SJ emailed me a link to an article in The Economist. The author outlines some of the advantages of collecting taxes from land rental values rather than incomes, and muses on the respective advantages of the 50p top tax rate and a Mansion Tax but then can't resist playing The Poor Widow Bogey:
... to be convinced by a mansion tax, I confess I would like to see fairness taken into account, as well as efficiency. And for that matter, not just fairness but humanity, which is not the same thing... Britain is home to a fair number of people sitting on a million quid's worth of wealth simply because they were adults in, say, 1965, and bought a house for, say, £15,000. It is also quite possible to make the case that such paper riches amount to a massive transfer of wealth from younger generations to their parents... (1)
But leaving aside dry numbers, I confess to worrying about a mansion tax of that sort. First, it might as well be re-named a "London tax", or at the least a "south-east of England tax", because that is where the estimated 250,000 homes worth more than £1m are found. You may say that is fair enough, and that England is due an extra dose of redistribution from south to north, alongside a redistribution from old to young. (2)
But here is my other worry. You could also name such a tax a "force Home Counties widows to sell their homes and downsize tax". This is a blog posting, not a finished print article, so I do not have hard and fast numbers for this, but a fair number of the people living in "mansions" are certain to be pensioners on relatively low incomes. Charge them several thousand pounds a year to stay in their homes, and many would simply have to move out. (3)
The truly plutocratic, meanwhile, would set about finding clever lawyers and accountants to turn their mansions into business assets owned by companies owned by trusts in the Channel Islands, and so on, minimising their tax bills... (4) An interesting news story in the Financial Times this week floated the idea of a "son of mansion tax" that would scrap the current rules exempting first homes from capital gains tax when such houses were sold. (5) This rule would apply to homes over a certain value, such as £2m (of which there are about 50,000 nationwide). That sounds more practical to me. as it avoids the nightmare of establishing the market value of homes across the country. (6)
It also sounds humane. (7) Because yes, there are reasons to pity today's young people, who had the ill-luck to be born after their elders had enjoyed the fruits of the post-war boom. And yes, there are older people in Britain sitting on lots of wealth because they bought their houses years ago. But that windfall was not a conscious act of wickedness, or even of greed (8) (unlike, arguably, Baby Boomer schemes to award each other early retirement at 55 on vast pensions, which were a form of stealing from future generations). (9)
1) The whole article is about how older generations are holding younger generations hostage. Is that fair? Is that humane?
2) Yup, but I'm also quite sure that most people paying the 50p top tax rate are also in London and the South East, so we'd be swapping one "London and South East" tax for another; it's redistribution from "London and South East" to, er, "London and South East". And who says that the Mansion Tax is distribution from "old to young"? In theory you could earmark the tax for a higher basic state pension.
3) Right. So his starting point for the design of an efficient and equitable tax system is the 50,000 pensioners who have made unearned capital gains of millions of pounds at everybody else's expense? And as I've said before, how about giving people a £ for £ credit against income tax for every £1 they pay in Mansion Tax? If The Poor Widow In A Mansion can't pay it, she can put the house in the names of her children and grandchildren and they can pay it for her, which costs them effectively nothing.
And what is so terrible about downsizing? Doesn't it make good sense to sell your £1m house, buy somewhere nice for £200,000 and have £800,000 sloshing about in the bank? If a retired person owns a £200,000 flat or house and has £800,000 in the bank, they can hardly plead poverty and ask for special treatment, can they?
4) Complete bollocks, I'm afraid. You can't reduce your Business Rates or Council Tax bills by putting the land and buildings in somebody else's name, so why would a Mansion Tax be any different?
5) Conversely, capital gains tax on the sale of land and buildings (or indeed Stamp Duty Land Tax) is exactly the kind of tax you can avoid by using offshore companies. He doesn't know much about the practicalities of tax planning, does he?
6) Nonsense. Even the Morbidly Obese One admitted yesterday that it would cost on average £5 per home to value every home in the whole country.
7) Why? What is the big difference between a) a small, annual tax which you can roll up and pay when you die or sell, or b) a swingeing transaction tax (like capital gains tax, inheritance tax, stamp duty land tax), assuming they both raise the same amount in tax revenues? Apart from the fact that (a) is much more practical to implement, does not distort decisions so much and is more difficult to avoid, of course. For example, the TV licence fee raises slightly more than Inheritance Tax, which is the better way of raising money (notwithstanding that the TV licence fee is regressive)?
8) Oh yes it was quite deliberate, it's called Home-Owner-Ism, as manifested by the cowardice of politicians who caved in to these special interests and restricted new construction; replaced in-your-face taxes like Domestic Rates with all the stealth taxes (especially VAT and NIC); kept interest rates much lower than they would have been; turned a blind eye to the credit-house price bubble and so on.
9) Pointing at somebody else who is just as bad is not a defence. For sure, as a matter of private law, those pensions are due and payable, but as a matter of public law, the government is free at any time to levy a super-tax on all civil service pensions of over (say) £20,000 a year, that's that fixed.
