From today's FT:
“If we do get rid of the 50p [income tax] rate we need to make sure there is something else levied on higher rate payers. Lib Dems think there should be a new way of taxing wealth,” one senior Lib Dem aide said. Talk of lowering the top rate of tax has triggered a dispute within the coalition, with Danny Alexander, the chief secretary to the Treasury, saying advocates of the move were “living in cloud cuckoo land”. (1)
But the Lib Dems expect it will happen, and are concentrating on coming up with replacement taxes that would raise extra revenue and win the support of voters, among whom the 50p rate is popular.(2) Mr Cable has long favoured the option of a “mansion tax”, levied on the sale of high-value homes, although others inside and outside the party have called it overly-complicated and unworkable...(3)
David Laws, the former chief secretary to the Treasury, and one of Mr Clegg’s closest political allies, is opposed to all these forms of wealth tax (4), saying they amount to double taxation after income tax has already been raised. (5)
1) Why? We managed perfectly well with a top income tax rate of 40p until a year ago, and according to HMRC estimates, it only raises about £1 billion. According to others, the top rate of 50p is past the top of the Laffer Curve and reduces overall revenues.
2) Have we really sunk this low? The 50p top tax rate on wealth creation is 'popular' but such is our reverence for 'people in big houses' that a tax on rent seeking and unearned wealth wouldn't be?
3) No it wouldn't be, not compared to the hyper-complexity of the current tax system, or the complexity of the 50p top tax rate alone (which requires a whole raft of anti-avoidance provisions to make it anywhere near enforceable), if anything it would be as simple as, or simpler than Business Rates in the UK or Domestic Rates in Northern Ireland. And given that any tax on residential land and buildings could and should replace other taxes, it would lead to a massive reduction in the overall complexity and unworkability of the tax system - the more taxes you replace, the easier it gets (including politically easier, as there'll be a minimum of people who'd lose out on Day One).
I sketched out a possible system for taxing residential land and buildings which ended up being published on Labour Left (of all places). If you want to get rid of the 50p top tax rate as well, or even the £30,000 non-dom levy, you just have to increase the target receipts from £42.5 billion per annum to £43.5 billion, hooray, yet more fiddly little taxes and jealousy surcharges out of the window.
4) A tax on the rental value of land is not a tax on wealth, it's a user charge. In the same way as a tax on petrol is not a tax on the wealth tied up in your car (VAT is), it's a tax on road use.
5) So if you pay 50% income tax, that's OK, but if you were to pay 40% income tax and approx. 5% of your income in LVT, that's double taxation, is it? Since when does "paying less tax" amount to double taxation?
Monday 15 August 2011
Killer Arguments Against LVT, Not (154)
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7 comments:
It is interesting to compare houses and cars. Both are required to be registered on gov't registries. Both are taxed regardless of the ability of the owner to pay, yet people pay the car (road) tax without a murmur whilst continually railing against the house (council) tax. Mind you houses are far more difficult to buy and sell, even though a prudent car buyer will carry out a "search" on a second-hand car, so perhaps it's all the fault of the lawyers getting their sticky fingers into house purchase.
B, it is most interesting to compare the two.
The car tax is a bit of a cheek, the admin costs are about £10 per car per year, which is what the tax ought to be, seeing as car registration is as much for the benefit of 'everybody else' as it is to the benefit of the owner.
But the biggest tax is the tax on fuel, which is like LVT for roads and thus harmless in itself, and if you tot up all vehicle taxes, it's more than £50 billion a year on a depreciating asset worth £300 billion odd. If houses were taxed at the same rate that'd raise more than enough to replace all other taxes :-)
I don't think the Lib Dems are LVT I think they are simply saying lets tax people who in our opinion can afford it.
if the mansion dweller is selling his mansion A then he pays the levy and cannot afford to move to mansion B. "levied on the sale of high-value homes" would be a tax on moving in the most part.
A lot of highly priced houses are not called mansions but this pile is
http://www.telegraph.co.uk/property/propertynews/8699258/Park-Place-Britains-most-expensive-home-sold-for-record-140m.html
Den, it appears that the Lib Dems are intent on sneaking in a CGT on main residences as a miserable substitute for Mansion Tax, which in itself is a miserable substitute for proper LVT or Domestic Rates.
CGT has political appeal, perhaps, but is economic nonsense, it makes things worse (as you point out). Far better to scrap CGT on everything.
Mark, for once I totally agree. CGT on property is far worse than LVT (and I don't like LVT, based as it is on a socialistic view of how "we" all own the rising values of specific bits of "unimproved" land, as you know).
The focus for policymakers should be to make the tax code as simple as possible and roll back the burden of the state. The exact manner in which the state takes from our wallet will then be a less vexed issue.
Anon: allow me to paraphrase:
"I don't like income tax, VAT or NIC, based as they are on a socialistic view of how "we" all own a share in the skills and efforts of others, as you know".
It is quite clear that I contribute nothing towards my neighbour's income derived from his own skill and effort, but by occupying land myself (and keeping my front garden tody etc), I subtly drive up the price of all other land etc.
Think about it: if the entire working population of the UK emigrated, what happens to their earnings potential? It stays much the same, because it goes with them. What happens to UK land values? They fall to nothing.
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