The Observer's main editorial today is headlined:
On tax, our politicians are just too cowardly
I promise that as the author of The Courageous State who specialises in writing on tax more than anything else I did not write this headline, although I agree with it. I also agree with the conclusion, which was:
The slimmer the majority, the louder spin doctors' warnings ring in our leaders' ears and the greater the inclination to tell the public they can have their cake and eat it on the NHS and care. We shouldn't have to rely on secret recordings to learn what politicians really think about tax. But we may have to for some time yet.
It's my belief that tax should be the key issue at the heart of debate in the next general election campaign. In saying so I am not referring to peripheral issues like the mansion tax or the 50p tax rate. These, candidly, make little difference to our overall tax system, however much heat they generate. Nor do I think the debate should be dominated by any of the camps that are identified by the Observer, such as the economists who discuss disincentive effects, spin doctors who only consider the impact on focus groups, technocrats who only discuss how to beat evasion (to which group, on occasion, it might be suggested that I subscribe), or even philosophers who discuss the fair imposition of the overall tax take. Each of these proposes far too narrow a focus by themselves.
Instead, I think that the general election debate should be about the nature of the society that we want. To put it very bluntly, but entirely fairly, do we want to live in a society where we are indifferent to the needs of others and are willing to abandon our commitment to them to the point where some live in hunger, despair, deprivation and even pain because we are not willing to contribute to their well-being or do we instead wish to live in a society where care for each other is our paramount concern, not just for the selfish reason that we have no idea in what situation we might find ourselves in the future, but because it is simply the right thing to empathise with others who at this point in time do not enjoy the best of fortune for whatever the reason?
The first of these options will, undoubtedly, be on the general election agenda. It is my wish that the alternative is as well. If that happens then the nature of the tax system is the natural frontier on which debate should take place. If it isn't then, in itself, the general election will fail to address the issues that this country really faces at this time.
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It would be nice indeed if political debate were to concern itself with what we, the electorate, might actually want. Sadly though it’s limited to being only about the varying severity of what they’re going to do to us in order to maintain the existing and broadly malevolent status quo. British values, eh?
your right but on the flipside, the more the main parties veer from public opinion the more space they leave for new parties to emerge. last time out the Libdems got the bump from disillusioned young people. They won’t make that mistake again. Neither are they ever likely to trust the ‘compassionate’ Tories again, who have proven to yet another generation that whatever they say in the buildup they are only ever batting for the rich.
and the generation that’s coming up now can’t be railroaded by newspapers or mainstream media like before; social media directs users to news and opinion that resonates with their basic values, an altogether more organic process. and i think left to make their own mind up, human beings are generally a decent sort.
so unless the main parties buck their ideas up i see the protest vote growing ever bigger and eventually challenging the status quo (like what happened in Greece). i quite fancy the Greens to do well.
The minute they start to make a decent showing they’ll be infiltrated by the Neolibs. The answer to the problem of politics won’t be politics.
fair point, probably not.
but i still say that the internet has the wind blowing in our favour (and in the face of the status quo). just look at the number of scandals that have been revealed in recent years that would never have seen the light of day 20yrs ago. the Westminster peodophile ring got hushed up even after the papers got hold of it in the eighties. they’re finding it far harder to cover up now.
and as dissolution in the establishment grows then more and more people will look for alternative sources of governance, if not from different parties then grassroots movements and organisations.
The corporate lobby industry must be drowning themselves in champaign.
A major editorial in the Observer about the indecision of political parties about tax. And not even passing reference to offshoring???????
The lobbyists have won yet again.
Has even the Observer been got at?
The next election is highly likely to be a very dirty and personal-insult type of election.
I doubt that the conservative election team fuhrer will allow much of taxation to appear. We already have outright lies appearing and there is still nearly a year to go. Then we have the gagging law. Somehow I doubt the press will be anywhere near fair, the BBC certainly won’t.
There’s no real difference between any of the main political parties on tax.
They all agree that taxing private income and wealth is the only game in town for funding state expenditure.
Of course, the coercive taxation of work and enterprise makes us all poorer.
Instead, only the wealth we create together should pay for services we share together. As this doesn’t penalise capital formation and ensures Land is put to it’s highest possible use, it grows the economy.
And it sorts out things like inequality, poverty and housing unaffordability.
The trouble is, for the fake-Capitalists on one side, and the fake-egalitarians on the other, this is the last thing they want to see happen.
You appear to assume that capital formation has a higher value than utilising human resource to fulfil its potential. Why?
If that’s how it appears then my mistake for not being clearer.
Humans strive to make themselves better. This can be measured by material wealth, knowledge, spiritual, moral. I’m sure you can think of a few others.
So, why penalised activities that encourage this betterment, and subsidise activities that harm it?
That’s what we are currently doing. That what all the main political parties are signed up to.
Humans cannot fulfil their potential if the foundations upon which we build our civilisation are immoral.
The foundations of civil society are property rights. If those are incorrect, it follows that we will have a shrunken economy and inequality.
So, how do should define property rights?
I’m sure you’ve heard all this before Mr Murphy, but for the benefit of those reading you question:
Firstly we all agree now, that humans are not “capital” and cannot be “owned”.
Private property is that gained by your own efforts, or compensation paid for the efforts of another.
Common property is that derived from the unimproved/unexploited value of any natural resource. As no human made the Earth, by definition it’s value cannot be private property.
We only need to “tax” private property because common property is privatised.
This amounts to double theft by coercion.
What is immoral is economically inefficient. Which is why taxation and privatised land rents both cause massive dead weight losses. 48% GDP according to some economists.
But as we know, the majority of land value is monopolised by a tiny minority. If they do not pay more to the common treasury than the value they receive from their freeholder privileges, they are a net burden on the rest of us.
In the UK, although exact figures are very hard to establish, I estimate the top 1% of households own 50% of land by value. This equates to them (although by no means all or even a majority of households within this percentile) receiving a £100bn per year implicit state subsidy. Banks and landlords cream off around £40bn each in privatised land rents too.
And as Land rent captures the bulk of productivity increases (Ricardo’s Law of Rent), inequality rises, no matter how punitively we tax capital.
Land was written out from 20th Century economics by the atomistic Right on one side and the egalitarian Left on the other. The results have been disastrous.
A very simple question. What would happen if instead of taxation, only land rents were used for State revenue?
Do you know the answer to this Mr Murphy? I think you are a luke warm supporter of LVT. But I seem to remember you didn’t want a 100% LVT for some reason. You never said why.
Most tax advisers and lawyers would be looking for another job, but I’m sure personal interest isn’t it 😉
Is there something inherently good about taxing the income of “the rich” that appeals? If so, it’s self defeating. If the rich have gained their wealth by producing what they’ve earned, by definition that enriches everyone.
What history has shown, too often the rich get rich, get even richer, and stay rich by their freeholder privileges. We don’t live in a Capitalist economy. It is neo-Feudal. End that and we end up with a level playing field, where we can all keep what we earn, and only pay for the benefits we receive, as measured by the market.
I do not think property rights are the foundation of society: we disagree
I am in favour of LVT
I think there is no way on earth it can replace all utter taxes and that serious issues if equity might arise from any attempt to do so
I think that belief is as imbalanced as the Gold Standard or, come to that, the suggestion that only the state be allowed to create money. These are seriously unbalanced solutions because human initiative would either be oppressed by them or would all their exploitation
With out property rights we have anarchy and slavery. Even the most primitive hunter-gatherer tribes don’t steal within their tribe, although women and children are considered “property”.
I’m puzzled at to why you think LVT couldn’t replace all other taxes. The fact you say “no way on Earth”, shows me you haven’t really thought much about the subject. Rental values(land) are based on affordability, not cost. So, all taxation from private income and capital, depressed rental values. Not quite on a one to one basis, because privatised land rents incur a deadweight cost.
And as for your assertion that “human initiative would either be oppressed by them or would all their exploitation” by LVT, I find even stranger. I’m sure that’s not what you mean’t.
Equity problems, are a one off transitional issue. They do not add up to an argument against the proposal itself.
When you say equity problems, I imagine you mean the banks, as some fairly simple arithmetic shows that in even the most extreme case, a home buyer purchasing at the top of the market the day before 100% LVT would be back in the black after 9 years. After that they are a lot better off.
As for the Banks, the quicker they make money from lending on productive assets the better for all of us. Even if it does mean a few of them go to the wall. Income from land rent i.e mortgages, is a defacto State subsidy.
Yes, there are going to be losers when subsidies are withdrawn. Doesn’t mean we shouldn’t do it.
But hey, we compensated slave owners after we changed our definition of property rights to something a little more civilised. If we feel the need to do that for bank share holders, in the long term it will be worth it. Personally, I think the real economy depends on productivity. Land rents are not produced so do not represent real wealth. De-capitalising them therefore only hurts the non producers and benefits the vast majority of net producers.
I’m sorry
That’s fantasy in my opinion
And the transition would anyway be utterly unmanageable
But let’s not worry about that
It’s difficult to know how to help you if you’re only reposte is that of a mild insult.
Question for you. Let’s say LVT raises an extra £200bn per year. And that is used to cut taxes like Income Tax, NIC’s, VAT etc, so aggregate disposable income increases by that amount. What will landords do?
They will put up their rent. So rental values rise, and the tax base expands. Rinse and repeat.
Tell me what is the fallacy I’ve made, so I can re-join the real World? Please.
Question for you
How will we transition to about half if all tax being raised from LVT?
And how do we stop avoidance in the meantime?
And most important – tell me how capacity to pay is taken into account?
And which Rac is cut, and why? After all, £200bn is a very long way from all tax
I get LVT at £50bn
Not £200bn
The best exposition of the case that answers all your questions, is here http://kaalvtn.blogspot.co.uk/
Any criticisms of Mr Wadsworth’s assumptions would be gratefully received by him, I dare say.
1. The incidence of a flat 3.5% charge on property, at today’s selling prices, falls only on the rental value of land. This figure can be arrived at in numerous ways, but as a short hand verification, land is widely recognised to account for 2/3 of property value on average. So 2/3 of a total 5.25% yield on rental income sounds about right to me. Given rental yields are between 4.7% (high location value)and 14%(low location value) in the UK.
Current gross UK residential property value is about £6trn. Some put this figure a bit higher, some a bit lower, but £6trn seems to be the median quoted number.
This raises £210bn. As commercial property is already subject to higher property taxation, the yields are different. But it’s reckoned Business Rates (inefficiently) collect around half of land rents, so the total for commercial and agricultural at £55bn.
Once you net off current property taxation, we get a figure of £200bn extra land rent revenue, or there about.
For ease of administration, the 3.5% charge should be spread across 26 bands. So a reformed Council Tax based on a flat charge, in other words.
2. We’ve got the records of the entire commercial and domestic land titles AFAIK. So, LVT can’t be avoided. So let’s get on with it. I have no particular views about current evasion and avoidance, except they are an inevitable by-product of taxing income and capital.
3. From a purely moral POV, LVT is merely asking freeholders to pay for the benefits they receive, as measured by the market. So, like all consumption, the ability to pay is the choice of the consumer (unlike taxes on income and capital where the payer gets no choice). Anything else is a subsidy, for which someone else has to pick up the tab. Why should a poor widow in a low value location subsidise a poor widow in a valuable location?
Practically, we should offer roll up and deferment to any genuine hardship cases.
As a rule of thumb, as long as your gross household income is 5% or more of your property’s value, your are better off under LVT. From this it’s easy to ascertain the number of such cases is likely to be small.
After a fairly short period of time, like all changes to the tax system, these transitional issues cease to exist.
4. Not sure what you mean by Rac. Public spending perhaps? That’s not necessary. We are not scrapping all taxes in one go, but in stages. £200bn is the start.
If you agree rents are based on discretionary income levels, not cost, then logic alone should inform you that £200bn of extra discretionary income will largely get gobbled up in higher rent.
Not all of it, otherwise Government spending would account for 65% GDP! There are downward factors in rising rents, so LVT would reach equilibrium. Exactly where is hard to predict, but it will be the optimum level of State spending, probably close to where we are. Given the reduction in deadweight costs, GDP will rise to, so that needs to be factored in too.
5. You get 50bn, all the evidence I’ve read on the subject puts it many times higher.
House prices have risen by over 100% in real terms. Even if land was valueless then, it would on that figure alone make up 50% of property value now.
Either the 66% figure is wrong, the total property values are wrong, or rental yields are wrong for that £200bn figure to be out by much.
But, hey. Even £50bn would make a noticeable improvement to our economy.
Benj: “as long as your gross household income is 5% or more of your property’s value”
I wouldn’t go that far, depending on your assumptions, people who earn 15% or more of the value of their home (e.g. £30,000 annual gross income household in a £200,000 house) would clearly be better off, the break even point is probably about ten (i.e. a £30,000 income household in a £300,000 home).
Richard Murphy: “tell me how capacity to pay is taken into account?”
The same as anything else.
You want to move into a £1 million house? You either have to be earning £200,000 a year to get the mortgage or you have to have £1 million cash.
You can only afford to pay £9,000 a year? Find yourself somewhere to rent for £9,000 a year, and so on.
LVT would merely speed up the process whereby higher income people get the nice houses, but this process happens anyway, with or without LVT. So the higher income people are still paying the most tax and the low-income people are paying little or nothing.
Also, we would still have a welfare system, all that money we waste on Housing Benefit, council tax benefit can go on LVT rebates for working age low-earners.
And we could do with more council housing anyway, like in the good old days.
You can’t afford to pay anything for a roof over your head? Get a council house.
Oops I have re-checked, assuming a sensible welfare system/tax free amount, the break even point is about 7% or some ridiculously low figure.
Where are your more detailed workings?
Richard
Point 5, should read “House prices have risen by over 100% in real terms, over the last 30 years”.
“Where are your more detailed workings?”
They are all at the KAALVTN blog, there’s everything you need to know all summarised with embedded spreadsheets, tables from HMRC, how we worked out the potential LVT tax base, everything.
Feel free to quibble with the details, broadly speaking it is quite accurate.
If you just don’t like LVT, full stop, well fine, most people don’t, but pls don’t base your objections on bald statements like “It would be regressive” (when any closer look at acutal numbers tells us it would not be), I have thought it all through and it is perfectly realistic and do-able.
Mark
I need more than a spreadsheet to convince me of that
Richard
“I need more than a spreadsheet to convince me of that”
Well I’m very sorry then I can’t help you.
Total value of UK housing is a known figure.
Total site only rental value of land is a known figure.
Total current tax revenues is a known figure.
The reguired rate of LVT and flat income tax to replace current tax system on a fiscally neutral basis are known figures.
The amount of tax/benefits which households currently pay/receive can be calculated reasonably accurately.
The amount of tax/benefits which households would be paying/receiving under a 50/50 LVT and flat income tax system can be calculated very easily and accurately.
This is all on the KAALVTN blog with a couple of spreadsheets where people can do trial runs using figures for household income and value of home, just to see who is better or worse off.
Your figure for UK housing is greater than ONS as far as I can see
Shall we start with that as problem number 1?
Sorry, but to say many of those figures are ‘known’ is pushing credibility