Several people have already referred in comments to Simon Jenkins' article in the Guardian on tax today - which is very good (everyone has their day). I recommend it.
As he concludes:
Property taxes cannot be evaded, and properly imposed are a fair generator of government revenue. Better, they are traditionally paid in anger. Any tax paid in anger is a good tax — the opposite of a stealth tax, because the payer demands to know how it is spent. Property taxes are thus a spur to democratic interest and activity. That, of course, is why politicians detest them.
Two things: this is not a plea for an increase in council tax, it is a plea for property land value taxation to capture wealth as a tax base.
Second, Jenkins' point on tax and democracy is a good one. I have argued there are five reasons to tax:
- Raise revenue;
- Reprice goods and services considered to be incorrectly priced by the market such as tobacco, alcohol, carbon emissions etc.;
- Redistribute income and wealth;
- Raise representation within the democratic process because it has been found that only when an electorate and a government are bound by the common interest of tax does democratic accountability really work; and finally to facilitate:
- Reorganisation of the economy through fiscal policy.
Jenkins is specifically endorsing point 4 - one that few people seem to understand but which seems increasingly important.
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Remember guys that this is not a panacea whilst it is easy to set up an off-shore company to ‘own’ your large detached house for you.
Your house is still here – and can be claimed for sale if you don’t pay the tax
Martin, surely that’s the beauty of this: taxation doesn’t give a damn who owns the house/property, or where it is owned: it is taxable where it is, whatever the taxation status of the owning entity.
Mr. Murphy,
I have been reading your blog for some time now and despite having supported the Labour party all my life (and continue to do so) I feel that times are now changed in relation to big government which you seem to advocate a great deal here. Perhaps you could explain some of the following issues I am struggling with lately.
In the past couple of years we have seen everything from MP’s expenses, £12bn NHS computer systems that don’t work, quangos costing us 60bn a year, bottled water for MP’s costing hundreds of thousands and bank bailouts that seem to have done nothing but make the issues worse. The government waste is getting to a point that I feel 50% of the tax I paid was squandered on rubbish. I am all in favour of paying my way in society but at the moment I feel that with every tax whether it be income, capital gains, NI, fuel duties, road tax, VAT or inheritance tax, no matter where I turn the government takes more money to waste.
I understand that there is a big exodus of tax through avoidance and evasion, but that has nothing to do with how the government spends the money it has. If anything it should make them more cautious with the money they do collect.
I don’t know, maybe I am on the wrong tangent, but I really cannot see any longer how a big government, with nationalized banks and services can work anymore. They just seem to run up massive costs.
Thanks for your comment.
I’m going to ignore side issues like bottled water – I am not sure how else committees would sit for hours without a break
But you ignore it was the private sector who said they could deliver the NHS computer system and did not
And it was private sector banks that failed
As for quangos – the Tories said they would abolish them and saved nothing and just made 500 new ones in the NHS. They are simply an effective way to manage
No the system is not perfect
But markets are much worse at managing complexity than the government
Stick with it
Well tap water is what I was suggesting. It was just an example to show how endemic I feel the waste has become.
Would it have not been better then for the government to back the savings, and to strip out the mortgages held into a fixed scheme. Sure it would have been painful but not as bad as them constantly pumping money into a banks thats still making a loss.
As for the computer system though, why did the government agree to pay 12bn? I have a friend who works in IT who was amazed at the cost. he said the equivalent (working system) could have been built for about 1.5 – 1.75bn.
Are all the quangos necessary though? I mean I saw a list that included a man who was paid 40k a year for 2 days of work a week called the commissioner for the compact ?!?! I spent 20 minutes reading about him and still didnt know what he did.
The list went on for pages of these positions that have been created in the last 15 years half of which serve the same job as the next of the list. The guys heading up these things are earning a mint.
Why is there so little support for the idea of a mansion tax? Surely it at least targets the rich non-residents who have pushed up London house prices, yet only pay a couple of thousand in council tax on their multi-million pound properties. I find it amazing rich foreigners can come and live in the UK, and pay virtually no tax if they aren’t working and are non-dom.
On this we agree
Not to mention the low ceiling, [sorry about that :-)] of the maximum council tax band H.
I wonder who designed that structure?
If we had property taxation, I would like to see a Land Value Tax i.e. tax the value of the location but not the building upon it.
Or we could have a split rate system like they have in some US cities in Pennsylvania, where there is a large rate on the land value, and a smaller one on the built value.
The move from a pure ‘mansion tax’ to this split rate helped redevelopment in these cities as owners faced a cost of holding the land, but were not penalised heavily for improving the buildings upon it.
I am wary of a property tax because of the burden imposed on property-rich but income-poor, especially pensioners. It also makes the assumption that property and wealth are a direct correlation. The part of the road I live on is 2 pairs of semis. Mine is one of the larger pair. Our ‘common wall’ neighbours are successful and wealthy (which is fine for me), and while their house is worth a bit more due to various factors, our incomes are not in proportion. Like wise, our other neighbours are probably on a higher joint income (he is a respected surgeon), yet their house is smaller.
To complicate this 2 of the 4 people are Americans, required by US law to pay US taxed, no matter where they reside, thus, under double taxation agreements, have a reduced UK liability.
My parents house is worth more than any of these 4, yet I doubt their income is equivalent to mine and my wife’s.
I think deferral until death for pensioners would be fine
Otherwise – and so long as this is only part of the tax base as now with an emphasis on new higher rates I can live with it
I tend to agree with Ex Tax Collector on this.
I think there are further problems from a regional perspective. For example, The south-west has high house prices yet some of the lowest wages. Whle I accept that the ‘average’ price calculation is pushed up by London commuters et al, this could make it even harder for the young in these areas to buy a place.
As noted prices are somewhat inflated in the region due to commuters and ‘escape to the country’ retirees etc. I therefore don’t believe that such a tax would be matched by a parallel decrease in property prices.
Second properies are definitely in higher tax rates as are holiday let’s. Both disrupt communities
And yes, I admit I do rent them
If the tax was primarily on the land value rather than the house’s value, I imagine you would both be paying the same amount.
Such a tax would also presumably lead to a considerable fall in prices as it would break the oligopoly of land ownership in this country which keeps prices high due to scarcity.
And I imagine many would no longer be able to keep so many second homes, making houses affordable for the locals.
Quite agree that deferal should be an option for pensioners – although if it leads to them downsizing and using the proceeds of the sale to fund care in their retirement, it would be a very sensible thing.
You could also include a threshold, analogous to the Personal Allowance in Income Tax. And if revenues could pay for reductions in income taxes, or a Citizen’s Income that would further deal with ability-to-pay problems.
Deferral is basically an inheritance tax. We have inheritance tax.
I have no issue with a progressive income tax. What a mansion tax can do is tax people on the movement of the housing market, is which outside of their control. It does not tie ability to pay (short of selling the house) to actual income. It is also a retroactive tax. It argues because you have an expensive house you have a higher income (to buy it with) thus should pay more. Will there be refunds for those near HS2, when the line causes their house to be worth less than the threshold for the tax? My parents won’t be caught by any Mansion Tax (their property is probably £300,000), but it is worth approximately 10 times what they bought it for in 1978. They didn’t predict what is effectively 7.5% annual price increase. Imagine someone analogous to Jerry and Margot Leadbetter in ‘The Good Life’. How much could thier house be worth?
How often are you going to collect this tax? If it is a one off how are you going to ensure it is worthwhile: It can’t be put into anything with ongoing costs, because it won’t be there in the future. If it goes into the deficit it needs to actually pay of debt, not just reduce this years overspend, so the reduction in interest has an effect, and you need to balance next year’s budget, or you don’t see the effect – it is just the same as Maggie selling off ‘the family silver’. you need to use it to kick start a project that will make annual returns.
If you collect it annually… we already have a annual property based tax.
What about the rich person who doesn’t want to buy a £1,000,000 pound property – he’s got a nice £600k barn conversion in Bucks, and he’s happy. What he does have is the lifestyle of someone who can afford a £3 mil mansion. What then. Tax his million dollar Ferrari Enzo? What about his £10,000 first class flight to Las Vegas (really – check the BA website!). What about people with valuable art work?
And what you are doing is applying a retro-active tax. You are saying ‘Your hose cost lots of money. Therefore, as you were a high earner 10 years ago, you can afford to pay more’.
Richard,
Quite right:
Raise representation within the democratic process because it has been found that only when an electorate and a government are bound by the common interest of tax does democratic accountability really work;
So, if the electorate sees themselves as taxed too much, participate in larger numbers in the democratic process and elect representatives who cut the level of taxation, this is a good thing, no?
Georges
I could seek to change their minds but I could not argue with it if election was not rigged
Been there, done that.
http://thecynicaltendency.blogspot.com/2009/09/property-tax-price-of-folly.html
This is nonsense. I’ve posted a comment.
Although you rejected mine glad to see you posted Henry Law’s comment, which was much better anyway.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1661322
Relevant reading for the truly dedicated…