Saturday, 12 April 2014

Killer Arguments Against LVT, Not (323)

"I paid for my home out of taxed income!", i.e. so it's unfair to tax me again on its rental value.

Kj knocked this one out of the park a couple of days ago:

"In the parts of the world where we have mortgage interest deductions, the argument "bought my house out of taxed income" falls entirely flat, unless you bought it with saved cash of course."

We had full mortgage interest relief in the UK until the late 1980s, so anybody who bought their home before 1970 or so and/or had paid off their mortgage by 1990 or so actually bought it out of largely tax-free income (the amount of interest they paid and got tax relief on was more than the original cost of the house). If they try using the argument you can just call them lying bastards to their faces.

The relief (called MIRAS) was phased out gradually between the late 1980s and 2000 or so, but most people who bought since 2000 or thereabouts probably haven't paid off their mortgage yet.

9 comments:

Brian, follower of Deornoth said...

I am about to buy a house out of my savings. This does not affect the soundness of your argument.

The main problem facing Britain is the grotesque rapacity of the public sector, something that a land value tax appears to be the only hope of bringing under control.

Sobers said...

"The main problem facing Britain is the grotesque rapacity of the public sector, something that a land value tax appears to be the only hope of bringing under control."

Which is the precise reason why a LVT will never be instituted as a sole source of revenue in this or any social democratic country - it would provide for a stable or even declining revenue stream, that would be not amenable to being increased by tax rises, only by natural growth from economic activity. Which is utterly unacceptable to the Statist establishment - they need a way of constantly increasing taxes via inflation and stealth that a complicated system such as we have now provides.

Thus any campaigning for LVTs will only ever result in more overall taxes, because those in charge will never give up their existing ones.

Mark Wadsworth said...

BFOD, you're buying a house in the UK with cash? You are a brave man.

S, that's not much of an argument: "LVT would work too well, the UK government prefers something which works badly."

You might well be correct, on the facts, but that's an argument against the UK government/voter stupidity, and not an argument against LVT as such.

Ben Jamin' said...

@Sobers

Which is why you'd have though right-wingers would love LVT, instead of being it's most vehement opponents.

a) LVT provides a market valued ring fence around State spending. The Country can only spend on services the surplus that it produces.

b) Bad Government policy lowers rental values. Good policy raises them. Therefore all arguments regarding the merits/de-merits of any particular policy can be reduced to a simple cost/benefit analysis.

This is the ultimate free market solution to paying for State services and forming legislation.

Yet for some reason, LVT(or any charge against property) sends them into a rage.

Kj said...

Ben Jamin: Funny that. I read a readers letter from a centre-left politician the other day, a relatively hostile to property taxes-kinda guy. He claimed that "the Right secretly covets property taxes, because they appreciate the mobility of capital, and wants to raise taxes without hampering capital, and can then ignore the ability to pay principle" yada yada and so on. At the same time, "the right" is indeed openly against property taxes, and has also in practice done the most to relieve property/land from taxes.
So even if someone on the left believes that the right should want property taxes for econonomic efficiency reasons, and therefore hate said taxes, the right actually hates property taxes just as much, mainly because it affects the most vocal of their rent-seeking constituents. So both are against, while the left are against primarily because of their mistaken belief that progressive income taxes serves economic justice.

Mark Wadsworth said...

Kj, even if the centre-left guy is correct, then that is an argument in favour of shifting to LVT.

Capital (proper capital) is good, it increases the amount of money which workers get paid, a bus driver wouldn't be able to earn anything without a bus, would he?

The fact that people who provide the capital get paid something as well doesn't matter and is not a bad thing anyway - bigger cake and everybody gets a bigger slice.

And if the bus driver wants, he can buy shares in the bus company.

Kj said...

MW: no. Because in his particular world, the relationship between capital and labour is only one of slight antagonism (not in the communist sense, but "something to look out for", as is befitting of a centre-left pol. as opposed to a far-left pol), and tax efficiency is only measured in the way it achieves "progressiveness", not in the actual effects.

Kj said...

We make the same sin too, as far as the current post is concerned. Because we use the measure of how each individual is taxed nominally. In our example, he is untaxed by having a mortgage (as a proxy for buying a house). At the same time we know that the interest deduction only serves the seller/bank in that it increases the price/interest he has to pay :)

Mark Wadsworth said...

Kj: "We make the same sin too"

No. I have always been honest about that.

1. Subsidies and tax breaks push up house prices. The Homeys like to deny this (i.e. they deny that Help To Buy is causing a bubble).

2. LVT and similar push down house prices. The Homeys like to use this as an argument against LVT but deny this when it suits them as well.

We in the UK had low-level LVT on housing (called 'Domestic Rates') until 1989 or 1990, when they got rid of it.

So people who bought before 1990 had the benefit of cheaper prices (because of the higher tax).

But the Homeys refuse to acknowledge that the Domestic Rates saved them money, so I will play them at their own game and say that the income tax break saved them money.