Tuesday, 29 October 2013

Killer Arguments Against LVT, Not (307)

Lorna Doone at CityWire back in 2011:

Business secretary Vince Cable has hinted that a property tax on expensive homes could be the price high earners have to pay if they want the top rate of tax reduced from 50% to 40%... (1)

Such a switch assumes that owners of valuable properties are all high earners with incomes in excess of £150,000 who would benefit from a reduction in the top rate of tax from 50% to 40%.(2)

This is very far from reality. Some are likely to be pensioners who have seen the value of their property more than double between 1998 and 2007 but are now living on modest incomes. Many would be totally unable to pay the tax.(3)

Assuming the tax was levied at 0.5% a year on properties worth £2 million or more – the LibDem's manifesto proposal – someone with a property valued at £2 million would pay £10,000 property tax a year.(4)

For a person to be better off they would need to be paying tax at 50% on at least £100,000 of earnings – an income of £250,000 a year. These high earners would see the tax on the top £100,000 of income drop from £50,000 to £40,000 – a saving of £10,000 – if the top rate of tax is reduced from 50% to 40%.(5)

1) Good. A tax shift is what the economy needs.

2) Nobody ever made such a stupid assumption. Not everybody who'd like to drive a new BMW can afford to buy one; not everybody who would like to live in an expensive house can afford to do so. LVT is a free market thing - you pays your money and takes your choice, and if the price is set much too high, then government revenues fall.

It's a tax shift. For example, perhaps we will decide in future that tobacco duties should go down (because more smokers = massive savings in old age care costs) but that booze duty should go up (= less drink driving, less drunken fights). Nobody assumes that smokers are all drinkers and break even on this, it is a tax shift from smokers to drinkers with an overall benefit to society.

3) Roll up and pay on death or later sale. Easy.

As it happens, there are dwindling few of such people and it seems idiotic to design a whole tax system around the specific situation of a few marginal cases while making the vast majority considerably worse off.

4) That's not what they proposed, the proposed just taxing the excess of the value above £2 million. So the tax on a £2 million home would be £zero.

5) To be paying £10,000 a year, you'd have to be living in a £4 million home, but even assuming that this is the tax on a £2 million home, how many people in those homes earn more than £250,000 a year (a house price to income ratio of 8 - the average is more like 6)? I would suspect nearly all of them once we have excluded a tiny minority of Poor Widows In Mansions.

So as ever the interests of the "wealth creators" (I use the term loosely) and "land speculators" are diametrically opposed.

Which leads us onto a more recent pathetic attempt at a KLN by Nigel Green of The DeVere Group, who are of course financial and land speculators, so not in any way a vested interest:

By a miracle of Homey non-logic, he conflates the two opposing groups - wealth creators and land speculators and pretends that their interests are aligned:

Apart from the philosophical arguments for and against taxing to death the leaders of industry, entrepreneurs and those who have become successful, there are some very obvious practical concerns (especially in the currently febrile housing market) in attaching a definite and unchanging value to a property... (6)

The other practical consideration is that some people, especially in the London area, might have lived in their property for 30 years or more and find that its value has increased so dramatically that they would be facing a tax bill that they have no way of paying.(7)

6) He waffles on about how difficult it is to value land. As a land speculator himself, he must know that it is very easy. And establishing the "site premium" of housing and most non-specialised commercial land and buildings (i.e. the excess of actual or potential rental income over actual running costs, averaged out over similar buildings in each area) is even easier than that.

That site premium is the upper limit for LVT, as long as the actual tax is no more than that (and the Lib Dems' proposed Mansion Tax is a lot, lot, less) then no harm done. If some miserable sod wants to argue that his house is worth £3 million instead of £4 million, then fine, all we need to do is adjust the official (and admittedly arbitrary) tax rate up slightly to arrive at the same tax bill.

7) Roll up, roll up! Come and see the fun of the fair!

So whose side is he on? The "wealth creators" or the "land speculators"? Or has he convinced himself that he has become wealthy, therefore he must have "created wealth"?


mombers said...

Michael Bloomberg is a 'captain of industry' and he voluntarily pays over $100k per year in property tax in NYC on his main residence (source: http://webapps.nyc.gov:8084/CICS/fin1/find001i, search for 17 East 79th Street). Goodness knows how much more he voluntarily pays on the rest of his jeroboam of properties as well.

Mark Wadsworth said...

M, nice one.

And as you have said elsewhere, common sense tells us that only one household can occupy one house. If we subsidise PWIMs, we get PWIMs. If we slap them with Domestic Rates or LVT or Mansion Tax, some of the PWIMs move out and who is most likely to move in?

A wealthy foreigner who pays out of petty cash or a Captain Of Industry who can haggle the purchase price down to compensate for the higher tax.

Kj said...

These american examples are good armour in debates I´ve experienced. It always produce grumbling among the right-wing fans of traditional US capitalism to point out that the US was built on relatively high taxes on land, and that the most successfull states currently are still on this path.

Bayard said...

"As it happens, there are dwindling few of such people"

I'm convinced there are already none left, for the reason that the Daily Mail has yet to produce one.

"and it seems idiotic to design a whole tax system around the specific situation of a few marginal cases while making the vast majority considerably worse off."

But it makes sense for the powerful few who are, as well as the mythical PWIMs, also vastly better off under such a tax system. The PWIMs are just the (un)human shield.