Saturday 20 August 2011

Circular Logic by The Circular One

Spotted by DNAse in The Telegraph:

Higher property taxes will not be introduced because middle-class families are already paying enough to Treasury, a Cabinet minister has said (1). Eric Pickles, the Communities Secretary, states that hard-working home owners “put a lot into this country and don’t take a lot out" (2). Mr Pickles, whose department oversees council tax, says a mansion tax would require the revaluation of houses across Britain, at a cost of £250 million to the taxpayer. (3)

1) So, what the current government does is increase bad taxes when they come into power (VAT up by 2.5%, NIC up by 2%) and be too cowardly to scrap the 50p top income tax rate, and then use this as an excuse not to increase good taxes (mansion tax, council tax, land value tax, whatever you call it)?

2) Apart from ever rising land values, of course.

3) So he admits it would cost £5 per home? Cheap at half the price, and even that is probably overstated - HM Land Registry have all the information they need to calculate a reasonably accurate tax rate for land in every single postcode sector - it's only relative values that matter, not absolute ones. All they need to do is push a couple of buttons and press "print".

But fair enough, many people (in fact most) are paying far too much in income tax, NIC etc, so why not use my new Secret Weapon of choice, i.e. send everybody their Land Value Tax bill but give them a £ for £ credit against other tax liabilities?

If we stick to artificial distinction (all taxes are ultimately borne by households) and just look at taxes legally borne by private households (i.e. where private individuals have to sign the cheque or see it deducted from their wages etc.) we are looking at about £250 billion* (from the PSFD).

So let's assume that we decided to raise, nominally, £50 billion per annum from Domestic Rates calculated as approx. 1.5% tax of the current values of housing, then households would get a fifth of their other taxes refunded (they can use it to frank their Council Tax, TV licence fee, PAYE deductions, whatever they like), and it would only lead to a very small increase in revenues to the extent that some people have a very high house-price-to-income ratio (more than about twenty).

These people are by definition "taking just as much out" as their neighbours, who live in a similar house but have a higher income (and so have a lower house-price-to-income ratio) and therefore pay much more in tax, so that deals with item (2) most admirably - those who are already contributing enough/too much wouldn't pay a penny more - and we can use this modest surplus to reduce the deficit, cut other taxes, whatever.

* Forecast for 2011-12:
Income tax less tax credits £142.9 billion
Employee's NIC £50 billion
Council Tax £26.1 billion
Capital Gains Tax £3.4 billion
Inheritance Tax £2.7 billion
Stamp Duty Land tax £4 billion
Stamp Duty on share purchases £2 billion
Road tax £4 billion
TV licence fee £3.1 billion.

16 comments:

Andrew Duffield said...

Well said. I trust you will write to the Torygraph accordingly?

Mark Wadsworth said...

AD, done.

DNAse said...

This is the fundamental tory blind spot: that land wealth is "hard earned". And their solution to increasing house prices is typically to encourage the wealth to be passed to the kids. So we head back towards the landed gentry which is where the tory party came from afterall.

I particularly like the secret weapon because it clearly lays out the "putting in and the taking out" (something that politicians typically want to distort for their own gain - so there's a barrier already!). I think however you'd want to tackle the "old widow bogey" straight off. A tapered tax allowance for over 65s to facilitate a transition?

Bayard said...

"So we head back towards the landed gentry"

History tells us that the ambition of every Englishman is to be landed gentry.

Mark Wadsworth said...

DNA, poor widow bogey is easy:

1. Discounts, deferments or exemptions.
2. Higher state pension (this is probably the simplest and best)
3. Rent a room to e.g. a relative
4. Rent out your whole house and rent yourself somewhere smaller. Or just sell it and move.
5. Ask your heirs to pay the tax, seeing as they're the ones who ultimately stand to benefit.

Mark Wadsworth said...

B: "the ambition of every Englishman is to be landed gentry"

But logic says that we can't all be landed gentry. This is something that the Homeys refuse to accept.

Or indeed the pensions salesmen - there are simply not enough shares and bonds in existence to give every pensioner a private pension of more than about £5,000 a year. So everybody who is conned into saving for a pension is merely making it harder for somebody else to save for a pension.

Mark Wadsworth said...

DNA, I missed one:

6. The obvious extension of the Secret Weapon is that you also get a credit for the LVT you pay for your parents' house, seeing as some pensioners might not be able to afford to stay in over-occupation of their current home, however high you made the state pension.

DNAse said...

the ambition of every Englishman is to be landed gentry

And it is only a Georgist system that would give every Englishman an equal chance.

I'm convinced Mark, it's Pickles and co. you (we) have to work on!

dearieme said...

I will not vote for anyone who bangs on about "hard-earned", nor indeed about "hard-working families". Effing cant.

Bayard said...

"But logic says that we can't all be landed gentry"

Of course, but I don't care if you don't make landed gentry status, so long as I do.

Anonymous said...

"Hard earned" and "Hard working families".
Nope I didn't have to take a second job as a barman my wife didn't have to bring up three children and hold down a part time job so that we could join the "landed gentry", a tooth fairy or some such must have left our HOME under a pillow.
The only context in which some people understand the word "hard" is if it's followed by "on".

Mark Wadsworth said...

Anon, interesting.

So how would you feel about a system - as recommended by Andrew Duffield, DNAse, Bayard or me - where every citizen is an equal member of "the landed gentry" from birth?

Anonymous said...

If Anon lives in a property that currently costs less than the Average Property (including those that are non-residential) then he'd be better off.
AC1

Mark Wadsworth said...

AC1, no, it's the house-price-to-income ratio that matters, not the absolute value. A footballer on £5 million a year salary in a £10 million house would be enormously better off.

NickM said...

Isn't Pickles (didn't he find the World Cup under a hedge*) strictly speaking spherical rather than circular. Though not having a 3D TV it's hard to tell.

*traditionally where porn breeds. Hmm...

Mark Wadsworth said...

NM, good point, but I'm not sure there's such a thing as 'spherical logic'.