Tuesday 28 June 2011

Killer Arguments Against LVT, Not (138)

Just for fun, let's do the Poor Widow Bogey again. Inane comment plucked at random from this ostensibly Lib Dem blog (one of those Lib Dems who never read their own manifesto) regarding the Scottish Green Party's modest proposal to replace Council Tax with something akin to Domestic Rates in Northern Ireland:

Single pensioners will be hit hard: a “retired person living alone in a big house…would be allowed to put payment off by amortising the cost and securing it against the house value”. So, money that they would have now to pay for things that they need to make their lives independent and comfortable would be handed over in tax instead?

Bonus points for completely confusing the concept of 'allowing people to defer payments' with the concept of 'making them pay up front', but getting back to the topic, in practical terms, the easiest ways to sidestep the Poor Widow Bogey are to simply exempt pensioners' main residences; allow them to defer; or collect all the extra tax and then dish it out again by doubling the Citizen's Pension (i.e. pensioners in big houses subsidise pensioners in flats) or any combination thereof.

The more fundamental point is to teach people to stop looking at the population horizontally (i.e. with pensioners, middle aged and young people as separate groups) but to look at it vertically - i.e. you and your living ancestors and descendants are one vertical slice.

a) Seeing as the LVT (and other bits and pieces of taxation) I proposed would raise approximately as much as current taxes (we could eliminate the annual deficit by cutting corporatist subsidies and quangocrat salaries by a mere third), then by and large, the total tax payable by any vertical slice will be exactly the same as it is now.

b) It may be that a larger chunk is legally due by the older members (if they are land 'owners') but a correspondingly smaller chunk is due by middle aged members, and the younger members end up paying nothing or even paying negative tax.

c) So in ninety-nine cases out of a hundred, if any Poor Widow In A Mansion is 'forced' to down size, that wasn't actually the government doing the 'forcing', it was her middle aged and younger descendants. Nobody is nicking their 'inheritance' at all - they are getting it up front in annual instalments (tax cuts) and if they want to give it back to the older generations, they are free to do so.

Twat points to the first Homey or Faux Lib who leaves a comment saying: "Ah, but what if every member of that family - from young to old - happens to be on a low income but lives in a very valuable home which they bought decades ago for £10,000?"

28 comments:

A K Haart said...

If I had a friend who was a retired person living alone in a big house, I'd advise them to downsize anyway. Winter is a grind for older people. Smaller rooms are not only easier to heat, but heat up more quickly.

Mark Wadsworth said...

AKH, indeed, occasionally you see stuff on telly or in the papers put about by Age UK saying "poor Linda is trapped alone, shivering in the family home and has nobody to talk to. Just £3 a month will enable us to [blah blah]" and I think, why doesn't Linda just downsize to an old folks' home?

I once lived in one of those for two weeks, happiest two weeks of my life (long story).

chefdave said...

I agree AK, big houses are expensive to maintain and time consuming too. I wonder why anybody would want an oversized house, not just the elderly.

They were all mocking this story over at HPC, but right now I wouldn't mind a little place like this (though perhaps a bit bigger):

http://www.dailymail.co.uk/news/article-2008025/Tiny-Tardis-style-beach-hut-fitted-kitchen-underfloor-heating-storeys--250-000.html

Sobers said...

You're forgetting to point out your own analysis that says anyone living in a house worth more than 7 times their income would lose out under your system.

That means a retired/semi retired person/couple, with a paid off house of average value (say £150K), would have to have a household income more than £21K to break even. If they happen to have a nicer house (as many retired folk do) their income would need to be even higher.

There's a lot of people in that category I suspect, and not particularly wealthy ones either.

Its not just widows in mansions that would be negatively affected, but lots of ordinary people who have paid off their mortgages, and have modest incomes to live/retire on.

Snarfangel said...

I think we should fight the "poor widow bogey" with a "working family bogey."

"Families with both parents working are priced out of a home close to work, or one with a yard large enough for their young children to play in. Instead, they are forced into long commutes, wasting fuel and spending ever more time away from children in their formative years. These same children can't even play in the sun and fresh air, and are either stuck inside cramped tenements, or out on the street, unsupervised. Young parents who might have spent their money on providing a nice home for their family are instead taxed to pay for another person to live in the same home, a person whose need for large yards and short commutes is objectively less urgent."

And I haven't even got to the point of embellishing the story.

Bayard said...

S, your calculation only works with todays inflated property prices. If we introduced LVT, prices would return to more realistic levels, so many fewer houses would fall into the 7 times income bracket. And yes, there'd have to be transitional arrangements.

Anonymous said...

Not my "twat point" but culled from the reader comments in a major national daily - and not about LVT but on the subject of "having CGT applied to any house sales in excess of £1 million" and yet strangely enough "it fits the brief" so do I still get the prize?

"Yet another penalty for living & working in SE England. When my parents bought their current home for £9,000 in 1967 I don't for one moment think either of them could have envisaged what it is worth today. Then £9k was an average price for average property in the northern Home Counties. Property inflation has been ridiculous. Both parents worked hard to pay the mortgage: why should they be penalised when they finally sell it as part of their down-sizing in old age? No-one denies that there needs to be some way of increasing the tax take, but a flat rate above a 'tax free allowance' is likely to actually be a fairer way of increasing the Treasury's income (at least it couldn't be less fair). If this proposal makes it further than VC's vacuous statements, what is likely to happen is that people intending to downsize once the kids left the nest won't, thus increasing the current problems with the housing stock, ie 2 people in a house for 5 or more. - Jane, UK, 24/6/2011"

Mark Wadsworth said...

CD, out on the campaign trail for UKIP in west London, I spoke to many elderly people in houses that were barely more than Butlins bungalows, and, having taken a holiday in one a couple of weekends ago, I can only say that this is more or less the optimum way of using space.

S, yes, but look at the 'vertical slice' argument. Unless Granny lives in an overly large house on the basic state pension, and her Baby Boomer Children are on the wrong side of the £21k/£150k threshold, and miraculously the adult grandchildren and their own small children live in a £300k house and are on less than average incomes, the inter-generational gains and losses will all net off.

Am I happy to chip into to a Citizen's Pension, old age care, libraries etc for pensioners? Yes of course. Am I happy to pay even more so that they can lord it up in big houses while young couples are stuck in flats and unable to start a family? Nope.

Or to rephrase that - when I'm old and grey, do I have a reasonable expectation that 'the taxpayer' will give me enough to live on? Yes. Can I expect that they'll subsidise me living in a mansion? Nope.

Snarf, good one.

But let's stick to the 'vertical slice' argument - all it means is that Granny gives her 'family home' to the first grandchild to get married and they buy a flat for her to live in. Straight swap. They can still keep in touch and visit each other - by definition, the travel distance between the two homes is fixed and constant. For Baby Boomer middle generation, it makes no difference - they still have to pop round to see parent as well as own offspring.

Mark Wadsworth said...

B, LVT would ultimately be on rental values not land values, so the tax take wouldn't change much, and the "7 x current income" rule would still hold, based on today's house prices.

But from a 'vertical slice' point of view, you first take all the incomes of the young adults, the middle aged people and the pensioners in a family; then you add together the value of all the homes they live in - only then do you apply the "7 times income" test. So while each individual household may have measurable gains or losses, few families as a whole would be much better or worse off - all that happens is that housing gets allocated more efficiently within the family.

Anon, actually I agree with Jane, UK. Taxing capital gains is a stupid way to go about it - far better to tax current rental values and have done with it.

As and when her parents start bleating about "We bought this house out of taxed income" I'll happily send them a cheque for £9,000 to cover the tax they had to pay to generate the income to pay off the mortgage and then claw it back via their first year's LVT bill :-)

Sobers said...

You really are struggling now, if in order sell LVT you've got to make everyone add up their entire family incomes and house values and shuffle them around, in order not to be a loser.

If LVT is going to fly it will be on the basis 'Am I better or worse off under it'. Not some mash up of total family incomes/property values.

You also seem to be forgetting that for every middle aged couple there are 2 sets of aged parents. They can't swap houses with both. You also seem to have some Janet & John idea of families, where everyone lives in the same town, just round the corner from each other, everyone in perfect couples with 2.4 kids.

Real life isn't like that. Families are spread to the 4 winds for all sorts of reasons - jobs, education, divorces, or just that they hate each others guts. They have absolutely no interest in some sort of Happy Families house shuffling game. If they did they would already have done it (I know some who have).

Mark Wadsworth said...

S, no I'm not struggling. You are the one who insists that magically everybody will be worse off when logic and maths says that three quarters will be better off and the other quarter can sort themselves out quiet easily.

As Snarfangel points out, there's not just the 'Poor Widow Bogey' there's also the 'working family bogey'.

And when the Baby Boomers start wailing about "the government stealing their inheritance" or some such nonsense, the point is that they (and their children) are getting their inheritance UP FRONT in the form of tax cuts this year and next year and every year.

Point taken about families not just going up and down but you go too far with this:

"for every middle aged couple there are 2 sets of aged parents."

Not true. Look at the population pyramid - as at today's date there are about 0.8 sets of aged parents for every middle aged couple, unless you count a widowed parent as one set, in which case the ratio might indeed be ever so slightly more than one.

Sobers said...

OK, lets assume your right, 75% are either better or not worse off, and 25% are worse off.

My point is this - the worse off people will be distributed widely through the income distribution, as property ownership and income are not aligned. Thus a good deal of the worse off will be relatively poor people and conversely some of the big gainers will be (very) rich already.

If you think you can get people to vote for a system that takes money from fairly ordinary folk, and gives it to the mega-wealthy, go ahead. The UK electorate have a good sense of what they consider 'fair' and I suspect many would vote against it on precisely those grounds, despite possibly being a bit better off themselves.

DBC Reed said...

@sobers
The original pre Henry George form of LVT, as sorted out by JS Mill no less, simply froze house/land values at a chosen point (preferably when they were at the bottom of the 18-year cycle) and only taxed any inflationary increase.So if land prices stayed steady nobody would have to pay;nobody would have to pay back any decades-long inflationary increase and we would be living in some kind of Economic Utopia where any increase in money supply would go straight into the commerical bloodstream not into property.But when Mark has suggested this form of LVT ,sometimes known as the Sentinel Tax,he has been shot up just the same. You cannot honestly be saying that all increases in the money supply/cheap credit should end up in land values and there is nothing whatsoever anybody can and should do about it?

Mark Wadsworth said...

S: "Thus a good deal of the worse off will be relatively poor people and conversely some of the big gainers will be (very) rich already."

You're getting into the politics of envy now, which is not what this is about.

Clearly, more people are "relatively poor" than are "mega rich", but by and large, there will be more "relatively poor" people among the winners than "mega rich".

i.e. maybe of the winners, eighty per cent are "relatively poor" and ten per cent are "mega rich"; but of the losers, sixty per cent are "relatively poor" and thirty per cent are "mega rich" (or whatever the numbers are).

So once you net it all off, more money will go from "mega rich" to "relatively poor" than in the other direction. More to the point, money will go from "rent seekers" to "hard working families".

DBC: "... when Mark has suggested this form of LVT ,sometimes known as the Sentinel Tax,he has been shot up just the same."

Indeed. Look how Uncle Vince's 1% on houses > £1m was diluted into 0.5% tax on houses > £2m, was diluted into "capital gains tax on lower of [proceeds minus £1m] and [actual gain] which Osborne then diluted down into "F- off Vince, we're not interested, we bow at the altar of the landed gentry and those who imagine themselves to be such."

Mark Wadsworth said...

Sobers, we can also look at your problem laterally if you are not happy with the vertical approach. Applying the "seven times income" rule of thumb:

A street in Burnely has houses worth about £50,000 on average. This is a poor area - but how many hosueholds on that street earn less than £7,000? Very few (and their LVT would be more than covered by CI anyway).

Round my way, there are streets where all the houses cost £500,000. This is a wealthy area (top five or ten per cent). How many households on that street earn less than £70,000? Probably a third.

So by and large, your "politics of envy" argument more than cancels itself out.

AntiCitizenOne said...

Why Exempt them? Simple problem.

Single person in Large house in demand area = High personal cost and Low CD.

Solution.

Move or pay.

Sobers said...

Look its quite simple, LVT 'appears' to be the holy grail - a way of making the 'the rich landowners' pay their way, helping the poor downtrodden working man, making the pips squeek etc etc.

The reality (as you are admitting) is entirely different. LVT is massively redistributive and not necessarily in a way the public at large would find pleasing.

Call it 'politics of envy', call it what you like, but the bare bones are that 30% of the electorate vote Labour come what may. They certainly won't be in favour of a system that lets the mega-wealthy (and big business) off the tax hook. Ironically most of them would probably be OK under LVT but they would let their envy blind themselves.

Of the 70% remaining, most of the losers would come from this section, so immediately you have significant lump against. Given the British love of 'fair play' I really don't think they would vote for a system that redistributes income in the way you suggest.

It is also dishonest of you not to point out this uneven redistribution in your promotion of LVT.

Mark Wadsworth said...

S: "LVT is massively redistributive and not necessarily in a way the public at large would find pleasing."

No it's not particularly redistributive at all - please do not forget that [personal allowances, lower tax rates for lower incomes, stupid welfare system etc which we have under current rules] is replaced with Citizen's Income and the two are netted off.

So most households will either be small net recipientspay or receive a very small net amount of less than a few thousand quid. By definition, average or median households pay net nothing at all.

The amount actually redistributed from the top quarter who pay more than they receive to 'everybody else' is, by applying maths, only one-sixth of the theoretical tax take, i.e. about £60 billion, or 4% of GDP.

"Given the British love of 'fair play' I really don't think they would vote for a system that redistributes income in the way you suggest."

It's not redistibuting incomes! Christ on a crutch, where do you get that from? It's about redistributing community-created land values. And what's not fair about untaxing incomes and taxing community-generated land values?

"It is also dishonest of you not to point out this uneven redistribution in your promotion of LVT."

What are you on about? I've given you the "seven times income rule" to help identify winners and losers, and I have never said anything other than there will be winners and losers up and down the social scale.

Bayard said...

S, just because LVT would be politically unpopular doesn't make it a bad idea economically. Politics under a "democracy" will always tend to "bread and circuses" - pandering to the electorate, so the ruling classes will always make sure that they get the best deal and the mass of voters appear to get a good deal. Everyone else is irrelevant.

I suspect that, like me, you would be considerably worse off under LVT. However I recognise that my business model is designed to take advantage of the taxation framework as it is. If LVT was introduced I would have to do things differently. This would be a pain in the arse for me, but that doesn't mean that the country, initially, and myself eventually wouldn't be better off.

Sobers said...

Of course its redistributing income! The property you are taxing has no cash income, so the only thing you can pay LVT with is your real income, earned or otherwise. If you are worse off than before, then some of your income has been redistributed to those that are better off.

Thus it is exactly as I say, losers income is redistributed to winners, and some of those losers will be relatively poor, and some of the winners relatively (and some actually very) rich.

We all know that the top x% of income earners pay a large proportion of income taxes. If they are abolished that tax burden has to fall somewhere, and the only place it can go is people with lower incomes.

I've said it before and I'll say it again, LVT is a multimillionaires dream. As long as his house in the country isn't too ludicrously expensive he's quids in.

Derek said...

If LVT was a multimillionaire's dream, it would be official Conservative party policy. The fact that the Tories have been reducing property taxation for over two hundred years may be a clue to exactly how many multimillionaires actually favour it. My guess is "not many".

Mark Wadsworth said...

S: " If you are worse off than before, then some of your income has been redistributed to those that are better off."

Yup. If you end up paying more, then a lot of that extra will go to lower earners; some will go to people who earn exactly the same as you but live in smaller houses than you; and a small bit will go to higher earners.

So what? I've never disputed that and it's a mystery to me why you keep going back to 'politics of envy' and using that as an argument against.

The same applies to Large Landowner. He also ends up paying more, so from his point of view, most of the 'redistribution' is downwards.

The same applies to Poor Widow In Mansion struggling along on meagre pension. From her point of view, all redistribution is UP the income scale.

Methinks you are confusing 'income' with 'the amount of land people occupy' and confusing 'the amount of land people occupy' with wealth. They are quite different concepts.

In any event, can you please explain why you are now taking this proto-Socialist point of view and saying that high earners should be clobbered, regardless of whether they live in a big or a small house?

On other occasions you have taken the traditional Home-Owner-Ist view that LVT is the idea of Satan because it's somehow 'Communist'.

As entertaining as your constant switching is (and I accept, you are largely reporting what other people think, and yes, a lot of people do think in a rather muddled fashion), what is your personal, objective view, putting aside you have a high income and a very big garden?

Mark Wadsworth said...

B, thanks for back up.

D, good point. I suppose the answer is, there are very few millionaires from real business or creative world. Most millionaires are landowners, bankers, property developers, oligarchs and other rent-seekers.

Bayard said...

"We all know that the top x% of income earners pay a large proportion of income taxes."

I don't. I was under the impression that the bulk of income tax revenue came from those who pay it a the bottom rate, because the proportion by which these people (the poor) outnumber the "top x% of income earners (the rich) is greater than the proportion by which the rich pay a larger percentage of their larger incomes.

"The same applies to Large Landowner. He also ends up paying more,"

I very much doubt it. The majority of LLs' incomes comes from agricultural land, which will not be taxed. It would be interesting to consider the types of people who will lose out (Poor Widow etc) compared to the types of people who will gain (Working Families etc) in social, rather than economic categories.

Mark Wadsworth said...

B, it is quite true that the top ten per cent of earners pay half of all income tax; it is also true that half of all growth in the economy accrues straight back to the top ten per cent of land owners, largely tax-free. So let's cut out the middleman.

There will be some high earners who pay less, if it's truly earned, that's absolutely fine. The high-earning rent-seekers will pay more (or, more to the point, earn less in the first place).

As to LLs, "large" does not mean in acres, it means in value. A square yard of inner city = a few acres of farmland.

Mark Wadsworth said...

S, in any event, what you overlook is that (unlike free markets where you earn what you earn and get what you pay for) any system of land ownership is inherently redistributive.

Let's imagine you live on Duke of Westminster's estate. The rent you pay redistributes upwards.

Or maybe Westminster Council chuck out their low paying tenants and get high earners in paying market rates instead - but Westminster Council decides that the rental income is to be earmarked for spending on things specifically for poor people in the borough. You could argue this is redistribution downwards.

And so on. If you replace income tax etc with LVT, then this is merely redistribution from 'people who are willing and able to pay to live in a nice house' to 'people who go out to earn a living'. What's wrong with that?

Bayard said...

Mark,

Some rural landowners own square miles of farmland, so that makes them large by your definition, and they are going to be seriously better off under LVT. Personally, I don't care, the rich will always be with us, but the political antipathy to LVT shows how the power in the land has passed from the landed gentry to the urban rentiers and the bankers.

Mark Wadsworth said...

B, no that's not my definition, as it happens. You are spot on with the concept of "urban rentiers and the bankers", they are the real land owners (and yes, that includes most home owners)

As I pointed out earlier, the disparity between the lowest and the highest rents in the UK (Scottish grouse moor, 0.6 pence per square per year and prime Bond Street £6,000 per square yard per year) is one-to-a-million.

The rental value of a big house in a nice area of a nice town is £20,000 a year, that is the same rental income as 300 acres of farmland.

And so on and so forth.

What sticks in the craw is the farm land subsidies, which either go to the landowners or get creamed off by the supermarkets who buy up milk at below cost price, as they know full well the farmers can make a living from farm land subsidies and just does dairy farming because it's the family tradition or a glorified hobby.