Tuesday, 26 July 2016

Killer Arguments Against LVT, Not (400)

I was waiting for something really epic for the fourth centenary instalment, but Benjamin's has neatly goaded somebody into painting themselves into a corner over here so let's do that one:

Will Douglas-Mann. Thanks for the link [to the YPP flat tax app which shows that most working age households would pay significantly less in tax under a 50/50 income tax/LVT system - also available at Google Play Store]. I am a supporter of LVT in principle and have spent much time discussing it's obvious benefits over the past few years...

That's always a warning light, those detractors who start by saying they support a shift to LVT, but...

If LVT had been introduced twenty or thirty years ago I can see how we would have avoided many of our current problems. I do see considerable difficulties introducing it now before dealing with the current (unsustainable) house price bubble.

Tried and tested KLN, "Yes, if we had introduced it years ago, it would have all sorted itself out by now, but we have left it too late [and by implication it will always be too late for ever and ever]."

Further, it is easy to introduce LVT so that it is 'affordable' for nearly everybody, it doesn't have to be 100% full-on LVT from the word go. How about a modest LVT to replaced Council Tax, SDLT and IHT to get the ball rolling (about 0.9% of current selling prices or 25% of site premiums)? If you are sensible about which taxes to replace/reduce with each increase in LVT, most people will hardly notice the transition.

Finally, LVT assessments are based on rental values, not selling prices. The fact that house prices are unusually high at the moment is completely irrelevant to assessments and is an argument for introducing LVT ASAP, not an excuse for delaying.

According to the YPP tax calculator if LVT were introduced now our tax bill would be greater than our household income! Property prices have increased tenfold in some areas, wages and salaries have stagnated so I guess our situation would be fairly typical.

Bollocks. He admits further down that he is looking at the West Country, where house prices are unusually high (retirees and second home owners) but wages are unusually low. Clearly, local rents are dictated by local wages (and hence affordable for most) and even a full-on 100% LVT would be a few thousand pounds a year lower than rents (hence affordable for nearly everybody). It must be added - the app probably overestimates rental values in such areas.

(To put this into a real life context, I have been asking people for over ten years whether they would be qualify for and be able to repay a mortgage big enough to buy their own house; most admitted they wouldn't be able to, even ten years ago. Next question: would you be able to afford to rent the house you live in? Most answered yes. As things stand, I would not have a hope in hell of getting a mortgage to buy our current house (worth about seven or eight times our joint income); renting would be a squeeze but do-able. And if all but the unemployed can afford to rent somewhere, by definition all homeowners can afford LVT, even ignoring corresponding cuts to VAT, NIC and higher rate income tax.)

Back to the KLN - if you type his suggested figures back into the calculator, you will see hey presto, that low-earner couple household would end up paying £4,000 less tax every year. So he is clearly deliberately lying or was too lazy to actually use the calculator (unless he earns £15,000 a year and his house happens to be worth £500,000 or something - in which case, what ask what sort of accommodation a tenant earning £15,000 can afford).

I'm not sure what the solution would be, possibly a period of wage inflation to get values in line with incomes before LVT could be considered.

Double bollocks, see above. "Values" i.e. rental values are always in line with incomes; LVT is always less than rental values.


Ben Jamin' said...

It's a certainty that under a LVT, there will be low earners living in very nice locations who will end up being worse off. Not just PWiMs. But they are not representative of the vast majority of people.

However, society should no more expect to subsidize them living in Rolls Royce areas than subsidize buying them a Rolls Royce car. ("yes but I bought my home, it's not my fault house prices have gone up etc" KLN).

One of the complaints about LVT is (last week TaxJustice KLN) is that rich people will move out of nice locations in order to avoid paying any tax. Or rich foreign "investors" will flee the country ruining our economy.

And then we get the equal and opposite, that LVT will cleanse poor people from nice locations which will lead to them being taken over by the rich(usually foreigners) leading to a segregated society.

We cannot run a country based on special privileges whether its for rich or poor people.

It just so happens the overwhelming majority of privileges are enjoyed by the rich.

Mark Wadsworth said...

BJ, hee hee, that's a nice matching pair "The rich will move away and the poor will move away".

But that is the genius of Home-Owner-Ism - it's the ability to believe and espouse two completely contradictory ideas at the same time.

James Higham said...

400 - yay! Congrats on the anniversary.

Mark Wadsworth said...

JH, thanks.