Mansion tax - lib dems or Vince Cable at least

[Senor Chevalier]

Hi MM.

I agree that I've tried to move the argument over. The mansion tax is clearly a blunt instrument. I'm trying to broaden the discussion out to whether the balance between taxing income and taxing wealth is correct and whether there is ever a point where there would be merit in taxing wealth in preference to income, though I suspect people will be difficult to draw on this point.

I think this "agenda" is closely related to the "mansion tax" or the thrust behind it. But we can deal with it in a separate thread if that sits better with you.

I actually don't particularly want to hit people that have worked hard and paid their taxes. But there are plenty that have assets worth far beyond what they have earned, be it through inheritence, capital gains, more favourable tax regimes or tax avoidance.

In another recent thread I made the point that an exemption from a wealth tax could be set by reference to lifetime tax paid to address this very point.

I am not necessarily suggesting to set the tax at a level that would impact a ?750k house. I haven't begun to think about implementation / calibration. But I do feel the balance is wrong and that there are plenty of people with far more in assets that have paid far less in tax and their comes a point at a certain level where such wealth should be taxed. Any such tax should only apply to the incremental wealth above a certain threshold, in any case, so my folks would not have much to pay and if they had to contribute a little so that this generation's teachers and civil servants got a fair deal then so be it.

Tbh depressing house prices is probably of more use than the tax per se and would not make victims of pensioners.

As for whether setting a tax at such a level would benefit Zeban or LadyD - I have no idea, possibly / probably. For my part, I would be a victim of such a system as a payer of the tax. Not great for me at all given I started with nothing and have earned all that I own and paid considerable tax along the way.

Perhaps setting inheritance tax at 100% is the better way to go...?

Edited typos in bold

[Senor Chevalier]

Trying to design a fair system starting with a blank piece of paper is one thing, but implementing a change to a new system is unfair on those that have overpaid through the old system as you point out. As one of them, I concur entirely.

Ideally it would be good to find consensus on the principles before moving to calibration and then implementation and having to deal with transitional grandfathering isses, but as a starter for 10.

Take people with net assets worth more than ?500k.

Subtract 3 x lifetime tax paid.

Take the resulting figure subtract ?125k and then and levy a tax of 5% per annum on the remainder if it is positive.

Reduce income tax.

The 5% could be phased in over a period of years.

Capital Asset tax and income tax should be consitent with eachother to avoid differential treatment of one over the other. Any asset tax overpaid as assets then fall could be offset aginst future income tax.

I think this could raise considerable tax and even if it didn't would serve to bring down asset values including property so that it was more attainable to all which is a justification in itself. In fact if property prices come down then nobody gets taxed by this mechanism (certainly not the honest pensioners, just the super-rich) and we are presumably all happy...?

[Marmora Man]

SC - I'm like you. I started with nothing and through my own efforts now own a large and comfortable house (along with the building society), have some decent savings / investments and a reasonable (private) pension plan that I invest in as I'm self employed.

Unlike you I want not only to hang on to my assets (and certainly not to be taxed on them), I want to use them to support my children and my wider family. I see no shame or disgrace in that - I've paid my taxes, worked hard all my life and wish to do as I wish with what I have.

Lib Dems and more left wing politicians seem to feel this is wrong - to me it is part of human nature. You posit a 100% inheritance tax - this is truly daft socialist wishful thinking. You have also suggested certain alternatives - but all of them go against the grain of human nature. Since the first caveman - family has been at the core of society. Looking after family is instinctive. For reasons I have never fathomed socialist thinkers / tinkerers always wish to impose perfection on individuals rather than live with messy real life.

Church tithes are one of the earliest forms of taxation - historic, understandable and they have a resonance which is why I why I would always vote for a flat rate tax - on everything anyone earns. Salary, interest and dividends. No exemptions, no special breaks - a simple tax system is a fair tax system.

A complicated tax system will always be finagled by scheming accountants and lawyers.

Tax everyone at 25% - on any income above ?15,000pa. I would wager it would bring in more tax and that, most, except utopian seeking socialists, the lazy / envious and accountants would see it as fair

You brought your family into the discussion. Let's compare. My mother is 86, she has one asset - her house - not worth ?750,000 but something probably nearer ?400,000. She has four grandchildren and one great grandchild. I have recently helped her revise her will - her assets will "leap" a generation (or two) and benefit 5 young people. Is this wrong? Not to my mind - it's self help. Not only has my mother sough nothing from the state throughout her life (her daily care is provided by her family - we support her in her own house), never been in hospital but for childbirth, never claimed any benefits except child allowance; she served as a WREN intercepting German signals for Bletchley Park during WWII, experienced rationing until the early 50s and brought up a family during those 50s & 60s when luxuries were few and far between. Once my sister and I left home she looked after others - neighbours and friends, she was secretary to a couple of charities, even now she still shops for an even more elderly neighbour. She has never travelled abroad or flown in an aeroplane - she has lived a simple life, not frittered away her money or her time.

Why should the one asset she has to show for that tough life be, potentially, taxed out of existence to support a theoretical "better / fairer" society and her family deprived on those things she has worked so hard to achieve?

[Senor Chevalier]

Your mother sounds lovely and I certainly wouldn't want a wealth tax to go anywhere near her house. I was suggesting a tax that applied on incremental wealth above a threshold, and so it would not be possible for assets to be taxed out of existance and would in fact take an infinite time line to erode them to the value of the threshold in ever decreasing bites...

...but in any case, I am 100% with you on a simple tax system with the same rates applied across the board, rather than the myriad complexity we have today with the countless work arounds and loopholes that are misued and abused and with people paying tax, receiving rebates, being taxed on the rebates etc, etc.

I also agree of course with the practical realities and limitations to implementing any new system, and it might be that the conclusion is that it all sits in the too difficult box, but I think it is worth initially considering ideas and principals without letting implementation cloud the argument or else nothing would ever change.

And whilst I know that the practicalities will scupper my arguments here, I would think that in terms of priciples most rational people would vote (1) in answer to my (1) or (2) question above...

Go on, vote (1) or vote (2). A single character response is fine.

[Marmora Man]

Your alternatives are not truly alternative so rationally it is impossible to select one or the other - but if you press me, then 2.

[Loz]

Senor Chevalier Wrote:

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> In fact if property prices come down then

> nobody gets taxed by this mechanism (certainly not

> the honest pensioners, just the super-rich) and we

> are presumably all happy...?

At that point your tax would bring in nothing and so we would have to revert to normal taxation methods. Your tax would have achieved nothing except make a lot of people, who had some money, poor. And yet you consistently deny this is an Envy Tax?

All a Asset Tax will do is kill the price of just about any asset in the UK. You make think this is some type of laudable objective, but in reality it would cause the biggest recession you could imagine. And in any recession, it is not the rich that suffer, it is the poor. It's just muddled, left-wing thinking - casting off the stated objective ('a fairer tax system') in order to achieve some social agenda that actually benefits no one ('make the super rich suffer').

[Senor Chevalier]

Yes my left wing socialist agenda pushing to reduce tax on income strikes again. Frankly I don't know my left from my right, I am just calling it like I see it.

Right now I am told there are 30m tax payers in the country of which 27m pay less than ?6k in tax each year, which means that from a tax revenue perspective there are:

3m people contributing;

27m people who are roughly around breakeven given their use of public services schools, hospitals etc; and

the remainder of the population who are net recipients.

So there are 3m people burdened with the obligation to fund the running the country through a drain on their income. And the go to strategy if the tax revenue is found lacking is to whack income tax up further. And if the balance of population were to shift shifts, towards more unemployed / children / retired people etc and fewer income generators then your suggested response is to whack income tax up further still. According to MM at no point does it become unfair and preferable to seek a different means of taxation. This is clearly absurd. The correct answer is clearly that at some point, raising income tax further is a bad idea - we can debate whether that point has been reached yet but there is a point.

Even if for you that point is at 100% income tax, then what do we do beyond that?

My suggestion of an asset tax may not be the answer and may have unintended consequences, and if the costs outweigh the benefits as you suggest then I'll drop it like a stone. I want to find something that works in practice rather than pursue something for philosophical reasons as you imply.

However the suggestion is borne out of trying to find an alternative to absurdly high income tax and high asset prices conspiring to make it hard for people who are not lucky enough to be given a head start in life rather then through any sadistic tendencies. I'm not hearing anyone suggest any other way of unburdening those that are working and funding the country. Surely reducing income tax and making it easier to accumulate would incentivise hard work and enterprise. How do we capture that benefit?

Edit: Oh and Loz, you say that bringing down property prices would have no benefit, but surely it would benefit lots of people wouldn't it? All those that want to buy a property or a bigger property with disbenefits to the downsizers and those using equity release to fund their spending habits.

[Marmora Man]

According to MM at no point does it become unfair and preferable to seek a different means of taxation. This is clearly absurd. The correct answer is clearly that at some point, raising income tax further is a bad idea - we can debate whether that point has been reached yet but there is a point.

No the two alternatives presented were absurd. The state can always reduce the cost / burden on the taxpayer. It not essential that it funds all that it does.

Surely reducing income tax and making it easier to accumulate would incentivise hard work and enterprise. How do we capture that benefit?

As you said you don't know your right from your left. You seem to be proposing reducing income tax to make it easier to accumulate assets which would then be confiscated by the state in order to reduce income tax. This is both a circular argument and a paradox. Clever stuff - except that it's illogical and unfair.

[Senor Chevalier]

Groan - it is neither circular, paradoxical nor necessarily unfair.

Tax needs to be raised whether on income or wealth, so this is all about distribution allocation. Just because I suggest lower income tax which would allow people to accumulate assets which could at some point (scale) be subject to a form of taxation is not circular. It would not lead to the same outcome so can't be circular and if it did then it couldn't be unfair. So who's the one with the paradox?

What about the idea I suggested about having an allowance that exempts assets worth 3 x lifetime tax paid from a wealth tax. So it is only unearned assets that are hit - more of a windfall tax. That deals with the fairness angle surely and the double taxation myopia that is afflicting a few people on this thread.

[Marmora Man]

SC - you're just tinkering with alternative fund raising proposals and falling into the Gordon Brown fallacy - the more complex you make the tax system the more you need to meddle to put right the anomalies that the last tinkering created. All your proposals involve taking away accumulated assets that have been purchased with post tax income. Unfair!

As has been pointed out taxing earnings is simple and understandable. A flat rate is even easier to understand and collect.

Reducing the cost of the state would also reduce the tax burden, incentivise hard work, enterprise and make it easier to accukmulate wealth that reduces the individual's burden on the state (wealthy tend to pay for their own healthcare, eductation, travel and don't object to paying fair taxes for common goods such as policing, roads, parks, libraries, dustmen and so on). This is my preferred solution.

I put to you a binary question:

Should the size of the state be restricted to what the nation can afford to raise in taxes?

Yes or No?

[Senor Chevalier]

Sure - course it should. People should live within their means and that goes for governments too. It has become incredibly bloated and horribly inefficient.

I also concur fully with simple flat tax on income.

However, I think we are currently in a hole.

[Senor Chevalier]

....and I think asset prices are over inflated beyond the reach of most folk.

[Jeremy]

What about someone who's home has increased in value several times over? They didn't ask for it, and they may possibly never benefit from it. They may be forced out of their home because of the crippling and unfair tax.

I think the concept is so flawed, and would prove so profoundly unpopular, that thankfully we will never need to debate this seriously!

[Senor Chevalier]

Yeah, but let's take such a person. A teacher perhaps, married to a civil servant, approaching retirement. They live in an ordinary terraced house in London. Which for reasons they have nothing to do with, happens to be worth ?800k. Such a tax would erode the value of their house. They'd be forced to move. Unfair.

To a point I agree. Certainly it would be profoundly unpopular. And given our politicians have to win popularity contests rather than get measured objectively on whether they make the right decisions for the right reasons to get the right outcomes this will never happen.

But to be honest I'm wondering what on earth these home owners are doing are doing. Why haven't they sold their house to some young idiot prepared to pay for it. And with the proceeds bought a villa in Spain, a farmhouse in Wales and a yacht... Inertia is a terrible thing - sometimes people need a kick.

More seriously, I agree it is a bit mean to tax such people. But I also think it is a bit mean that people starting out now have little prospect of home ownership.

So the question is what's more mean?

[MissNoodlesHats]

I agree with MM

Why should the one asset she has to show for that tough life be, potentially, taxed out of existence to support a theoretical "better / fairer" society and her family deprived on those things she has worked so hard to achieve?

These liberal mugs idea of a fairer society is probably the theoretical equivalent, if you think it back, to class cleansing. Open your eyes and your mind will follow.

[Senor Chevalier]

That's not what was being argued.

Christ there's no finesse with some of you lot is there. It is black or white. There's no room for poise, for adjustment, for rebalancing. Or maybe you worry that making a moderate argument will be seen as indecisive and wishy-washy.

So what are your thoughts on inheritance tax. Given you feel so strongly I assume you would suggest that was dropped altogether and the shortfall made up through an increase in income tax. Show me your petition - where do I sign?

Is that what you're saying LittleMissNoodleDoodle?

[Jeremy]

Senor Chevalier Wrote:

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> Why haven't they

> sold their house to some young idiot prepared to

> pay for it. And with the proceeds bought a villa

> in Spain, a farmhouse in Wales and a yacht...

A new-build holiday home on the Costa Del Sol, and a drafty, crumbling wreck a hundred miles from anywhere.

Sounds wonderful!

[Senor Chevalier]

Costa del Sol is full of chavs. I had Andalucia in mind.

[mikeb]

To put this in context, consider a 3 bedroom terraced house in East Dulwich for about ?535,000, like the one recently sold on Friern Road. HSBC's website tells me that a c. ?160,000 deposit and an annual salary of c. ?85,000 is required to get a mortgage to buy this. Prima facie it would not be possible for a primary school headteacher to afford this house. We all know that the size of the deposit and / or salary required means that most buyers either have a large deposit built up from past house price inflation (or from parents) or are employed in the city in some way.

In the interests of pragmatism and fairness, we need to tax unearned increases in house values, defined as gains on sale / death less material and documented improvement spend and maybe the movement in CPI (not RPI).

[Huguenot]

You want to tax the roof over your head???

You want to tax moving house???

Ha ha! Good luck. Get elected ;-)

Mikeb, your argument has validity if it targets profiteering (ie. secondary housing), but you're completely insane if you want to prevent people changing their primary house for work.

BTW, there is, of course, tax on moving house anyway - it's called stamp duty. It had no effect on the housing boom.

[mikeb]

Stamp duty is indeed a tax on moving house (more accurately on buying a house), but it is unrelated to capital gains made on house values. CGT is not a tax on moving house but a tax on capital gains - no capital gains, no tax. The fact that stamp duty was in recent years paid from realisation of capital gains is coincidental (and also points to looming problems with stamp duty in future years when the well of new capital gains runs dry). CGT does not in any way interfere with geographical mobility.

A situation where housing is affordable at a stable price benefits everyone, even (especially?) homeowners. Instead in the UK we view the roof over our head as an investment, even as "a pension". Madness. And that's before we get onto how easy it is to avoid CGT on investment property (by "living" there for a little while).

It may be a vote-loser, although we won't know until it's tried. It probably depends on relative willingness to vote on this issue between homeowners and renters. Currently about half of households are found in the private rented sector(http://www.bbc.co.uk/news/business-14708841) and I wonder how many of these households are made up of more than one potential property owner. I'm sure you know that many renters feel very strongly about this. The same argument would have been suggested about the abolition of MIRAS but not many people under 30 are even aware of this past tax break.

While we're at it, we should grant tenants proper security of tenure - it's OK when you're 25 but how can you bring up a family (at school) with a property where you have only two months' notice before having to move on?

[Loz]

The problem is that this taxi has well and truly left the rank. If you do anything to bring down house prices you will cause economic disaster to people and families across the country. Remember 'negative equity'? Well that on a much, much larger scale. And the knock on effects to the wider economy will be disastrous.

The only solution from here on is for councils to buy more property.

[mikeb]

Capital gains do not generally arise on a property that has negative equity.

[david_carnell]

I know what Mike is getting at.

The only reason millions of people saw their house go up in value in the last 15yrs by xhundred percent was nothing to do with their own acumen or Sarah Beeney style interior design skills. It was due to a stable economy. Yet the state (or the taxpayer) doesn't benefit.

Instead a bunch of baby boomers ruin it for everyone else by living in ?300k houses they bought for peanuts that no one in a similar situation could now afford.

Doesn't really seem fair, does it?

[mikeb]

To be clear, I agree a mansion tax will be difficult practically - as Adam Smith pointed out "Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it." Sending someone a ?20,000 tax bill when they don't have the cash to hand is going to be unpopular and transferring a share to the state as someone suggested will just complicate matters (eg would they need to consent to works on the house?)

But house prices should not be further subsidised by the taxpayer and gains need to be taxed, just like elsewhere.

I should add that I am not motivated by envy and I am a homeowner myself. Although it would be nice if those mansions in the Village became a bit more affordable ...

David - not sure where you can pick up a house for ?300k - South Bermondsey?