcohol pricing. See also Obsidian.

Via Obo.

"A Question About Unions"

Answers on a postcard over at Joseph Takagi's.

Sunday, 23 May 2010

Shit! I just lost £125 billion down the back of the sofa!

From the day-before-yesterday's Times:

Lenders say that since wholesale lending — what banks lend to each other — collapsed in the credit crunch, government support has provided only 25 per cent of what lenders could offer previously... Michael Coogan, the director-general of the CML, said: “We welcome signs in the coalition agreement that some housing priorities are on the Government’s radar. But we still do not know how the incoming Government plans to address the funding gap looming over the next few years in the mortgage market.

NB, as at a year ago, outstanding UK mortgages were about £1,100 billion, so 25 per cent of that is about £275 billion.

From yesterday's Independent:

Michael Coogan, director general of the CML, warned that many mortgage lenders faced a funding crunch. Not only is the sector struggling to attract retail savers with interest rates at all-time lows, the Bank of England is insisting that it will close support plans such as the special liquidity scheme, introduced at the height of the financial crisis, from the beginning of 2011 onwards. The effect will be to withdraw around £400bn of funding for lending from the sector."

Saturday, 22 May 2010

More Labour Leadership/Venn Diagram Fun

In case my previous efforts were not quite puerile enough, here's another one:

[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.

Quick guide to Labour leadership election


UPDATE: For the benefit of JT:

Friday, 21 May 2010

Twenty Stone of Righteousness

Godwin's Law

From yesterday's Evening Standard:

More One-Sided Economics

I have long been telling anybody who cares to listen that we ought to be levying lower taxes on incomes and production, and levying higher taxes on land values (notwithstanding that tax and spend in this country is way above any rational level, so overall tax and spend should come down by about a third, different topic).

The Home-Owner-Ists occasionally admit that this would probably be better for the economy and future generations, but they oppose it for the simple, selfish reason that such a tax shift would tend to reduce the price for which they can sell 'their' land. Fair enough, the Home-Owner-ists got that bit right. The fact that they consider the selling price of 'their' land to be more important than their net cash income or the future health of the economy is their decision.

In my earlier post, I described the Lib-Con proposal to "Freeze council tax in England for at least one year, and seek to freeze it for a further year" as "Pure Home-Owner-Ism. Make[s] life cheaper for people who already own houses but more expensive for everybody else."

Adam Collyer is one of those who opposes levying taxes on land values for the reasons outlined above. But he has now left a comment to say "MW, I'm afraid I agree with all that, except the first bit - Renters pay council tax as well as mortgage payers."

How can you argue with people who completely contradict themselves? He appears to agree that higher taxation of land values and lower taxation of incomes and production would push house prices down (thus particularly benefitting those who don't yet 'own' land, and those with a high income-to-property ratio - and he opposes it for exactly that reason); in the next breath he is saying that lower taxation of property values and higher taxation of incomes and production* would not benefit those who don't yet 'own' land.

In any event, he is wrong on the second issue. Of course tenants pay Council Tax (I am a tenant and I pay Council Tax), but it's just part of their overall occupation costs, for which they pay market value; if Council Tax goes up, then rents will go down in equal and opposite measure - a Council Tax hike does not affect a tenant in the medium term.

If a tenant is looking to buy a house one day - and most are - then any Council Tax cut or freeze merely increases the amount that other people competing for the same house can pay by way of mortgage (for a given total housing budget), thus pushing up the selling price. A Council Tax cut or freeze benefits the person selling or remaining in the house and not the person buying it.

This is exactly the same effect as an interest rate cut - it benefits the vendor and not the purchaser, because house prices will just go up accordingly.

* You have to remember that while the Lib-Cons promise not to increase Council Tax (which raises £20 billion to £25 billion, so the value of the freeze is £1 billion or so a year), they are seriously proposing to increase tax on salaries by 1% (which will increase the tax burden on employment by £5 billion-odd) and to increase VAT from 17.5% to 20% (which will increase the tax burden on profits and wages by about £10 billion). Why increase the tax burden on incomes and production in order to pay for, inter alia, an effective cut in Council Tax?

"Only" Of The Week

From an article in The Times bemoaning the fact that the credit bubble-cum-house price bubble is deflating:

Mortgage lending fell to £10.2 billion last month — the lowest April total since 2000... the [Council of Mortgage Lenders], which is the trade association for the residential mortgage lending industry, added that a funding gap between what banks wanted to lend and what they can afford to was set to worsen in the next few years as support schemes such as the Special Liquidity Scheme are withdrawn from next year. Lenders say that since wholesale lending — what banks lend to each other — collapsed in the credit crunch, government support has provided only 25 per cent of what lenders could offer previously.

Michael Coogan, the director-general of the CML, said: "We welcome signs in the coalition agreement that some housing priorities are on the Government's radar. But we still do not know how the incoming Government plans to address the funding gap looming over the next few years in the mortgage market."

That "only" refers to a cool £300 billion of mortgage finance which you, the taxpayer, have financed and underwritten.

And before the Government explains "how" it plans to address the "funding gap", perhaps this joker could explain "why" it's the taxpayer's problem in the first place?

Half a free market is better than none.

In case you were ever thinking about starting up an airline in the UK, presumably the first thing you'd do is get hold of the accounts for other UK airlines and look at the profit and loss account. Then you divide the profits you could make by the amount of money you'd have to invest in aeroplanes, and that gives you your return on capital. If that's more than, say, ten per cent, then you are on to a winner, yes?

Nope. There are two kinds of airlines in the UK - those who were granted take-off and landing slots for free when they were privatised in the 1980s (i.e. British Airways); and those who had to buy landing slots for their market value 'second hand' (most of the others). The accounts for the former will neither show the value of the landing slots (which is enormous, they are worth more than the aeroplanes) nor the associated amortisation*; the accounts for the latter will show the cost of the landing slots; the associated liability (or share capital) and the amortisation.

So before you can go into business, you need to buy some slots (and now might be a very good time to buy, the air travel industry being at rock bottom). How do you work out the value of the slots? Well, you work out your cash profit per flight and then deduct from that the required return on the money invested in aeroplanes; what is left over is a balancing figure - you then take a random figure as an "earnings multiple" and that's what you offer. Another airline with slots to spare does the same calculation, and provided your estimate is higher than theirs, they'll sell you it.

If you overestimate the value, then you are doomed, of course - you are committed to the corresponding loan and interest repayments for ever more, but the value of the slots can plummet (let's imagine that Eyeful o'yokel never stops erupting, for example). Or their value might rocket if the NIMBYs get their way and airports are never allowed to expand.

Anyways, getting back to the point in hand, Nick Drew looked at the Lib-Con Energy policy, and under "Good", he listed replacing Air Passenger Duty with per-flight duty. I commented thusly:

Per flight taxes are better than per passenger, but the best way of doing it is auctioning off the landing/take-off slots. The value of these is merely a balancing figure between revenues and costs; so however much the airlines voluntarily pay for the balancing figure does not change anything - it's a non-distortionary tax, because you cannot pass on a balancing figure.

In other words, instead of having to hand over a vast amount to another airline, every year or two, you would do your own calculations and turn up at the next auction and bid for the number of slots you think you need; and if yours is the winning bid, you buy an aeroplane or two to match (airlines who lose enough bids will no doubt have one or two spare), paint it in your colours and away you go. If you overbid for a slot for a year or two, you will go out of business, but at least the amount of money you have lost is much less than if you had overbid for buying up slots in perpetuity from another airline.

Nick D didn't seem to get the point, and replied:

I'd be cautious about price-setting distortions (market power) under your auction system, MW - auctions have been tried in many areas of the energy industry and have thrown up all manner of problems.

I specifically was not talking about auctions in the energy industry, which is all much trickier (because raw material costs fluctuate so wildly). Ah well. Here endeth today's.

* Applying normal accounting standards, BA only accounts for landing slots which is has acquired from third parties, which are stated as having cost £212 million in its 2009 accounts, the cost is amortised at £8m a year. Back in late 2008, BMI which owns 11% of Heathrow landing slots, valued them at £770 million (the value has fallen since), BA owns 41% of Heathrow landing slots (plus heck knows how many at Gatwick etc) so their total value a year or two ago must have been about £5 billion, about as much as all its aeroplanes put together.

Home-Owner-Ist Fun with the Tories

Item One. From the BBC's policy-by-policy summary (scroll down to 'Communities and Local Government'):

Freeze council tax in England for at least one year, and seek to freeze it for a further year.
Pure Home-Owner-Ism. Make life cheaper for people who already own houses but more expensive for everybody else.

Create directly elected mayors in 12 largest English cities.
Sounds good to me, provided people can vote on whether they want a Mayor in the first place.

Give councils powers to stop "garden grabbing".
Dude, WTF? There's no such thing as "garden grabbing". Nobody wakes up one morning to find half his garden has been fenced off and turned into a building site. Compulsory purchase orders are few and far between in this country. Councils already have the last word over every single brick that is every laid, anywhere. So to an outsider, it would be completely unclear what this means.

Give neighbourhoods more powers over planning.
"Neighbourhoods" is presumably the PC term for NIMBYs?

Abolish the Government Office for London and consider case for abolishing remaining government offices.
Excellent plan, get on with it.

Ensure courts have power to insist home repossession is always a last resort.
Pure Home-Owner-Ism. Subtext: if you don't own a house and got into debt because you bought a flash car and went on holidays, you are scum. If you own a house and remortgaged to buy a flash car and go on holidays, you are given Hallowed & Protected Status

Stop restructuring of councils in Norfolk, Suffolk and Devon and stop plans to force regionalisation of fire service.
Sounds good to me.

Review effectiveness of raising stamp duty threshold for first-time buyers.
Meaningless. Do they mean "see whether it helps prop up prices" or "see whether more young people can afford to buy homes", one being pretty much the opposite of the other.

Item Two. Daniel Hannan's Daily Torygraph 'blog* Guess which taxes he says he would cut if he had £40 billion to spare?

Click and highlight to reveal: Council tax, inheritance tax, capital gains tax and stamp duty

* H/t UKIP Webmaster

The Chuckle Brothers

Union watch 1...

... I might start posting a series to keep you all up to date with how the public sector unions start squaring up to the ConDem coalition.

I've never joined a union, but I got our local UNISON branch email for a few weeks before I was deleted from the list for not being a member. Under labour it was usually inviting me to love-ins to learn about 'democracy in Cuba', 'solidarity with Venezula' or some other such nonsense.

This is about to change, a quick read of their June local government conference agenda today and it was clear that mainstream party politics is the name of the game again, they are now mobilising for strikes and protests. 'Cuts' (or no cuts) is top their list of issues.

Dave Prentice reckons:

“It also makes no sense to depress wages now. Hitting the spending power of public sector workers would drag down demand in our economy, just as it needs a boost to avoid a double dip recession."

All educated people know the standard IMF solution to sovereign collapse is sharp devaluation followed by harsh public sector pay and welfare cuts. It's funny how UNISON never wind their members up about phase #1 - or labours cuts to public sector pay and conditions.

Have a think about how much public sector sterling-denominated pay and pensions were worth in 2001 before Brown and his bankruptcy party went on their easy-money 'no boom and bust' binge:

£1 bought about 1.45 US Dollars, today it buys about 1.45
£1 bought 2.2 Canadian Dollars, today it buys just over 1.5
£1 bought 2.5 Swiss Francs, today it buys less than 1.65
£1 bought 1.6 Euros, today it buys just over 1.15
£1 bought 175 Yen, today it buys 130
£1 bought 13 Norwegian Kroner, today it buys 9.27
Gold was worth less than £200/oz, today it is worth more than £800/oz

We're par with the US, but they've been monetising their house price boom and bust credit card bill too.

If we want to keep the IMF out phase #2 is coming and pay cuts are the answer, will ConDem have the balls?

Thursday, 20 May 2010

"Angry pig bites farmer's genitals and leaves him fighting for his life"

Spotted by AS over at The Daily Mirror.

This week's entry for the category 'Self explanatory headline of the year': it's nearly as long as the article which follows.

Buffaloes attack!

Via UKIP Webmaster. The actions hots up at 5 mins 10 seconds - just watch how quickly bovine learn how to use their own strengths (which are numbers x weight + pointy horns):
. The action hots up at about 5 minutes 10 seconds in. See how quickly these bovines can learn:

DBC Reed throws down the gauntlet

DBC Reed left this comment on Killer arguments against LVT, not (37).:

At some point somebody who knows more about tax than I do has to come up with a combined tax, deducted from salary PAYE, with a landed property element that varies on a reciprocal basis with the earned income element, so that increases in land tax due are compensated by reductions in income tax-without the punters noticing what is going on (because total deductions don't change).

This will also deal with Henry's caveat that effective land taxes saws off the branch you're sitting on and lowers the tax take (not when income tax goes up to compensate).Not that I'm keen on Income Tax. It only involves integrating Income Tax records with Council Tax, not that difficult with computerised records. Not that I'm keen on computerised records either: file cards + fax machines represent the future, as I'm apt to say to people wandering boredly away.


Combining property tax and income tax, and collecting both via the PAYE system would be the easiest thing in the world. You just gross up everybody's Council Tax bill (or Sentinel Tax bill, or whatever) for the prevailing income tax rate and deduct it from everybody's personal allowance.

A. For owner-occupiers it's very straightforward, for example, let's say somebody currently has a salary of £27,000 and a Council Tax bill of £1,000. He currently gets a personal allowance of (say) £7,000, so of the £27,000, only £20,000 is subject to tax, so he pays 31% x £20,000 = £6,200 income tax and National Insurance plus £1,000 Council Tax every year, total tax £7,200.

B. Under the merged system, you divide £1,000 by 31% = £3,226. This would be deducted from the personal allowance, so his new personal allowance = £7,000 - £3,226 = £3,774. His salary remains at £27,000, of which £27,000 - £3,774 = £23,226 is now taxable at 31% = total tax £7,200, so in Year One, there is no change to his total tax (only he doesn't have the hassle of paying the Council Tax by direct debit - it gets deducted at source).

C. Now, let's now assume that in Year Two we want to collect twice as much in Council Tax (or whatever we call the property tax with which we replace it) and that this would enable us to cut 5% off Employee's National Insurance. Our hero's basic personal allowance of £7,000 is now reduced by (£1,000 x 2) divided by 26% = £7,692, so his personal allowance becomes negative £692 (a so-called K-code - the PAYE system can deal with these, of course), so he pays tax and national insurance on £27,000 (his salary) plus £692 = £27,692 at a rate of 26% = £7,200. Again, our hero notices absolutely no change.

D. Of course, I tweaked the figures to show that for yer average 'hard working homeowner', shifting from taxing incomes to taxing land or property values wouldn't make any difference. Obviously, people with a relatively high income-to-property value ratio would end up better off and people with a low income-to-property value ratio would end up slightly worse off, but that is the general idea. And I suggested reducing Employee's National Insurance rather than income tax to try and narrow the gap between the tax burden on employment income and on other income.

E. You can do the same with the self-employed - you just add the property tax bill to the annual income tax return, which is normally sent to that person's home address.

F. You can do the same with the State Pension - instead of paying out £100 a week and charging £1,000 a year Council Tax, they could just pay out £81 a week in State Pension. For sure, I'd replace all these different taxpayer funded pensions with a Citizen's Pension of rather more than £100, different topic. If the average property tax bill doubles to £2,000, and bearing in mind that there are on average 1.5 pensioners in a pensioner household, you just hike the Citizen's Pension by £12.80 in Year Two.

G. With buy-to-letters with little or no earned income, you can put the onus on the mortgage lender to add the tax to the monthly mortgage payments, and in turn the buy-to-letter adds it to the rent, so tenants (and people who live with their parents) would get the full personal allowance of (say) £7,000 - the extra net income they get from the National Insurance cut in Year Two would in nearly all cases be more than the extra rent that the landlord charges. Once the mortgage is paid off, see E. above.

H. And so on. None of this is rocket science.

I. Bonus points to the first person to leave a comment saying "Yeah, but what happens if the 'hard working home-owner' loses his job? Would the local council repossess his home?". Assuming he has a mortgage, he would lose his house sooner or later anyway (which would happen even if there were no property taxes at all). What's the big difference? If he has no mortgage, and loses his job, then the property tax gets deducted from his Citizen's Income, same as F. above. If he's a tenant and loses his job then he gets evicted, simples.

"Ee, it's not like when I were a lad..."*

The Metro celebrates a fisherman who has been in the business for seventy years:

"When I first started, it was very different. In those days, all you had to do to be a fisherman was get your register signed once a year. Now, you’ve got forms to fill in morning, noon and night."

* Obviously, he has a Cornish accent, not a Yorkshire accent, but it's difficult to imagine The Sketch with anything other than a Yorshire accent.

"Cows to power data centres"

This isn't a 'cow attack' story as such, but interesting/terrifying* nonetheless. After a few paragraphs of eco-wibble, the best bit is at the end:

Power and cooling for data centres has evolved into a major environmental and cost issue for many companies, as more and more data is collected and held. Other green ideas include making use of sustainable energy sources like wind or waves, or locating them in colder places for natural cooling**.

* Delete according to personal prejudices. Those bovines are smarter than they look: once we're all hooked up to cow-power, who's to say that they won't just go on hunger strike and bring the world grinding to a halt?

** UPDATE: Anti Citizen One links to an article of January 2010 titled Iceland Gets Major Data Center Project.

All our taxpayer-funded windfall gains are belong to us!

"The Green Economy"

Read more over at Witterings.

Wednesday, 19 May 2010

He actually said it!

There's an article in the FT about Labour's last minute scorched-earth spending splurge, all good stuff, although the Lib-Cons have barely scratched the surface*.

The highlight is this from The Badger: Former ministers have dismissed the exercise as a political show-trial to soften up public opinion for spending cuts. Alistair Darling, former chancellor, said blaming an outgoing administration was the "oldest trick in the book".

Sheesh.

They wrote the book. A quick Google search of years+of+Tory"under investment" gives me 33,500 hits, the latest were in the last few days.

* A few quick wins, lads - shut down DTI, DFID, DECC and DCMS, and replace the entire welfare system with a Citizen's Income, that'd save about £50 billion a year. Sure, DTI budget includes some spending on higher education, which is important for the economy in general and employers in particular - but they end up paying twice. They pay for cost of higher education through taxation and the value of the education through higher salaries.

On a personal note, I paid for my own degree courses (OK, they were subsidised, but it's the principle that matters) without getting a penny of grant and for my own professional qualifications (with private providers). Stupendously good value they were too. I can imagine most lorry drivers or taxi drivers would say the same thing, or indeed anybody who accepted below-market wages while they were doing an apprenticeship or similar.

Killer arguments against LVT, not (37).

Adam Collyer left a comment on "Killer arguments against LVT, not (36)":

"most poor people live in small houses or in cheaper areas where LVT wouldn't be much; most rich people live in big houses in nice areas where LVT would be a lot"... It depends what you mean by "poor". You are as usual blurring the distinction between being rich in assets and being rich in income. You can own a big nice house but have hardly any income (archetypal widow for example) in which case...

I am not blurring anything. That's exactly what I'm not doing. Just to be absolutely clear about this for the dozenth time.

1. There is proper 'wealth creation' i.e. going out and working or starting a business etc. which by definition creates new, net wealth. This is liable to income tax. Whether for moral or practical reasons, I oppose taxes on individual efforts and wealth creation.

2. And there is privately owned land, which by definition is not 'net wealth' (to which see point (c) below)

So it must have been clear that I was using shorthand for the rather more cumbersome "most people who have lower incomes or had lower incomes during their working lives live in small houses or in cheaper areas where LVT wouldn't be much; most people who have higher incomes or had higher incomes during their working lives live in big houses in nice areas where LVT would be a lot..."

"The 5% of poor people who happen to live in a big house in a nice area will have to trade down; roll up the tax to be repaid on death; take in a lodger; get their heirs to pay it etc etc. Such is life."
Easy to say if you're not likely to be a victim.

As I explained, 'my' theoretical inheritance would be diminished by about £700 a year for every year that my parents lived. And, as I also explained, if we used LVT to replace taxes on incomes and production, then every £1 I lose off 'my' inheritance is an extra £1 added to my net income. Why does having a higher net income now and a smaller inheritance later make anybody a 'victim'?

"If they don't want to pay it, then let them roll up the tax." (a) Ah, yes. So LVT is really Inheritance Tax in disguise (b). Put it another way: it's a wealth tax (c). Attractive if you're a Socialist I guess (d).

a) I can sympathise with the traditional objection to LVT or indeed Council Tax that pensioners want to stay living where they are living, and that their (largely taxpayer funded) pensions are not enough to live on and pay the LVT or Council Tax. But this is purely a cash-flow issue. So why not make the due date for the tax payment one that is convenient for all concerned?

(i) Inheritance Tax is a tax on the deemed value of all your assets when you die (subject to a hundred exemptions) - regardless of whether they represent money on which income tax has been paid or whether they represent hitherto untaxed windfall gains on rising property values. Again, for both moral and practical reasons, I oppose a blanket Inheritance Tax.

(ii) LVT is a tax on land values. Conflating LVT and IHT is tantamount to saying that fuel duty is a tax on cigarettes, or something.

(iii) Or let's imagine HMRC said to pensioners, your pensions will be paid to you without deducting income tax, but we will reclaim the income tax from your estate. Does that magically transform income tax into Inheritance Tax?

c) Private land ownership is not net wealth (the buildings on the land very much are net wealth, of course). For example, Crown Estates (owned by the government) owns loads of office blocks in Central London, it is indistinguishable from any other private landlord. It hands over its net profits to the government. If Crown Estate sold off these buildings to private owners for a lump sum, the income taxpayer would end up slightly worse off, because the government would squander the proceeds and in future, the government's revenue shortfall would have to be made up with ever so slightly higher income tax. Whether the tenant pays market rent to Crown Estates or a private landlord is neither here not there. The same applies to Council Housing (with caveats).

d) OK. Complete these sentence in a hundred words or fewer:
(i) "A tax on wealth creation encourages wealth creation in a capitalist economy because..."
(ii) "A tax on wealth creation cannot be regarded as Socialist because..."

"Staff Diversity Handbook"

Hopefully, now the Lib-Cons are in charge, we'll be seeing a bit less of this sort of thing.

I would normally choose a couple of highlights for you, but I can't - the whole article is comedy gold, and I haven't even dared download the handbook itself.

More one-sided economics from the Home-Owner-Ists

Allister Heath talks good sense in the first four-and-a-half paragraphs of the section headed 'Capital gains nonsense' in today's Metro (except for the claim that this would be 'double taxation in the case of homes'), but then he drifts off into la-la land as usual:

Higher gains tax will throttle the private rental market, making it far less worthwhile for investors to let out property (1), as the Institute of Economic Affairs points out. It will cut the supply of homes for sale as investors will be loath to realise gains and hence pay tax (2). It will trash the investments of individuals (3) and force many to postpone their retirements.(4)

*sigh*

(1) Nope. If you own a property that you are letting out, putting CGT rates back to where they were two years ago (and had been for decades) makes it MORE worthwhile to rent out a property rather than sell it. And whatever the tax rates are, it is always more worthwhile letting it out than leaving it empty (unless tax rate > 100%, which is clearly not the case).

(2) If people are 'loath' to sell an investment property, then this might well reduce the number of homes available for sale (and if increasing the number of homes for sale is A Good Thing, then the government could just allow more to be built), but will increase the number of homes that are available to let in equal and opposite measure, without making keeping them and letting them out less profitable. So he is wrong on both counts (1) and (2) and has contradicted himself anyway.

(3) Trash the investments? Nope. The long run return on investments always levels out. CGT does not affect rental income, and might actually increase selling prices (less supply; plus people might hold out for a higher price to compensate for CGT). So yet another contradiction. In any event, if you bought a house more than ten years ago, it has at least doubled in value - far exceeding the expectations of any rational investor - and surely it's better to have a huge profit minus 40% tax than it is to have a smaller or no profit, on which you would have expected to pay, er, 40% CGT anyway?

On a personal note, I did pay 40% CGT on the flats I sold, it was my call to sell them and I took the tax into account beforehand.

(4) Woah!! Yet another contradiction. Some people have accumulated a number of properties to rent, and they want to live off the rental income in retirement. There is no reason why this would affect retirement plans. So yet another lie/contradiction.

*/sigh*

Cross-posted from HousePriceCrash.

Killer arguments against LVT, not (36)

Over at HousepriceCrash, Tom 101, at comment 8 said:

MW, What are the downsides of LVT? I read an article a while back on the planned introduction of LVT in Auckland and how poor people who happen to live in an affluent area would be priced out of their homes because of its introduction.

To which I responded, at comment 12:

Tom 101, the traditional "killer argument" deployed by the Home-Owner-Ists is "what about a poor widow living in a mansion" (and all its variants).

This is twaddle of course; most poor people leave in small houses or in cheaper areas where LVT wouldn't be much; most rich people live in big houses in nice areas where LVT would be a lot.

Assuming that other taxes were cut accordingly, shifting from income tax/VAT to LVT would help the 95% of poor people who live in small houses [or in cheaper areas]. The 5% of poor people who happen to live in a big house in a nice area will have to trade down; roll up the tax to be repaid on death; take in a lodger; get their heirs to pay it etc etc. Such is life.

Without LVT, when that little old widow in a mansion dies, her heirs will of course sell the house to a rich person; LVT merely speeds up the transfer of nice houses to [high income] people (which is fine - that is the whole point of being rich) and does not fundamentally alter anything much.

---------------------------------------
In case readers of this 'blog imagine that I don't live in the real world, I, like most middle-aged 'bloggers, have parents in their seventies who bought their house for about £2,000 back in the 1963. They struggled, scrimped and slaved for a few years to pay off the mortgage, but the high inflation of the 1970s eroded the value of the mortgage, and hey presto, by the late 1970s they paid off the mortgage out of petty cash. They traded up once and now live in a house 'worth' £270,000.

So effectively, they have lived completely mortgage and rent-free for over thirty years. If somebody stumbled into power and adopted my plan of replacing all existing property and wealth related taxes* with a flat 1% tax on residential property values, replacing my parents' current Council Tax bill and TV licence fee (which cost them about £2,000 a year, let's say) with a £2,700 LVT bill - but in turn scrapping Inheritance Tax (you never know, they might have some other loot tucked away) and Stamp Duty Land Tax (which would knock 3% of the selling price, at current rates), would I be too mortified? Nope.

If they don't want to pay it, then let them roll up the tax. Seeing as in the long run property prices rise slightly faster than wages (i.e. 4% a year nominal, let's say), the value of my 'inheritance' is still going up by 3% a year. And if it turns out that my parents have MEWed to the max and spent it all on new cars and holidays abroad, and I inherit nothing, well so what? It's their house and they can do with it what they like.

And if whoever is in power decided to go further, and to shift from taxing incomes and production to taxing land values, then every £1 that is taken from 'my' inheritance goes 50p to my parents in terms of cheaper goods and services (less VAT!) and 50p to me as a saving in income tax. Even if the tax were 4% of property values per annum, at least the nominal value of 'my' inheritance is not going down - it's the same as if my parents had £270,000 in the bank and spent all the interest every year, but no more than that.

Just sayin', is all.

* Council Tax less Council Tax Benefit, Inheritance Tax, Stamp Duty Land Tax, TV licence fee, Capital Gains Tax, Insurance Premium Tax, VAT on domestic fuel etc. You can do the same exercise for commercial land and buildings by starting with 'Business Rates'.