Inequality in Britain

[Huguenot]

*chuckle* Loz (!), I think you're right on the spot there!

[DJKillaQueen]

Word is that they plan to reduce the 50p tax rate to 45p at the next budget.

[Senor Chevalier]

It should of course be lower still (whilst offset by a tax on wealth rather than income as I have posted before).

http://www.eastdulwichforum.co.uk/forum/read.php?20,544384,548845#msg-548845

Right off to earn a crust, I'll pick this up later.

[Loz]

A tax on savings SC? Economically brave.

[Senor Chevalier]

Yeah. Sometimes I think bold decisions are called for.

I wouldn't tax savings per se, but would try to tax "assets" be they stocks, savings, property, art or whatever.

Clearly implementation hasn't been thought through, but first of all as a principle wouldn't it be better?

Tax people who already have it rather than those that are accumulating. So let's use some arbitrary numbers just for a laugh. Anyone with "assets" over ?2m incurs a 2% annual charge on the increment over the ?2m threshold. Meanwhile drop income tax to a flat 30% for all on all income over ?10k.

No idea whether in aggregate this would increase or decrease the tax take so would all need to be calibrated. But would give people a chance to change their station in life rather than the current rich stay rich, poor stay poor system.

Don't worry about not hitting people with high incomes hard enough - you can hit them once they've got a big enough pile.

If people can explain the problem with my suggestion, perhaps I and others can have a go at finding a solution. If it all ends up being too hard to implement then we should can it and go back to my IHT plan.

[Jeremy]

I'm not convinced that the value of someone's assets is necessarily a reflection on their ability to pay taxes. For instance, imagine somebody who has worked hard to pay off their mortgage early in life, and then loses their job.

[Senor Chevalier]

Yeah but if they had been subject to lower income taxes on the way up then they'd have more money to pay the tax when they got there. They could I suppose think of one wing of their house as their tax fund or more responsibly keep a portion of their asset base outside of property if they prefer to eliminate the risk of having to downsize to a measly ?2m home at some point.

[david_carnell]

Why not tax land value?

[Loz]

The easy thing about taxing income. profit and spending is that they are already liquid. Taxing assets and land value only works if the person has the necessary liquid finds to pay the tax, otherwise they have to liquidate the asset. This often happens with inheritance tax, though as that is a new asset to the person, there is often less of an issue in liquidating it. But not always - children (and until not long ago, gay partners) living with an ageing relative find that although the inherit the house, the associated tax bill forces them to sell up and move.

But for an normal asset tax, consider these: A pensioner owns a house in a nice suburb, simply because they happened to buy it when the area was less desirable. Tax that and you will force them from their home. Or a person's only asset might be their business, that is struggling at the moment - tax that and you will force them to sell up. Or someone's savings are in gold - the tax point was the 5th May, but the gold price crashes on the 10th May.

It's a nice idea, but it would cause major unintended consequences.

[Senor Chevalier]

DC - I agree land is the easier one to get a grip on. As a principle I'd go for assets overall so as not to prejudice land owners, or more to the point so as not to let people with their wealth tied up in yachts and other investments off the hook. Implementation may lead us to land as a fall back option.

Loz - liquidity is a hassle I agree but doesn't have to be a deal breaker. It is dealt with for inheritance as you say and if this was general taxation then it would be far easier to predict and people could plan their finances accordingly.

1) Pensioner should start packing their bags and move on - there will be anomolies with any system but in the scheme of things downsizing from a large gaff as a pensioner doesn't sicken me to the core. Alternatively some sort of government scheme where the percentage ownership of the house starts to transfer to the government so that the accumulated tax is deducted post mortem from the estate. Im sure various financial institutions could actually administer this and have fun packaging the receviables.

2) Struggling Business - owner needs to find a partner or sell up and do something else. To be honest though, this tax would be like any other operating cost of the business and so, as for all other costs, the business keeps paying it or becomes insolvent, save that when the business value falls beneath a threshold these tax costs are switched off unlike any other operating cost. I don't have a particular issue with that.

3) I think anyone dabbling in commodities and derivatives markets should take it on the chin. To be honest the swing in the 2% (above a threshold) of their net worth is the least of their worries - it is the other 98% that will really hurt them. They know the rules of the game and should manage their risk appropriately. Frankly there is no excuse for not liquidating 2% of their portfolio at the tax point date to hedge out this risk (though we may want to stagger tax dates for individuals as market moves could be interesting).

[david_carnell]

Loz - not taxing property, but land value. A different thing (I think).

The wiki page explains it well but what it effectively does is tax the one of the few inelastic goods of which there is only a finite amount.

It would also correct the abomination that allows a tiny fraction of the population to own vast tracts of land, often fallow, when we are importing 40% of our food. It would allow rural areas to rebuild their economies.

A tax on second homes and an end to their council tax discount wouldn't go amiss either.

[Loz]

david_carnell Wrote:

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> [...] an end to their council tax discount wouldn't go amiss either.

I must admit, I've never understood the logic behind that one.

[david_carnell]

Well the logic is that as a second home you use the facilities provided by the council significantly less than those living there permanently.

My opinion is that street lights don't get switched off just because you don't visit your Cornish cottage in December.

Cough up.

[Jeremy]

David, isn't there a fundamental problem, in that the ratio of property to land value differs vastly throughout the country. You might spend 500K on a terrace house in south London, and be sitting on 300K of land. Spend 500K on a house in Northumberland, the land might possibly be worth around 50K.

In short - it's not a reflection of what the owner is able to contribute.

[david_carnell]

I'm not sure I understand Jeremy.

Seemingly that is a more accurate reflection of market values? Insurance companies regularly seperate the value of unimproved land to that of the house upon it.

I'm not suggesting it as a single tax but I think it would make an effective replacement for the outdated council tax whilst penalising those who leave their land vacant.

Surely this is a tax that those on both the right and left can approve of. Since taxes on wealth and property discourage (apparently) progress in these areas, I have to ask why do landowners deserve rent? Without landowners, the land and natural resources would still be available. They have existed since the planet was formed. They have not been created by human effort or ingenuity.

[Jeremy]

Ignoring for the moment the wealthy land-owners you're talking about, and considering the average homeowner... you can imagine a situation where two people with comparable income and assets are taxed totally differently because they live in a different part of the country. It doesn't seem right to me - nothing to do with left/right, just common sense.

[david_carnell]

Yes, of course they would be taxed differently because those who can afford to live in affluent parts of the country, such as London, would be in a position to pay more. I don't think the variations would be so wild as to cause any real problems.

I think it would actually iron out more of the excesses within the property system and would discourage landlords thus bringing house prices down.

It would make a home just that. You wouldn't be taxed on its improvements and perhaps with the removal of stamp duty and CGT not on it's profits either. The only thing you'd pay for, at a flat rate, would be the land it sat on at the market rate.

If you sell your three bedroom house in East Dulwich now, the stamp duty rate you pay compared to someone doing the same in Wrexham is massive. I don't see why this would be any less fair. In fact the advantages listed in various articles seem to massively outweigh the negatives.

The only losers would be landowners not using their land, absentee landlors who allow property to fall into a disreputable state and builders in urban areas who fail to improve land they have purchased. All worthwhile targets.

[Undisputedtruth]

The land tax, as DC as described it, will effectively create rich and poor areas as not all home owners are wealthy in terms of income.

Some of the poorest people in the land are home owners. Trapped by high mortgages and unable to claim benefits.

With the recent riots, I think it's important to create a cohesive society.

[Jeremy]

david_carnell Wrote:

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> Yes, of course they would be taxed differently

> because those who can afford to live in affluent

> parts of the country, such as London, would be in

> a position to pay more.

There's the flaw in your logic (IMO). I probably didn't make may example clear...

Let's say Fred and John both work in the City, and both earn 150K a year. Fred buys a terraced house in Dulwich for 500K, John buys a 5 bed house in north Essex, also for 500K. The land in Dulwich is worth 300K, the land in Essex is worth 100K.

They both have the same income, the same outgoings, the same value of assets, the same "ability" to pay tax. But Fred pays 3 times as much tax for his property. Would you consider that to be fair?

[Loz]

david_carnell Wrote:

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> I think it would actually iron out more of the excesses within the property system and would

> discourage landlords thus bringing house prices down.

... or would concentrate land ownership towards the rich even more. The tax would then be passed on down to the renter resulting in higher rentals in urban areas.

It would also push people out of urban areas, putting more pressure on public transport and increasing greenhouse emissions.

[david_carnell]

Jeremy - I'm not convinced your figures would be accurate without looking at land values in different areas. Obviously the introduction of such a tax would alter vlaues of property and land in the early years.

UDT/Loz - LVT would be levied only on the land value not on the buildings. At the moment we penalise, with higher business rates, people who improve their business buildings, while we reward, with lower rates, those who let their buildings fall into disrepair. LVT would bring idle land in towns and cities into use. This would reduce costly urban sprawl. The extra supply of land would cut land prices and so cut accommodation costs for homes and business premises.

I think it's not unfair to say there would be early difficulties in implementation but the long term benefits would massively outweigh them.

Land is for all, not the few.

[Jeremy]

My numbers are estimated - possibly exaggerated, but it points out the inherent unfairness.

Your earlier wikipedia link mentions that a land value tax system is used in New South Wales - but it excludes farm land and primary residences. This would remove the problem I raised, as well as the issue of farmers (who may have inherited their land) whose profits are being continually squeezed.

[david_carnell]

Yes, that's another possibility that seems more plausible but would require another form of property tax.

[Undisputedtruth]

david_carnell Wrote:

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>

> I think it's not unfair to say there would be

> early difficulties in implementation but the long

> term benefits would massively outweigh them.

>

> Land is for all, not the few.

Not just early difficulties but also major flaws such as the ability to pay based on income and feeling penalised because you've chosen to live in a particular area.

[david_carnell]

Council tax isn't progressive either. It doesn't take into account income. And I think the idea that it would be more expensive to live in the centre of urban areas and cheaper to live in rural areas with few public services seems correct. And not dissimilar to the current set up.

If you're poor, the chances are you live in rented accommodation or very small accommodation. Either way you'd pay very little or no land value tax.

It would be easy and cheap to administer and there is no way to evade or avoid it.

I'm trying to advocate not in addition to all the taxes we have at the moment but as a possible alternative - I don't have all the answers but am simply raising it as a possibility. If we want to make Britain a fairer and more equal society I think a LVT would be one such method.