Mansion tax - lib dems or Vince Cable at least

[Senor Chevalier]

Muddling high earners with wealthy again and putting them in one pot called "rich". The topic of MT cropped up in recent weeks in the context of dropping the 50% tax rate. The whole point of this proposal is to unburden earners a little and allocate some of their pain elsewhere, to a Mansion Tax. So MM, when you say to back off as the rich are already bearing their fair share, I say, I agree that high earners are bearing a preposterous share and it needs to be reduced.

Roll back up to my Sept 5th comment on page 2 and I was using a similar stat to illustrate that a few earners are carrying the entire country - 3m people put into the pot and the rest of the country either breakeven or represent a net cost. And whenever there is a shortage the "go to" strategy is to add to the burden on these few earners rather than spread it around more fairly.

Can we agree the following:

1) Conceptually there is a [clear?] point when income tax is too high (and whilst we can argue about whether we are there yet it is indisputable [or should be] that at a certain level income tax is too high from both a fairness and a pragmatic / effectiveness perspective).

So where do we go once we've reached this limit?

2) To the extent possible you can try to reduce government spending but this has consequences and there are limitations.

3) If more tax is needed another source is required and so a more equitable way of distributing the pain needs to be found. Now given tax can only be raised from those who have cash, once income tax is at or above its limit the only other place to go is to tax wealth.

This is the same point I've been making for months. I genuinely can't see any hole in the logic. Is this really envy talking or just stating the bloody obvious?

Edited for clarity - not that it'll make any difference....

[StraferJack]

This idea that a tiny minority are "carrying" the country is laughable

They aren't carrying anything. They earn such collosal amounts they can "carry" the tax burden and not even notice or care

That's a sign of how unfair income distribution is, not how unfair their tax bill is

[Loz]

More stats:

- Top 10% of incomes start at ?44,900

- Top 5% of incomes start at ?61,500

- Top 1% of incomes start at ?149,000

?44,900 Colossal? Ironically, that is not very far from the equivalent in pre-tax income to the ?26,000 cap the government wants to put on benefits, which some are saying is unreasonable.

[StraferJack]

26k is unreasonable because most of it lines landlord pockets, not claimants

So should I be In or out of the top 10% to say they should pay more?

[Senor Chevalier]

Thought I might start to get abuse from the other side. My aim here is to basically make a nuanced point in order to invoke maximum abuse from all sides of the argument.

Those 3m people are contributing all the tax that others benefit from though, so without them there would be a major issue. If carrying is above your sense of humour threshold SJ then perhaps another word is needed. Maybe indulging? Though they don't really get much choice.

I think carrying is the right word actually, though their ability to bear the weight does vary I agree.

The assertion that they do not even notice or care on the other hand - now that is funny.

[StraferJack]

steady on SC - why claim you are being abused ?

Those 3 million people don't exist in a bubble - they don't just pay their tax and see no benefit from that taxation. That's why I object to phrases like "carrying"

They (and I use the word they but hey i could be in that 3 million, couldn't I?) aren't just writing cheques for the poor. They benefit in myriad ways, from the eductaion system, health, infrastructure, government's ability to stabilise a banking system close to collapse.

When I say they don't care or notice, I don't mean literally. I know how much tax I pay and when it rises I notice. But I'm also aware than I'm much more able to pay more than I would be if I was on 15k

In defending my side of the argument I'm well aware that it appears I am just accepting that taxes must always go up. But that really isn't the case. I'm just aware that until this recession blows over, there is a need for government revenue to go up. (otherwise they wouldn't express sorrow when cutting services, right?)

I'm also aware that the better off you are the more likely you are to hide funds to avoid tax burdens and that the reality is the government doesn't receive any increase

But I'm not in government, legislating. I'm just stating a case on a local forum - a case that says it is possible for people to pool together (yes, even more than they are now) to navigate the current economic situation less painfully than we are. Saying things like "I'm in the top 1 % and we pay 99.999% of all tax revenue" is neither here nor there if 100% of the tax revenue isn't enough

And yes that makes me naive. I get it

[Huguenot]

Many of the 'average' residents of terraced housing in ED will have bought their 3 bed family property 10 to 15 or more years ago. they may have bought it at 'right-to-buy rates' discounted against market value, or simply at an average price not much off 250k.

The mortgage payments will consequently reflect a loan of around 200k or more, say 800 quid a month, and be within the means of the average middle class family.

When the housing market went mental these people didn't suddenly become rich. They didn't get given half a million quid. Somebody may well want to pay 600k for their house, but they ain't selling, it's their home and they live there.

Now suddenly, because someone else has offered more money for their house, we want them to pay 6k a year (1%) in 'envy tax' - they don't have it. They are not now and never were rich.

Quite simply we're evicting them out of spite.

[mikeb]

H - do you feel the same if the threshold is ?2m as proposed? Still possible that someone could find themselves in this boat (the ?4m house for sale in Dulwich Village is probably a case in point). But somehow less clear cut that this person is not "rich" ...

[Huguenot]

That wasn't my point as such - the thing is that for most ordinary folk the price of their house is irrelevant. They're not rich.

The ones milking it don't live in their houses. Tax multiple house ownership, tax capital gains - but don't tax people on their house for money they have never had and will never see.

[Senor Chevalier]

Yes Huguenot, your point is understood. Some people don't have the money and could be forced to downsize. There is a monetisation issue for those without other liquid assets. This potential forced downsizing is not the specific objective of the tax and to the extent it arises it would be an unhappy consequence for the cohort of people who's house had risen in value through no fault of their own who just want to go on minding their own business.

But what of the other cohort of people that are locked out of the property market due to its sheer ridiculousness? they go about their lives minding their own business doing more or less what the previous generation did but cannot attain property ownership and have to live in comparative poverty despite otherwise performing a roughly equivalent role in society.

It is in trying to balance the needs of these groups that we have a difficulty.

Arguments going back and forth:

"it's not fair on group B so we need this tax"

"why penalise group A though that's not fair either"

This is all fine, but does not really progress the debate. We all get that if the scales are tipped in favour of one group then this could be to the detriment of the other.

My feeling is that if the MT is calibrated at an appropriate level then there would be relatively few people forced to downsize and those that were would have genuine property wealth and not be the sort of people in a 3 bed ED terrace as you cite.

In ? terms it is simplistically a zero sum game where the extra tax taken from A affords reduced tax to B ? for ?. There is however a further benefit. Such a tax would cause people to think twice about paying silly money for houses and would thus provide a downward pressure on house prices. A price fall should have no effect on those that simply wish to mind their own business and keep living where they are. Nor would it hurt those trading up as they go through working life. It would however harm the leveraged property speculators to the benefit of today's cohort of young workers that can't get a foothold on the property ladder.

[El Pibe]

I'm afraid you've a weird view of cause and effect if you think this is a zero sum game net gain and loss redistribution.

It's a very long way away from being that.

How about a nice simplistic (straw man if you will) scenario.

Tax is introduced.

100,000 families, mostly in the south east are forced to monetize* their houses as they are above some threshold.

This floods the market with supply and brings down the prices as people are desperate not to end up being locked up for non-payment.

First problem, what if this price drop means they are now below the threshold. Is the tax demand withdrawn or do they simply have less of a return on their property? In other words is there some sort of (expensive) beauracratic eye being kept on fluctuating markets?

The supply of cheaper housing is now squeezed by that demand meaning lower value properties rise in prices meaning that people on the first rung or seeking to be so are now screwed.

Where the zero sum in that? I think it's a net minus game.

The only people gaining out of this are estate agents, speculators and the super wealthy buying up the properties as people are inevitably forced into renting.

Admittedly it's only a possibility but not so far fetched.

I'm afraid this policy sounds half-baked to me and these inevitably have consequences that optimistic pronouncements of 'it'll all work out' fail to reassure.

*I'll retain american spelling as it's a stupid annoying american word. In this case I think the traditional term 'sell' would suffice.

*edited for a billion typos*

[Senor Chevalier]

Agree it is an awful word and on reflection anglicising it rather than leaving it exposed in its American form is probably the wrong call.

Interesting thoughts and an angle in this debate that is new and has not been explored on the previous pages.

Systems are complicated. Unintended consequences often result. But, that general logic would argue against any change, so I guess policy makers have to consider the specific likely consequences in as structured and rigorous a way as is possible and then make rational decisions based on balance of probability (ideally ignoring popularity but in reality having regard to the politics).

Q1) What if the price drop puts them below the threshold. Well as a starter for 10 I would suggest that this must be structured so that the tax is applied on an incremental basis, i.e. to the value of the property that exceeds the threshold (income tax style rather than stamp). This means an on / off witch is avoided. Properties above but close to the threshold pay little tax anyway for this reason. Prices will shift due to the tax but also due to other reasons so would need to be as a point in time. The tax would be announced before it came into effect so any price adjustment should be effective prior to the tax being levied.

Q2) The consequent increased demand at lower levels. I don't know on this one. It's an interesting point. It is similar to what we see around stamp duty thresholds with price compression at the boundaries. Ultimately it gets priced in, but transitional effects could cause issues I agree. Personally I think all discontinuities in tax banding are stupid and we should have a more continuous formula to avoid such perverse kinks. Marginal Income tax rates in this country are a farcical case in point but that's another argument. I guess introducing the tax at a lower property value level at a very low rate and having it increase more smoothly could help smooth things out, but I am aware this is likely to be unpalatable. Overall the tax would raise money which may or may not be used to reduce income tax. But the question you raise is around the net effect of the balance of forces on property prices:

MT causes a reduction in value of high end property

Downsizers possibly increasing demand for cheaper property

Increase in such demand pushes could push threshold value properties back above the tax level and / or price others out

This only happens if the volume of properties that are devalued to below the threshold is fewer than the number of people that sell and rebuy below this level

In addition increased net income due to possibly lower income tax gives higher buying power to earners across the whole property market providing an upwards force

How does this complicated web of factors play out - Gawd knows frankly. My feeling is that paper property prices could come down overall and people sat in big empty houses with no income would be taxed a bit more whilst those earning a lot but living in small houses because they didn't have rich parents would do a bit better.

[El Pibe]

Some interesting thoughts.

I'm not proposing an ancient egyptian style stasis in government, just that policy porposals should be thoroughly analysed, and where consequences are foreseen, mitigated agasint or managed.

Unforseeable consequences of course can't be, but there is a crucial semantic difference between unforseeable and unforseen! ;)

[????]

All these extra taxes on the 'rich' are just a divesrion from the fact that WE don't really want to pay the tax for public services. One off bankers taxes, brings in a bit ( a few ?bn?), the actual numbers of really high earners in this country is just a few 100,000, corporation tax evasion is another myth of solving all our problems that the left seems to believe in, go and google how many houses are in the top band for Council tax. The 50% rate has many believed been a net negative contributor to tax revenue (will almost certainly be in the long run) and any other hike above that is economic suicide as those of us of a certain age remember.

Yes, loopholes can and should be closed, I don't mind the idea of making foreign investors in properties ppaying proper ie our rates tax on homes here BUT

These are pinpricks - I haven't time now to dig out all the defeceit figures and annual budget but a defeaceit of about 11% of our current annual spend and growing strains on future budgets because of demographics and Pension liabilities etc means that if we had 'no cuts' as the shreiking harridans of the left would like, we'd need a basic tax rate way, way, way above what it is now. Bankers, Philip Green and Russian Mafia can't fill this hole folks. It's down to you and me - do you want say a 35% basic rate and 60% upper rate on earnings above 40K, respecially with tuition fees, no pension (if your private sector natch -NOTE NOT A BANKER OR ONE OF THE FEW HUNDREDS OF FTSE 100 chiefs). No, even Labour know it the cuts are here, to stay, and neccessary, Sh1tty but true.

[????]

You are arguing about which side of the boat to piss into the wind from

[motorbird83]

The word carrying is correct as it concerns high earners. High earners benefit no more than anyone one else from the services provided by the state and contribute significantly more (both in absolute and percentage terms) to the running of the country. If everyone earned the average UK salary the average person would have to pay a much higher marginal rate of tax. Without high earners, middle and low-income earners would have to pay a lot more in taxes to keep the same level of services in the country as high earners effectively subsidize them. With that said, I believe in a progressive tax system which by its definition is redistributive. I think those with the ability to pay more should contribute disproportionately (within limits) to help create the best possible society. Still higher earners are undeniably carrying a disproportionate share of the cost of running the country.

Regarding the main point of the post, taxing wealth or house prices is a philosophical question and there is no right or wrong answer (though implementation and unintended consequences would certainly be a concern). Once someone has paid income tax and invested in something (whatever that might be) does society have a right, regardless of how rich they are, to tax them on the things they enjoy or invest in. Consumption / house buying is already taxed (VAT / stamp duty) as are gains on investing (capital gains / inheritance tax). Taxing people just for owning something strikes me as a step too far. The tone of a lot of people posting on this has a clear undertone of, "no matter how hard someone has worked to achieve what they have, they should not be able to accumulate / enjoy more than a certain amount of the fruits of their labor". If you want to gripe about unearned wealth then talk about inheritance tax, not a wealth tax.

The idea of taxing good fortune is even more bizarre. We all take a risk when we buy a home. Lot's of people have had the value of their homes collapse on them in certain parts of the country. Are we supposed to equalize their results? Why stop at property. Why not equalize the investment returns everyone earns when the start a new business, invest in the stock market, or really make any decision that has consequences and unknown outcomes. If you want to make housing more affordable a property tax on mansions won't achieve that. Why not advocate for policies that will allow more affordable housing to be built or one that prevents foreigners from acquiring property as house prices are a function of supply and demand. Only policies that work on these elements can have a meaningful impact on access to housing for those now entering the market.

[dulwichgirl2]

Actaully the main thing that high earners get from the systems and infrastructure of this moribund country is stability. (They certainly don't use the educaiton or health system and seldom much else.) They get poor value for their input in a sense. Equally, they don't notice in the slightest so I feel no pity for them at all.

I pity the middle earners who are taxed to the hilt, have few means of avoidance, cannot claim venture capital gains to pay capital gains tax so pay the dreaded income tax (horror), would use up their entire savings in stamp duty if they moved house, are respectable people, are independent, are trying to educate their children beyond their means and trying to enjoy London. Errr...me and my family in fact.

[mikeb]

* Stamp duty doesn't capture the substantial gains made on housing by the generation which has benefited (particularly if they are downsizing)

* As for gains on investing - yes, it is possible that residential property is an 'investment' e.g. providing a rental income or development gain. But by far the most money has been made on property has been as a result of capital gains, driven by excess liquidity and restrictions on new-build. If this were simply an fiat investment like gold, I wouldn't care - but people need to live in houses.

* most other investments are captured by CGT - the principal private residence relief is one of the drivers of housing demand (one which is directly in the govt control)

[Huguenot]

I don't really understand what you're getting at mikeb.

If you insist (incorrectly as it happens*) that the principal private residence is the driver of house prices, then you must also accept that no money has been made at all - people simply live there.

The output of enforcing taxation against house value on residents that they could never have afforded that price in the first place, is that their house has gone up in value so evict them.

You are trying to tax the resident because someone else can afford to pay more for their house (not the resident).

*I say incorrectly because there is a direct causal link between buy-to-let being 1% of all house sales in 2000 to 11% in 2004 and the house price rises of the same period.

Until that point there was a reasonable balance of supply and demand.

House prices rises were driven by middle income families buying extra housing for a rental return, paid for through tax breaks that incentivised them to do so.

It's an inconvenient truth because the people on this forum are those BTL landlords.

[Senor Chevalier]

If you insist (incorrectly as it happens*) that the principal private residence is the driver of house prices

He said PPR was one of the drivers not the principal driver. Nobody (well probably someone) would dispute the impact of BTL on house prices as another driver. I'm not necessarily saying the PPR exemption should or shouldn't be removed, but are you honestly saying that it has no impact on prices? Come on?

then you must also accept that no money has been made at all - people simply live there.

I'm not sure how this follows? The PPR does not just apply to houses people sit in as there is no MT that operates in this way. It applies to capital gains on sales and means that people can buy and sell houses without any CGT. This means that when someone who has a perfectly nice and adequate place to live has some spare funds available they are incentivised to buy bigger / better houses as a nest egg exempt from taxation rather than considering any of a diversified portfolio of alternate possible investments.

So getting rid of the PPR would precisely allow people to simply live there and then there would be no money made by people or HMRC, but for now there is an exemption allowing people to seek ever more expensive house prices as most alternate investments are ignored.

You are very absolute in your statements Huguenot. You use words like incorrect as if this has been objectively determined. I do the same myself sometimes. It adds emphasis and it is good to be robust and assertive when you are very confident you are right. Rolling out the same "statement of fact" tone all the time including when you actually haven't fully read the previous point or thought about it does mean it starts to lose emphasis though.

Have another go...

[Huguenot]

PPR tax relief exists to create one of the key elements of a successful modern techonlogical society - mobility.

Saying that people won't get taxed if they stay in one place is ridiculous.

What about the 30 year old couple trying to trade up from a one bed studio to a small family home for the new baby just when money is most tight?

You'd tax them sufficiently to prevent it? You'd do this because you're jealous that they're rich or they've got something you haven't? Insane.

Yes there are abuses of this system by a minority, but the reaility is it's very difficult to create law in this area without flaws that can be exploited.

SC, you're not prepared to address the real problems with the housing market: buy to let incentives, regionalisation, single residence that I've already highlighted ad nauseam simply because your peculiar approach to wealth is to forcibly deprive people who have things that you want of their assets.

Whilst you may choose to pick holes in my semantics, this simply reflects a desire to gloss over the gaping holes in your own Marxist campaign to overthrow the land owning bourgeoisie.

History tells us that such a strategy is bunkum.

[motorbird83]

Mikeb-- when I said investing I just meant that a home owner takes on the risk that his or her home (primary residence) could either go up or down in value. I wasn't making any specific point about the buy to let market.

Taxing capital gains on a primary residences is not unheard of-- its done in the US for gains above a certain threshold. Not sure what the pros and cons of the policy are-- clear con is it would restrict peoples' ability to make lateral moves (ie. someone with a new job in East London who would like to buy a house for the same value as their current place in ED but in Blackheath couldn't do so without suffering a financial penalty). The pros are clearly that the government would have more money and family homes might become more affordable as people would have less capital to put towards deposits after selling their first starter home / flat. Interested to hear other pros and cons. In the end I can't see how it would have a significant impact on access to housing and affordability which seems to be what most people are advocating for.

New government policy aimed at helping those with small deposits and incentivizing the construction of new builds seems more effective( see article below):

http://www.ft.com/cms/s/0/4dd544e0-6c31-11e1-b00f-00144feab49a.html?ftcamp=published_links/rss/personal-finance_property-mortgages/feed//product#axzz1pfgzH69L

Huguenot- interested to hear more about your thoughts on the buy to let market. I have friends who are still renting (in Chelsea and Wimbledon) and both have said rents are shooting through the roof as the demand for good rental properties outstrips supply -people who would have traditionally bought a few years ago haven't been able to due to high deposit requirements. I had the impression that there is a shortage of both homes to buy and rental properties as more and more people want to live in London and foreigners buy up west-end properties and leave them as a second home (i.e. don?t rent them). You allude to a more complex situation though, and I would like to hear more. I'm not a landlord before anyone asks!

[Senor Chevalier]

H - I was simply responding to the utter nonsense in your previous post. I have not sifted through all your previous posts to determine whether they too are or are not nonsense. The post I responded to was wrong for the reasons I outlined. It may just not have been put very well in which case say so. Otherwise it may be your actual point in which case, now drop it or explain it.

I am trying to stick to the logic of the argument in exploring this topic, but you resort time and again to personalising it and making such statements as I am jealous of the wealth of a 30 year old couple trading out of a studio flat. Yeah, that's it, you've got me nailed.

History tells me that your posts are nauseating bunkum.

[nashoi]

Isn't the point of the Mansion Tax to raise revenue, whereas putting CGT on PPRs is about controlling house price inflation. The more successful it was the less revenue it would raise, so not an alternative at all.

[motorbird83]

The mansion tax is meant to be a trade off for further reducing the top rate of income tax (its going down from 50% to 45% this year and in 2013 back to 40%) and the current proposal is to set the mansion tax at ?2m. Analysis has shown a tax at that level won't actually raise that much money and that to be worth implementing should apply to homes that are well below that level and quite frankly are not mansions. This would impose a hardship on many people who have seen the value of the primary residences increase but who in fact are not wealthy (which is why politicians won't do it).

As the proposed mansion tax is not fit for purpose people here have been trying to justify why it should be implemented for a thousand other reasons-- taxing good fortune, reducing house prices / increasing access to housing for those who can't get on the property ladder etc. A mansion tax isn't very good at doing any of those things either...

So now the debate has turned to how else you can tax home owners to reduce house prices. However, all of this misses the point that the population and the number of households in London as well as the number of jobs created by London is growing faster than the housing stock. There are a lot of other contributing factors but if you really care about access to housing this is what you should focus on (and the gov't are in fact launching initiatives on this front).

Taxing people for owning things strikes me as a step too far. In my opinion, it would be fairer just to keep the upper tax rate at 45% rather than reducing it back to 40% in 2013 as is currently the plan. However, it was always introduced as a temporary measure.