Wednesday, 4 September 2013

Good riposte

MSW does another half-hearted attack on the concept of Mansion Tax, using the following bizarre logic:

Most people will by now be familiar with the concept of fiscal drag (the main means by which our government manages to regularly increase its tax take).

Assume that this will be used as much as possible with the mansion tax – ie, that the limit for it will not be raised in line with house-price inflation – and even if the threshold were set at £2m, there would be 775,500 houses paying the tax within 25 years (that's all houses currently worth £540,000 or more).


Mombers left this comment:

You're right that this should replace stamp duty but you're wrong that more people will pay it as time goes on.

The tax incidence of council tax is on the seller, not the buyer, so selling prices will be reduced accordingly.

So instead of paying x in mortgage/rent and y in council tax, you'll pay x-a in mortgage/rent and y+a in council tax, net effect zero. This is easily observed in the case of Business Rates.


However ill-advised or badly calculated a tax on the rental value of land is, market selling prices adjust down (or indeed up) to compensate.

So even if the original tax bill for any home was subjectively somehow "incorrect" (and on Planet Home-Owner-Ist, every last penny is incorrect), the rental value is fixed anyway (or beyond the control of the owner) and the market selling price is always correct once you take the tax into account.

And by reverse logic, the tax is always correct once you take the selling price into account (for a given rental value).

The whole article is a joke anyway, the headline is The mansion tax: a patently bad tax that won't just hit the 'rich'.

The idea is not to "hit the rich" or indeed "hit hard working hard pressed pensioners who have made sacrifices all their lives to take a stake in society blah blah blah", it is to raise public revenue by collecting the rental value of land instead of taxing incomes.

I'm not sure what's so difficult to understand about that.

10 comments:

Lola said...

Is the female of 'twat' 'twatette'?

Mark Wadsworth said...

L, actually "twat" already is female, if you think about it.

Bayard said...

Wot no mention of the Poor Widow? What are articles attacking forms of LVT coming to?

Bayard said...

Lola, MSW is usually pro LVT, although she omits to mention it in this article. She's right, the "Mansion Tax" is a bad idea. Personally, I think it's been designed to be the worst form of LVT possible in order to give LVT a bad name, just like the Alternative Vote and voting reform.

Ben Jamin' said...
This comment has been removed by the author.
Ben Jamin' said...

The Knight Frank report was cut and pasted by most of the national papers. Who then regurgitated the black propaganda it contained.

Because the average Mansion Tax bill would be £36,000, our PWiM who through no fault of her own, blah, blah.....forced out onto the street.

In order to pay that bill, our PWiM who have to live in a property worth 5.6 million.

Anyone living in a 5.6 million property is not poor, and 36 grand is loose change. Even for widows.

But lets do a comparison with a real poor widow.

Our poor widow is paying band A. On her £80,000 terrace house is the equivalent of a 1.1% property tax ie £850.

"Poor" widow in "mansion" worth 2.1 million is paying the equivalent 0.12% on that which is £2536. With a Mansion Tax on top at 1% over 2 million that's £2536+100=£2636. Or 0.13%

So, lets recap. Someone who is really poor, is paying nearly nine times as much as a % of their property value, as a multi-millionaire " poor" widow who is now paying the Mansion Tax.

The poorest will always pay at least nine times as much as some who has to pay the Mansion Tax.

Radical Rodent said...

As I may have said before, the main flaw with your idea is that it is too simple!

Mark Wadsworth said...

BJ, exactly. Something else which really annoys me is that the Homeys have given the suggested tax the completely inappropriate name "Mansion Tax" and are then pointing out that a lot of central London £2 million-plus homes are not "mansions".

Well of course they aren't. The actual tax can be more accurately described as, er, "a tax the excess of any home's value over and above £2 million".

You might as well rename income tax as "sandwich tax" and then point out that it applies to all sorts of income and not sandwiches.

RR, did you say that? When?

Graeme said...

Mark

You should also look at the repetitious columns by one Richard Dyson in the Telegraph - eg

http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/10282881/Is-it-fair-that-property-investors-would-escape-mansion-tax.html

it is almost as if he is an estate agent who profits from the frequent churning of residential properties.

Bayard said...

"Homeys have given the suggested tax the completely inappropriate name "Mansion Tax" and are then pointing out that a lot of central London £2 million-plus homes are not "mansions"."

I am not sure how the name "Mansion Tax" arose, but either it was coined by supporters of the tax in order to garner the support of the Envious, in which case it has backfired somewhat, or it was coined by detractors, precisely in order to make it look absurd, or, like the term "Nazi" it was coined by one lot and adopted by the other, pace Godwin.