Friday, 8 November 2013

Homeys don't do maths. But if they did, it would probably be the worst maths in the world.

Policy Exchange's report hit the headlines with the entirely spurious claim that "property taxation in the UK is higher than all other developed countries, and already forms a high proportion of the tax base" (page 4).

I already debunked that little myth here. Even if it were true, it is not relevant to anything.

The actual section on LVT, pages 8 - 9, explains the points in favour but then trots out the old KLNs, the Poor Widows In Mansions, the Army Of Surveyors, the Spectre of Negative Equity etc, boring.

Here's their super tip top supremo maths and logic fail:

"The poll tax, the last major revaluation, was originally designed to reduce average bills, but most people’s bills actually rose, making reform even more politically difficult."

That's because with income or wealth distributions, the median is far lower than the average (usually about two-thirds; and three-quarters of people have less income or wealth than the average). So replacing a tax on income or wealth with a Poll Tax for the same amount of revenue automatically means that three-quarters of people pay more.

It was exactly the same with the shift from Domestic Rates to the Poll Tax. Three-quarters of them paid more (admittedly most of them only paid a bit more) and one-quarter paid less (in many cases, a lot less, as Portillo explained on This Week, that was the whole point, to pander to the Tory voting landowners and give them a massive tax cut/one-off unearned land value uplift, admitting that "property in this country is vastly under-taxed").

For example, total UK income tax receipts are £150 billion, paid by 30 million taxpayers from taxable income of £900 billion. That's an average bill of £5,000.

If we replaced that with a Poll Tax of £5,000 each for everybody (the same average bill) with any taxable income whatsoever, then three-quarter of people would pay more, i.e. those with taxable income of £35,000 or less.

Even if we reduced the average Poll Tax bill to £4,000, we'd still find that two-thirds of people (those with taxable income of £30,000 or less) would pay more.

And so on.

But agreed, shifting to a Poll Tax is unworkable, inhumane and politically unpopular.

So by their logic, doing a U-turn from Poll Tax back to Domestic Rates would have been workable, humane and politically popular.

And shifting from Domestic Rates to pure Land Value Tax would have then continued in the same direction. There would have been even more winners etc.

So using the Poll Tax debacle as an argument against LVT is like driving up a dead end and using that as an argument against reversing: when we were driving forward we get stuck, so if we drive off again, regardless of the direction we take, we will get even more stuck.
To round things off, they bung in another fact and logic fail:

There is a general acceptance of existing redistribution where affluent areas pay more in council tax and obtain less from central government.

A higher tax burden on more affluent areas would shift political debate as new higher land taxes in more affluent areas would reduce support for transfers.

Either people support "transfers" (and Council Tax does not shift one penny from affluent to poor areas, but never mind, perhaps people really are this stupid) or they don't. And if they do (PE's own contention) then LVT (which would reduce taxes payable in poor areas quite markedly) would have instant widespread support.


Bayard said...

"property taxation in the UK is higher than all other developed countries, and already forms a high proportion of the tax base"

"When I've said it three times, it's true" Lewis Carroll, the Hunting of the Snark.