Digby Jones in City AM. Going by the rest of the article, his heart seems to be in the right place, although I'm not convinced that maths is his strong point*:
So there’s to be a mansion tax, is there? It may seem easy to identify those mansion-owners that wouldn’t miss a few million in tax as they buy yet another house in Kensington. But what do you do about the hard-working, mortgaged-to-the-hilt couple living in that different country called the south-east, commuting to the City every day (probably reading these words on the crowded train), working every hour and living in a house that would be caught by this tax but who could not in any way afford to pay it?
Aha, so it's not just Poor Widows In Mansions, it's their diametric opposite, High Earning Young Couples for whom we have to feel sorry?
Surely, if the High Earner Couple had any common sense, they wouldn't have leveraged themselves to the hilt anyway; and having done so, surely they would have budgeted for interest rate increases of up to (say) three per cent to give them a 'margin of error'. Interest rates are at an all time low, even for people on high loan-to-value mortgages, so this couple are actually a couple of per cent ahead of the game, they are making a handsome windfall of tens of thousands of pounds a year at savers' expense.
So even if we went the whole hog and rejigged Council Tax bands so that everbody - not just those in the lower bands - paid about one per cent of the current selling price of their home in tax each year (scrapping other taxes as a quid pro quo, starting with IHT, SDLT and the TV licence, and let's get rid of the 50p tax rate while we're at it), then all this would do is claw back part of the amount they are saving in interest, or absolute worst case, eat in to their 'margin of error'.
* He suggests reducing Employer's NIC and increasing corporation tax, splendid idea, but you have to remember that Employer's NIC raises about £50 billion a year and corporation tax only £35 billion, so there's only so far you can go.
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11 comments:
Bit of a simplistic assumption that everyone is now enjoying lower rates than when they bought, simply because the Bank rate has dropped, isn't it?
Also, the chances of increases in CT being offset by cuts in other taxes in Year One is close to zero I would think due to the yawning deficit.
I agree in principle with the shift to more burden on land taxation and less on other stuff but to "win the argument" the pols are going to have to be more open than they usually are and a lot more persuasive.
BE: "Bit of a simplistic assumption that everyone is now enjoying lower rates than when they bought, simply because the Bank rate has dropped, isn't it?"
I am led to believe that in practice, interest rates are now much lower than people would have expected them to be X years ago (whereby you can make up your own number for "X").
And the "yawning deficit" is down to the government wasting insane amounts of money, under Nulab I used to moan about them running a 3% - 4% deficit in what were supposedly the good times, which they promptly cranked up to well over 10% back in 2008 or so.
As to the pol's being open and honest, yes, that is a bit of a sticking point :-)
Yer man is at work on 2 fronts today - basically the same message :- http://www.dailymail.co.uk/money/markets/article-2047155/LORD-DIGBY-JONES-Only-business-pull-Britain-mire.html
MW you miss both my points admirably.
You cannot assume that people are paying less than they were before Bank rate started falling nor than "expected". Many will be, for sure, but it's a tough assumption to base a new national policy on.
I don't disagree about the cause of the deficit but that wasn't my point at all.
You do make your comments thread a very unfriendly place sometimes!
Raise corporation Tax? Does he want more unemployment? Does he want less small businesses to hire people?
AC1
Anon, I agree with DJ's basic point that the govt shouldn't slaughter the golden goose.
BE, sorry if that came out unfriendly:
a) I don't know for sure if people are all paying less than what they were X years ago (although this is what all the newspapers keep saying), but
b) what's pretty certain is that most people are paying less than they would have expected to be paying, and
c) what's absolutely clear is that hardly anybody is paying more than a sensible person would have budgeted for (i.e. up to 3% more than they were paying when they took out the mortgage).
d) Savers are being shafted and banks' gross interest margin has doubled since 2008 (or something).
I do take your point on the "yawning deficit", but e.g. the pol's merrily hiked NIC and VAT and claim that this will bring in (i.e. cost the economy) an extra £20 billion a year, which is much the same as they could have got by simply doubling council tax, and nobody seems that bothered apart from the thoroughly discredited Ed Balls.
AC1, he is quite right that £1 for £1 raised, NIC destroys more jobs or businesses than corporation tax. Read what the man said.
Take the after-tax abnormal profits of the firm. Subtract this from "ideal dividend". If it's zero, the firm is paying the ideal rate of corporation tax. If it's negative, the firm could stand to pay more, and if it's positive, the firm's corporation tax should be reduced.
Of course there's no way you could work this out for the economy as a whole, and the fact that firms can use transfer pricing to shift profits overseas muddies the waters a bit. So in an ideal world I would probably have a corporation tax of zero. But I agree if taxes need to be raised, corporation tax should come way ahead of NIC and VAT.
RA, sounds a bit fussy to me, isn't it easier to tax their monopoly income as heavily as possible and their other income as lightly as possible (and their expenses preferably not at all)?
Well I'm assuming you can't tax ONLY abnormal profits (except ground rent), otherwise yeah we would do that. However in practice this would just cause larger dividends, as the firm would have no reason to declare anything other than zero abnormal profits. Actually, they would, if the corporation tax was lower than the marginal income tax paid by the owners.
I was originally going to make the point in a simpler fashion: take the share of total assets financed by owners' equity (as opposed to debt) under a 0% corporation tax, then multiply this by the proposed corporation tax to discover the "equivalent VAT". This way you see the same result as above, that a firm entirely financed by debt sees a corporation tax of even 100% as equivalent to a 0% VAT, as it captures only abnormal profits. Even a firm 100% financed by equity sees a 20% corporation tax as equivalent to a 20% VAT. And any abnormal profits earned by a firm tip the balance further in favour of corporation tax.
RA, you've completely lost me now, can you do some worked examples?
AFAIAC, a business makes profits, and these have to be divvied up somehow between employees, managers, shareholders and bond holders/lenders (in smaller businesses, these categories overlap, of course, with a one-man band, it is all exactly the same thing) and there is no particular reason to tax different types of profit-shares at different rates, because that is taxing form over substance.
Anyway, send me an email.
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