There was a veritable feast of Home-Owner-Ist drivel in an article and the comments thereto in today's CityWire.
Let's take Council Tax as out starting point, which is a weird mixture of LVT, local income tax and poll tax. The Home-Owner-Ists hate the LVT element but cannot make up their minds in which direction they want to go: high earners want it to be replaced with a Poll Tax, justifying this with the fiction that "Council Tax pays for local services" and that everybody somehow gets the same benefit from "local services"; low earners want it to be replaced with Local Income Tax, justifying this with the "ability to pay" mantra.
We can rule out Poll Tax as a sensible tax because it is the exact opposite of welfare, and the best kind of welfare is universal, non-means tested and flat rate (so it would be easier to net off the two, or reduce people's personal allowance for income tax or something). We can rule out income tax, because that's a bad tax. And "Local Sales Tax" would be even worse, which leaves us with LVT.
"But LVT is not fair!" wail the Homeys (despite they can't agree between themselves whether they prefer a Poll Tax or Local Income Tax).
Oh yes it bloody well is fair - look at it this way; those people who are willing and able to pay the most tax get to live in the biggest houses, the nicest locations or have the biggest gardens. Those who don't want to pay so much tax, or who want to get a bigger net benefit from the system have to make way for them, is all.
To use a crude analogy - if somebody offers to go to the bar to buy everybody a round of drinks, would you begrudge him if he bought himself a double?
LVT is entirely voluntary, and if the government doesn't collect the extra rental value (spend a bit on core functions and dish the rest out again as welfare and pensions) then a private entity (landlord, vendor or bank) will do so; and as compared to 'society in general' or 'the state', that private entity has contributed nothing towards the value of the location of the home that is being rented or sold (it is easy for an occupant to affect the value of surrounding houses; it is very difficult to affect the value of your own location).
Tuesday, 29 March 2011
Killer Arguments Against LVT, Not (103)
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There used to be a charge to income tax from owner occupation. The occupier was charged with the rent he might have made if he had let the property. I think it was called Schedule A.
It was not popular and was abolished when ownership of the freehold became a sort of idol. It persisted in Malta until quite recently. It would have some of the same effect as your proposal.
The other great distorting factor is the exemption from capital gains tax on the main residence which has a huge inflationary effect.
(I seem to remember making these comments on another occasion. If it was on this blog, please accept apologies for a senior moment)
ES, possibly you did, but it's good to remind ourselves that older homeowners benefitted from the lower prices that they had when we still had Domestic Rates and very old homeowners benefitted from the even lower prices they had when we had Schedule A tax as well as Dom Rates.
After the abolition of either, we had a nice juicy house price bubble. In absolute terms, the price bubbles with commercial land and buildings were never as big because they still have Business Rates and the gains are liable to CGT.
I can sort of see why they exempted main residences from Capital Gains Tax, but as you say, it's a very distortionary exemption.
I don't see why this is so difficult for people, in society there's a privileged group that charge the rest of us 30-40% of GDP for access to our own land (which they didn't provide). How is this is morally defensible?
Even a paltry 0.5%-1% LVT would have a massive effect as idle owners were forced to release surplus land back onto the market or pay some form of compensation, which could be used to reduce more damaging taxes like VAT or income tax.
But what really gets my goat is the intellectual dishonesty, even if I was a multi-millionaire slumlord I'd still have the decency to admit that the situation is wrong and that I'm simply exploiting a rent-seeking opportunity. I wouldn't bother trying to justify what is so obviously an abusive financial relationship.
Not being able to rationalise objectively when your financial interests are at stake makes the UK pop appear v.dim, it's a curious trait.
CD, ah yes, but most people are owner-occupiers, and they flatly refuse to accept that the land generates income for them. It's these people who are terrified of losing what little they think they have who are prepared to defend the Ponzi scheme to the death and who are prepared to put up with paying over half their income in taxes.
That is why the powers that be (banks, large landowners etc) have to get a load of little people 'on the ladder' (who own a laughable tenth of an acre each, subject to a huge mortgage in many cases) to act as human shields or footsoldiers.
it is easy for an occupant to affect the value of surrounding houses
Give one or two examples of affecting in a downwards direction.
JH, OK, imagine a normal residential street. You could buy or rent a house in the middle of it and...
- Have noisy parties every evening
- Park loads of rusty cars in the street and work on them occasionally
- Leave the house vacant to attract mould, burglars, rats, squatters fly tipping etc.
This clearly pushes down the value of all the surrounding houses, but let's imagine all the well behaved people stay in place, you get evicted/repo'd and somebody else buys or rents that house.
This new occupant sticks to the rules, keeps the place clean and tidy and so on. The value of the surrounding houses goes up again.
But remember that the price the new occupant pays is based on his estimate of what the place would be worth assuming that all the other people in the street continue to stick to the rules as well. A rule of thumb of property developers is "Buy the worst house in the best street - don't buy the best house in the worst street" and so on.
@20.58 "most people are owner-occupiers, and they flatly refuse to accept that the land generates income for them"
I must be one of the few who does appreciate the income that my mortgaged space provides me with. I pay a hell of a lot less in rent than I would to a landlord* and I get to charge half my costs to a willing lodger!
* I don't understand why rents are more than the relatively high interest rate I pay. What has happened to competition. Is it because of the supposed lack of mortgage lending?
BE, as an owner occupier you have to pay interest (rent on money borrowed from the bank in other words) and maintenance on the house. As a renter you only have to pay rent. Assuming that the renter and owner occupier both earn the same amount, the renter's monthy payment can all go into rent whereas the OO's monthly payment has to cover interest plus maintenance. So the OO can't afford to pay so much for interest as the renter can for rent.Hence why rent is more than interest but probably less than interest plus maintenance (and probably plus principal repayments too)
How long have you had your house Blue Eyes and how have values gone since? I would hazard a guess that a FTB buying your house now would have to cough up more to the banks than you are at present and don't forget a deposit that would be much larger than for renting. I think this FTB cost is the one that you sould be really comparing to renting.
4 years, prices in inner London have gone up a bit so yes a buyer would have to give me more than I gave the previous owner. However I disagree that this is the point here, my point is that simply paying interest on the loan is still cheaper than renting so even if I sold the place for the same as I paid for it, the cost to me of living in that space for that length of time will have been less than if I had rented the same space.
How is a tax, whether it be LVT or any other, "entirely voluntary", Mark? It is a freakin' TAX.
Seriously, whatever the merits of LVT (which I have questioned over at Samizdata numerous times, as you well know), to argue that any tax is "entirely voluntary" is bizarre.
JP, LVT is entirely voluntary. If you belong to the group of people who want to get more out of the system than you pay in, then trade down to somewhere smaller.
Seeing as 100% of land is 'owned' and the government guarantees 'ownership' ('the state' and 'land ownership' are synonymous, don't forget, so why shouldn't 'the state' on behalf of everybody is who correspondingly burdened* charge for this fine service?), whether you are paying rent, mortgage or tax makes absolutely no difference - the total amount you have to pay will always be the same.
This is quite different to taxes on output, profits or incomes where you get nothing in return if you pay more tax (you are forced to pay 'rent' on your own labour or skills, rather than rent for the value of benefits you get from the existence of 'the state').
* If there were an unlimited supply of land at every location, then it would have no commercial value, in the same way that you don't have to pay for fresh air. So land only has value to the owner because everybody else has been excluded.
A couple more thoughts on this matter have since occurred to me.
The whole idea of a "property ladder" and "trading up" is RELATIVELY recent. In the Sixties I knew a number of owners of quite substantial businesses who still lived in the relatively modest suburban houses they had bought in the Thirties when they got married. Obviously, some people did move to more prestigious homes when their businesses prospered but it was by no means a universal assumption.
Also, back in the Sixties again (I think) there was a proposal from parts of the Labour party to convert Freehold property into "Crownhold" which would not necessarily be automatically inheritable although (if I remember rightly) there was to be some provision compensating crownholders' heirs for improvements.
In a way, this was reminiscent of manorial "copyhold" agricultural tenancies, abolished in the Twenties. Copyholders usually paid very low rents but there were "fines" on specific occasions - such as the transfer to the next generation, coming of age of the Lord of the Manor's son etc. In earlier generations they had also been required to provide a horse and a man for the yeomanry.
I knew one farmer who had been a copyholder. His passport showed his occupation as "Yeoman". In the custom of his manor there was a fine to be paid when the lord of the manor died and a new one succeeded. The fine was "the best beast on the farm". As he owned a very fine racehorse, its ownership had to be transferred very quickly, when the landlord fell ill!
ES, my head is now spinning a bit, but it just goes to show that land 'ownership' and how the rents are divvied up can be done in infinite ways.
And of course people would be compensated for in full by LVT - their income tax etc. liabilities would be reduced accordingly, and in future you get what you pay for.
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