Commenters at The Spectator foamed at the mouth over Vince's proposed Mansion Tax, except for the reliably sensible Ian Walker, who chips in with this (Nov 30, 12:09 pm):
A mansion tax is a stupid, envious, silly policy. Taxing property on its value as the basis of personal taxation, though, is a pretty good idea.
Taxing income has become virtually impossible [but] The attractive thing about property is that you can't hide it, offshore it, disguise it as something else or otherwise avoid a tax on it. If you want to live in this country, then you need to either buy or rent some property here, and at some point the tax on that property will be passed on to you.
With a fair valuation system (index-linked to last open market sale price) and a flat tax across the board (tax everything, and tax it at the same rate, so there is no advantage or disadvantage to changing the occupancy) it could work extremely well.
Fair enough, you might think. But a total innumerate then pipes up (Nov 30, 12:28 pm):
I think you are showing some rather crass ignorance here... "a fair valuation system (index-linked to last open market sale price)". Linked via what index? CPI? Some building society's house price index? The FTSE? Something in between? (1)
Why should someone who bought sensibly during the last property downturn and who sat out this boom knowing that it was unsustainable nonsense see a grab on their income (2) just because some number which is not relevant to them has increased?" (3)
1) Well duh, index-linked to sales of similar buildings in that area.
2) And income tax, National Insurance and VAT aren't a "grab on your income" because..?
3) What worries me is that most people in this country are so bad at maths that they might fall for this 'argument', which is of course nonsense. The LVT purists say that the tax would be based on rental values, which don't fluctuate as markedly as buying and selling prices, and we can point to the real life example of Business Rates to illustrate this. HM Govt decides how much tax they want to raise in Business Rates and then divides that by the total rental value of all commercial premises (so even though selling prices may have doubled or trebled over the past fifteen years, the total amount of the tax only went up in line with inflation).
But even if you based the tax on selling prices, it is relative and not absolute values that matter:
a) What the total revenues from a flat tax on land (or land and buildings) would be depends entirely on which other taxes you'd like to replace; whether you want big government/small government; redistribution upwards or downwards; how generous a Citizen's Income you want to have; how fast you want to pay off the National Debt, but that is just the top bit of the fraction ("A" = tens or hundreds of billions).
b) The bottom bit of the fraction is the total value of land (or land and buildings) you wish to tax ("B" = thousands of billions).
c) The actual flat rate applied to each plot is then A/B (could be anywhere between 1% and 10%, AFAIC).
d) Therefore, if all values all across the country ("B") were to double, the tax rate (A/B) would halve and everybody would still be paying the same amount as before. It is only if the value of your plot increases by more than the overall increase that your tax bill would go up.
e) Ergo, if we'd introduced LVT at the bottom of the last house price cycle (mid 1990s), then most people in the country who "bought sensibly during the last property downturn" would now be paying less than they were back then, because the bulk of the overall increase has been concentrated on about one-quarter of the country (and London prices have gone through the roof).
Friday, 25 February 2011
Killer Arguments Against LVT, Not (95)
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9 comments:
I'll vote for you mob when you explain how La Toynbee's Tuscan villa is to be included in the British tax base. (Unless you advocate simple confiscation of all property belonging to those employed by The Tax-Dodging Guardian. Then I'd also persaude my wife to vote for you.)
D, her Tuscan villa would not be subject to UK tax, only her UK mansion(s). But once the idea takes off, the Italians will be quick to follow suit...
As to the G, it's not so much that they don't pay enough tax but that they get too much money from the government in the first place.
Well if you're not prepared to introducse a Sumptuary Tax On Labour-Supporting Hypocrites, I despair of you. "Stolsh" - it even sounds good. It would make a good verb too - that'll stolsh them. Or, in the imperative - Stolsh off!
D, there are two cash flows involved here:
1. What the G pays the government in tax (about which I am indifferent).
2. What the government pays the G in advertising revenue, which will be scrapped forthwith (if the Tories haven't already done so).
It does rather depend what you're hoping to achieve with your form of LVT. If you want one that discourages house price bubbles then you might let the overall tax take from it rise as the national house price index rises, i.e. basing it on absolute values not relative ones.
Anon, that's DBC Reed's preferred form of LVT, known as "Sentinel Tax" which he says was invented by J S Mill. I've suggested it before and received the same tired old objections as to full-on LVT.
@Anon
It is fair to say there is some internal debate amongst land taxers about the purpose of LVT. Some (the 100 percenters) want to make people pay a full 'market'rent to the State on the land they own freehold ; some want to tax land price inflation only on an as-and -when-it-happens and how-bad-it-is basis.
Mr W has advocated both forms of LVT on this blog but has got heartily shat upon in both cases so seems to have opted for the tougher form of LVT on a why bother to compromise basis.You can't blame him.
@MW
Our e-mails crossed ,but you seem to confirm that you have understandably taken the attitude: may as well be hanged for a sheep as be hanged for a lamb and so advocate the 100% Henry George Land value tax.
JS Mill did indeed come up with the essential bit of what I have called the Sentinel Tax ,in 1848 (so earlier than George who almost certainly read it and mucked around with it):
"The first step should be an evaluation of all land in the country.The present value of all land should be exempt from the tax; "(Gasp from Georgists!)"but after an interval during which society had increased in population and capital a rough estimate might be made of the spontaneous increase which had accrued to rent since the valuation was made."
JS Mill "Principles of Political Economy"(1848) Book 5 chapter ii.
No doubt there are records of some French Physiocrat saying the same thing even earlier but it does n't do to treat the writings of these Political Oeconomists as holy texts.
DBC, yup, may as well be hung for a sheep as a lamb.
The more that people come up with half-witted arguments against Sentinel Tax or Council Tax or Domestic Rates or whatever you want to call it, the more radical I become.
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