Tuesday 30 August 2011

Killer Arguments Against LVT, Not (160)

Mollyxxx mackes a particularly cack-handed attempt at playing The Poor Widow Bogey over at The Telegraph:

The £1million property tax is another stupid and desperate idea and it's time governments stopped trying to take money from something which has already been taxed via stamp duty... Many people who bought their property years ago (1) simply wanted a family home.(2)

It's not their fault property values have increased. Neither is it their fault if their areas have become more "sought after". These people may have little cash.(3)

The Lib Dems will therefore force them to sell up and downsize (paying all the taxes like Stamp Duty on the way). (4) They will lose out by being forced to sell up at this time (5) so their "Pension Pot" (6) will be diminished (7) and they will have to rely on State Handouts (8) - thus joining the "ghetto". (9)


1. If they bought their house "years ago" then the chances are that they only paid 1% Stamp Duty on a very small amount, and as Stamp Duty depresses the price paid, they got their money back at the time. To be fair, the current potential selling price of such houses is now depressed by the 5% SDLT that would be due, but that's still a very favourable effective tax rate on a capital gain of £1 million or more. (It seems more than fair to me to scrap SDLT entirely as a quid pro quo for introducing the Mansion Tax, but hey).

2. Aha! Here she says "They only wanted a family home" but later on she refers to it as a "Pension Pot". Can she make up her tiny mind?

3. It is their fault that house prices went up - it's exactly these people who voted to get rid of Schedule A tax and Domestic Rates, it's exactly these people who constantly voted to restrict new construction to a trickle. It certainly is their fault if they have "little cash", it's called "not saving up while you are working". And if they wanted, they could be sitting on a huge great pile of cash, so this sort of poverty is entirely self-inflicted.

4. The only "force" involved here is market forces. What such a tax would do is encourage Poor Widows In Mansions to do the economically rational thing and down size a bit to somewhere costing "only" a few hundred thousand, freeing up huge great piles of cash for them to really enjoy their last few years!

5. Aha! The sentence "They will lose out by being forced to sell up at this time" suggests to me that these people don't look at their home as a home but as an investment, and our clairvoyant Mollyxxx appears to assume that prices will rise again the near future.

6. What is it? Home or Pension Pot?

7. If the value of their house is a Pension Pot, isn't the general idea that when they retire they cash in and start drawing an annuity? Or in housing terms, sell up and downsize? Or is this a special kind of Pension Pot which requires no contributions to be made but gets the tax breaks nonetheless and which is to be left to 'the next generation'?

8. That's an outright f-ing lie. As things stand, a Poor Widow in a £1m house with no savings is entitled to all sorts of extra benefits (Pensions Credit, Council Tax Benefit). If she did the economically rational thing and traded down, she'd have £100,000s in the bank and wouldn't be entitled to any of these extra benefits. (The welfare system is just as Home-Owner-Ist as anything else).

9. Ah yes, that special ghetto, where houses or flats sell for a few hundred thousand pounds and all the residents have hundreds of thousands more in the bank. Sounds like Hell On Earth.

10 comments:

Anonymous said...

I'm quite new to this so sorry if it's been asked before, but:
say LVT was implemented tomorrow,
someone who is 20 and starting work will have no complaint, as they won't pay income tax and when they do buy a house they should be quite happy to pay the LVT.
someone who is 40 has paid approx 20 years of income tax and you say he should pay LVT instead for the next 20 years. If his LVT is about the same as his income tax would have been, he can't complain either
however someone who is 60 has paid 40 years of income tax, and has a big house, but expects to pay very little tax in the future. You now want him to pay LVT for the remainder of his life. Even if you defer his LVT payments to his heirs, he doesn't feel that is fair because he has paid income tax on the money used to buy his house. By the time of his death, the value of his house would have dropped so that selling it would not yield any significant profit (after inflation), i.e. the back LVT owed by his heirs would wipe out their inheritance. Have I got this right / what's your response to this?

Mark Wadsworth said...

Anon,

1. Yes, to some extent, LVT is a young man's tax, but...

2. Two wrongs don't make a right. Just because our tax system was arse about face for the past century and those people who have rigged the system in their favour would lose out if we put things right is no reason not do so.

3. For sure, we'll have to phase this in gently (over five or ten years) for the general population, and have some sort of relieving provisions for pensioners (either exempt them entirely or double the state pension or anything in between).

4. Let's imagine that we had always had LVT instead of income tax. Many of the pensioners in the now expensive houses will have paid FAR LESS in income tax than they would have had to pay in LVT, so they have benefitted enormously in the past.

And other people will have lost out (high income, small house). So the mythical Poor Widow In A Mansion has still banked a massive tax saving over her lifetime and those who lost out won't get compensated. LVT just looks to the future.

5. I'm a small state sort of person. The fact that LVT is such an in-your face tax means that the government will only collect the bare minimum, spend as little as possibly on quango crap and return the bulk of it as Citizen's Income. So that's good news.

So while the heirs may inherit less in future, their net earnings will be a lot higher in the interim, and mathematically, their extra net income will be enough to pay the extra LVT for the aged parents (to the extent we don't just exempt pensioners and have done with it). I mean, I'm more than happy to pay tax towards a decent Citizen's Pension* but I've no interest in paying extra to enable Poor Widows to stay in Mansions so that their heirs can inherit it all.

* By the same token, I'll be grateful if I get a decent Citizen's Pension when I'm old and knackered but I wouldn't expect extra subsidies to keep me in a large house either.

Anonymous said...

What the commies want is for the older HOME owner to default on the LVT so that the state can confiscate the property as a "social bonus", that way the older HOME owner HAS paid income tax, WILL pay LVT until his money runs out and then LOSE his home. how's that for fair.

Mark Wadsworth said...

Anon, yup, that would be the same evil Commies who are paying out the old age pension and spending £50 billion a year on health care for the elderly and so on. And the same evil Commies who the Home-Owner-Ist crowd expect to pay for nursing care so that the heirs can inherit the whole house, yes/

If our working man forgets to pay his income tax and gets caught out, then HMRC might well put a charge on his house, and possibly force him to sell it. Please explain to me:

1. Why you consider income tax not to be state sanctioned theft.

2. Why it would be acceptable for HMRC to confiscate the sales proceeds of a house to settle unpaid income tax but not to settle unpaid LVT?

The fact is that by and large, "older HOME owners" have paid much the same in income tax etc as they would have done in LVT, that bit of maths must be obvious to a blind man, and those who are now wailing the loudest will be those who have paid FAR LESS in income tax than they would have done in LVT.

Please explain to me why the receipt of massive state largesse in the past justifies further state largesse in future.

DNAse said...

On point 3)

If it is not their "fault" that house prices went up or that an area has become more desirable, why should they deserve to make a gain from it?

Mark Wadsworth said...

DNA, it's because of inverted Home-Owner-Ist logic.

If you work hard to achieve something with your own efforts, you can be taxed to the hilt; but if you just exercise political pressure to reap unearned gains or subsidies, those gains should not be taxed at all.

Anonymous said...

On point 4)
True, but if LVT had been in force, they would have downsized long ago. However, you can counter that with point 2) of the same post.

I think I'm convinced now. On your point 5) I like small states and small governments too, but I like privacy more. You mentioned the thing about the Swiss foreigners' tax a day or two ago - and the major attraction of LVT for me is that the state, which IS the land that comprises its territory, should be entitled to tax only that.

I find it ridiculous that a state can tax you on worldwide income, and base this on where your body happens to be. I don't want the state to need to know where I am or what I earn. But if I own some land (whether directly or through layers of companies) by definition it needs to be declared to the state so they can prevent other people from owning it.

(In fact if I was a large landowner I would like the option to seccede from the state and form my own, if I thought the state was not spending my taxes efficiently. I suppose anyone who wanted to seccede with me could contribute to the defence of the new state via an LVT. But let's not go there.)

Anonymous said...

Mark, if you have time, can you read this and see if there are any killer arguments for/against LVT. When it comes to LVT, the posters who normally make sense (who tend to be home-ownerists) seem to talk rubbish while the ones who talk rubbish normally seem to see sense with LVT.

Mark Wadsworth said...

Anon, you provide more good arguments in favour of LVT.

There is no single killer argument in favour, there are lots and lot of arguments, but that is not enough. What we also need to know is that there isn't an Achilles' Heel which renders it pointless. I'm up to number 160 and I have never seen one. For sure, the transition will be a bit icky and there's nothing that politicians can't mess up etc but apart from that i can't see a downside. Downsides for a few individuals who have benefitted from the old system, yes, but that's about as relevant as the fact that slave owners lost out when slavery was abolished.

DNAse said...

The killer problem rather than argument that LVT faces is that although only a few would actually face a downside, there is a majority who have been duped into believing that they benefit from the existing system.