It's a quiet news day, apart from HM Government chucking another £80 billion of subsidised money at their chums in the banking sector, so let's crack on with the series.
The self-appointed Home-Owner-Ist shock troops (i.e. The Taxpayers' Alliance) dreamed up the splendid new expression "dry tax charges", which they trot out e.g. here:
"Taxes on property that people already own - such as Council Tax and proposals for a Mansion Tax or Land Value Tax - are dry tax charges, not necessarily levied when people have the cash to pay them, which can cause serious hardship."
I've also had Faux Libertarians saying "OK, the landlord can pay the tax out of the rental income, but how's a homeowner going to pay it? His home doesn't generate any cash."
The "dry tax" nonsense is just the Poor Widow Bogey #8,942,753, but it misses the obvious. Apart from banks and bank note printers, no business generates cash. Car makers make cars. Cake makers make cakes. Workers work. And so on. What they do is exchange their output or services for cash (instead of consuming this themselves), and then use that cash to pay the tax.
Every homeowner is of course sitting on an asset which is more than capable of generating enough income to pay any LVT you can throw at them, namely the home itself - it's just that they want to consume/enjoy the rental value themselves. So to turn these nasty "dry tax charges" into lovely, slushy wet ones, all they have to do is rent their homes out to somebody else, and then take the cash which is left (i.e. the earned element plus the untaxed part of the ground rent element) and rent themselves somewhere to live in. Their landlord in turn will have no problem paying etc etc.
Where's the "serious hardship" here? It may happen that some people end up living somewhere smaller than they were used to, but nobody will be homeless. They'll whine that they can't find anywhere nice to live within their budget - but it was the self-same Homeys who dreamed up the idea of making people overpay for crappy housing, so as the saying goes: Taste democracy!
Thoughts on being a quitter
3 hours ago
22 comments:
Let me get this right. If I own a house I shouldn't live in it. I should rent it out and live somewhere else? So I then rent my house out to cover the mortgage and add on the cost of the LVT so the renter pays it. I then add on the value of LVT the landlord of my property is levying on me. I can add add on some more to gain an income. Or do I buy a house, my friend buys a house and we live in each others houses.
PJ, no, that's Home-Owner-Ist logic, not mine.
My logic says a house is like anything else, you decide what you can afford and you pay for it. It's a Socialist idea that the government chooses certain favoured groups get stuff for free and other people have to pay (through the nose) for it.
Further, neither you nor your landlord can "add" anything to the rent. The rent is fixed by the markets and things like mortgage interest or LVT (or anything else) are merely ways in which that rental income is split up between various parties.
Glad to have cleared up those misunderstandings :-)
Just trying to rationalise the idea of LVT, I have no axe to grind either way and it may help me understand the concept better so thoughts as follows:
The market will surely take into account the LVT, so it will be added to all rents, it certainly won't be ignored.
People will still have to borrow money to buy the properties, or will this encourage people not to bother buying so that the vast majority of people will rent.
If LVT is not added to the rent then people will be forced to sell as they won't be able to afford a mortgage and the LVT, leaving a huge mount of properties on the market thus forcing the price down, thus leaving a gap between mortgage owed and money received. This may leave many having to default, ok that stuffs the banks but will also stuff people's credit ratings.
Now if this was introduced from scratch, house prices and therefore mortgages and LVT would be low as no-one would really want to buy fearing increases. It would be worse in a transition as high mortgages coupled with high LVT and low sale prices would bugger a lot of people. It would therefore be logical for all property to be taken over by the state with all rents going to the state as tax.
On the other hand would my idea of friends living in each others houses work?
Not put together very coherently I know, but it's just me ttrying to think about it.
"OK, the landlord can pay the tax out of the rental income, but how's a homeowner going to pay it? His home doesn't generate any cash."
Which begs the question, 'How does he pay the effing rent then!'
Twat.
PJ, the general idea is:
1. Taxes on incomes and output = very bad. Morally is theft, and even if not, cause unemployment, business failures, evasion etc.
2. Land rents = arise simply because people organise themselves into nation-states and obey common rules. So morally, those rents sort of belong to everybody who lives in that state and abides by the rules.
3. Once land rents are capitalised into land prices, we get all sorts of speculation, credits bubbles, financial crises etc every 18 years.
So we can fix all three by taxing the rental value of land instead of taxing incomes (how much it would raise and how that money is spent or distributed are separate issues).
The "how do I pay LVT + mortgage" issue doesn't really arise. For a recent purchaser, the income tax etc saving far outweighs the LVT (that's basic maths); and for somebody who bought ages ago has little or no mortgage anyway (so for him is also a straight swap LVT instead of income tax etc).
Sure, there'll be a few Poor Widows in Mansion with no current income to pay the bills. And there'll be icky transitional issues with nequity, but that's just details.
L, exactly. And PJ's mortgage payments are also "dry charges". So if the Homeys want to argue it should be made illegal for anybody to make anybody else pay for occupying land, that's just fine by me. My landlord won't be too chuffed though.
Surely the tax difference depends on the value of the property and the percentage taxed. What would the tax be, the rental , a percentage of the rent, a percentage of the purchase price/ current value? You may well be worse off. It certainly wouldn't encourage anyone to move up or improve their property.
'And there'll be icky transitional issues with nequity, but that's just details.'
I' m sure people left with huge bills and/or defaults wouldn't consider them to be 'details' . Left with a huge debt, a zero credit rating and therefore unable to rent anywhere and they'd still be taxed for pitching a tent.
The result of this would seem to concentrate even more land into the hands of a few who would be able to set whatever rent they want. Govt would be happy as their tax take would go up.
It would therefor be logical to let the state own all property so rents could be fairer, after all property is theft, according to the leftists.
I will go else where and carry out more research, my thoughts above not being addressed. I can see the attraction but can see problems.
PJ: "Surely the tax difference depends on the value of the property and the percentage taxed"
Actually, the break even calculation depends mainly on what your house is worth divided by your household's gross earned income. Let's assume, for simplicity that as much is raised in LVT as all the taxes that are scrapped.
If house price divided by gross earned income is more than ten, oo-er, you'd pay more in tax; if it's less than nine, you'd pay less in tax.
"What would the tax be, the rental , a percentage of the rent, a percentage of the purchase price/ current value?"
The purists say it would be site-only rental value, i.e. the total rental value minus the rental value of bricks and mortar. But really it doesn't matter that much.
Thos transitional bits will be very unpleasant for a minority of people but they can be sorted out in a few years.
If we keep up house prices just to protect a few people now from "the scourge of negative equity" then all that means is that other people will have "the scourge of high mortgages" in future.
Surely it's better to fix all this once and for all, than make things very unpleasant for a majority for ever?
"The result of this would seem to concentrate even more land into the hands of a few who would be able to set whatever rent they want. Govt would be happy as their tax take would go up."
Well no, exactly not. The end result would be that everybody ends up with as much land as he is prepared to pay for and there is no advantage to owning more land than you need.
It's lack of LVT which means that land ownership becomes more concentrated in fewer hands over time.
As to "the state owning all property" and collecting rent instead of income tax, to be honest, that would be better than what we've got now, but still not optimum.
The optimum is for land rents to be pooled (instead of earned income being pooled) and for building to be owned privately.
Don't worry about problems, for the past five years I've been hearing about all these supposedly insurmoutable problems, none of them are insurmountable, worst case we e.g. just exempt Poor Widows for example. We can dream up loads of fiddly little transitional measures and exemptions and changes to insolvency law, blah blah blah, boring. It's hardly World War Two is it, and we survived that.
I'm talking about five years down the line once the system has bedded in.
Thanks for that.
The unfortunate side effect is that I'd have to encourage the kids to stay at home to reduce my tax bill!
PJ, but if and when they do move out, it'll be a lot cheaper for them, so they won't come begging to you for cash to use as a deposit etc.
Also, as you're not punishing people who work, there'd be a lot more jobs (and thus higher wages) to choose from.
Phil Jones - if the effect of LVT was to make wealthy land owners even richer then Lord Marchmain and his friends who between them own most of the West End of London would be pushing like made for it. In fact it they would have showered LVT campaigners with money, engaged top advertising agencies and parliamentary lobbyists, and made sure that the arguments were heard by as many people as possible.
I have not noticed this happening.
This argument about LVT being passed on in higher rents keeps turning up. The assumption behind it is that landlords are not already charging as much as they can possibly get for their properties. Where are these landlords who are so generous to their tenants, and what is to stop their tenants from sub-letting to get the going rate and pocketing the difference?
Phys. people get terribly het up about this "passing on" business.
Fact is, landlords can't pass on their costs BUT they will be able to increase rents if people are not paying income tax any more.
So if we replaced income tax with LVT, it's reasonable to expect that headline rents, inclusive of LVT, would increase quite a bit from where they are today.
"So if we replaced income tax with LVT, it's reasonable to expect that headline rents, inclusive of LVT, would increase quite a bit from where they are today."
That is one trend. The other would be that more property would come on to the market as voids would cost landlords more. That drives rents in the other direction.
The first trend would ultimately outweigh the second once there were big cuts in other taxes. For the Exchequer it is a benign cycle as the LVT tax base would keep on growing, the yield would keep rising and other taxes could be slashed... and so on.
Ph, the true cost to landlords of void periods is the lost rent (not any running costs they have).
So this tax won't make much difference to normal, sensible landlords who are always keen to keep voids to a minimum (i.e. a week or two between tenants).
Where the extra supply would come from is the grossly under occupied housing - second homes, vacant and derelict homes and Poor Widows In Mansions.
Of indeed Phil Jones asking his kids to live at home for longer to split the tax bill.
To say nothing of the 300,000 planning consents which have not been constructed.
Then there are all those vacant commercial premises which would come onto the market at competitive rents.
All of this would kick-start the building industry as development and refurbishment got under way.
Isn't that what everyone wants to happen? Why isn't Osborne pushing this through now? Why isn't Balls telling him to? Are they idiots or wicked or both?
Ph, a lot of those 300,000 consents only make commercial sense because the landowner can bank the windfall planning gain. Take that away with LVT and there's no point. Plus apparently, banks won't lend to developers any more.
The pool of under-occupied and unused housing is far, far larger than that and it's already built, it just needs people to downsize, upsize, rightsize.* All it needs is a bit of refurbishment work, that's a far better investment than allowing old stuff to crumble and build new stuff.
And to the extent we build new stuff, better to increase densities in urban areas by replacing small houses with big houses or blocks of flats.
Agreed on vacant commercial premises.
* The Intergenerational Foundation crunched the numbers, there are five or ten million bedrooms which nobody uses regularly (I can't remember the exact number).
Vacant bedrooms is a bonkers idea. It costs money just to keep them and they fill up with junk.
Cheaper to pay for your relatives to stay at a local hotel and less stressful too.
Ph: "Cheaper to pay for your relatives to stay at a local hotel and less stressful too."
Amen to that.
"It would therefor be logical to let the state own all property so rents could be fairer"
Not really. The state does own all the property and always has done. What has happened is that over the years, increasing numbers of people (freeholders) have been let off paying any rent to the state, so that this money is now collected up front by one occupier when he passes on the the right to occupy that property without paying any rent to the next occupier. This is what is effectively happening when you "buy" a property.
If the state put itself back in the position where all the freeholds were converted back to tenancies, there is no reason to suppose that the whole process wouldn't start again, with favoured people being let off the rent.
B, correct. although the "nationalise everything and charge rent" is at least a useful thought experiment to show that LVT would work (being a half way house).
As to the rest of your comment, agreed. When you "buy" land, there are two contracts involved
- one master contract between 'the state' and the 'owner' of the land from time to time, which grants him special rights vis a vis 'everybody else' (who were never asked about any of this or compensated for the burden imposed on them)
- a secondary contract whereby the current 'owner' passes on the benefit under that contract to the next owner (in exchange for cash).
So once the secondary contract is completed and the records updated, the new owner is now a party to the first contract and enjoys those special privileges vis a vis 'everybody else'.
The state does not own all the property. The sovereign does. There is a difference. It derives from the ancient doctrine that the monarch holds the land on behalf of all the people.
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