Friday 2 December 2011

Nick Robinson on tax avoidance

Taken from part 2 of his series, as broadcast on Tuesday:

My latest blogpost: Nick Robinson on tax avoidanceTweet this! Posted by Mark Wadsworth at 08:01

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8 comments:

Lola said...

I didn't see the prog, but I'll have to go to iplayer.
Laws misses the point on lVT. He doesn't see it as a replacement for income tax (say) His comment was that people resent paying tax on a purchase paid for out of already taxed income.

Robinson also says we have 'trouble with tax' - actually what we have is trouble with state spending.

2 December 2011 at 10:25
Mark Wadsworth said...

L, I'm sure I've covered that supposed Killer Argument that 'people don't like paying tax on something paid for out of taxed income'.

Let's assume that we'd always had LVT instead of income tax etc, in which case no problem. By and large, most people will have paid +/- a similar amount in income tax etc as they would have done in LVT. So we can just imagine that people's incomes and spending hadn't been taxed and that the money they gave the government was in fact LVT.

2 December 2011 at 10:34
Mark Wadsworth said...

Yup, it was the second killer argument demolished in Part 125.

2 December 2011 at 10:50
Richard Allan said...

Let's say we commit to bring in 100% LVT in eight years' time. Can we compare freehold prices with leasehold prices with eight years left on the clock to figure out how much of a hit people would take? If we announced the change and house prices didn't fall then by definition no-one would have lost out. Anyone who doesn't like the idea could just sell up. To sweeten the deal you could even announce a moratorium on council tax and stamp duty for the interim.

2 December 2011 at 12:57
Mark Wadsworth said...

RA, the maths is a bit trickier than that, because even a leasehold with 8 years to run might take a hit, who knows?

As to the transition, best to just get it over with in one fell swoop, chuck all taxes in the bin and move to full-on LVT.

It's easier to patch up the wounded afterwards, by exempting pensioners and capping a household's LVT minus CI bill (i.e. low earners in expensive houses - about a tenth of the population excl. pensioners) at a certain % of earned income.

2 December 2011 at 13:04
OTOH said...

As you normally explain MW, a load of other taxes would instantly be cancelled like tv licence and road tax (leave tax inside the fuel though). Income tax could slowly be dropped, but at first income tax would continue and a certain amount would be credited against LVT, perhaps up to a cap of GBP 20,000. The poor widow would have her tax deferred for the rest of her life if need be. Or your citizen's income would work too.

3 December 2011 at 13:40
Mark Wadsworth said...

OTOH, yes, of course, get rid of most other taxes, fuel duty is quite a good tax as it's rent for road users.

I've run your experiment before, it went something like this:

Step 1: Roll income tax, VAT, NIC, corp tax into a flat tax at a single rate (would work out at about 45%, I'm afraid, but at least that's honest)

Step 2: Phase in LVT over five or ten years, with the gimmick that the income tax is credited in full against your LVT bill so you only actually pay net LVT if your LVT bill is higher than your income tax bill.

Example: in Year 1, LVT is 1% of the value of your house. As long as your house is worth less than forty-five times your annual income, you don't actually pay any LVT

Step 3: Keep hiking the LVT rate. So after five or ten years, the LVT is rate is about 7% of the current value of your house and so as long as your house is worth less than 6.4 times your income, you still pay no net LVT - and that applies to the vast majority of households.

Each year, a few people trade down or go out and actually earn some money for a change, seeing as their is no incremental income tax cost if your house is worth ten times your earned income.

Step 4: The optimum amount of housing to occupy for any household, purely from a tax perspective, is thus 6.4 times the household's earned income.

Step 5: In the final year, just scrap income tax, by and large, most people won't notice the difference, because they'll all be living in houses which are worth about 6.4 times their income. Those who live in larger houses won't pay more than they did anyway and people who live in smaller houses will pay less.

However, as entertaining as such maths puzzles are, all in all, I think the best transition is big bang, get it over with, with relieving provisions where necessary see e.g. here.

3 December 2011 at 14:04
Mark Wadsworth said...

or you can credit people's LVT against their income tax, it's the same thing, but probably better psychologically.

For example in year 3, the LVT rate is 3% of current value of your house. Your house is £150k and you earn £30k. So your LVT bill is £4.5k and you get a PAYE code adjustment so that PAYE deducted is [£30k x 45%] minus [£4.5k LVT already paid] = £9k.

3 December 2011 at 14:08

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