Inequality in Britain

[Undisputedtruth]

david_carnell Wrote:

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> 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.

Not really as Westminster Council has one of the lowest Council tax in the country.

> 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's the same old crass assumption used in the Council tax and rates policies before. I'd imagine there are lots of wealthy people that have chosen to rent instead. One of the biggest problems relating to council tax/rates is that only a minority pay their way and for some pay a disproportionately part of their income. LVT does nothing to address these matters.

> 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.

The Lib Dems are in favour of reforming the Council Tax to one involving the ability to pay. In view of the Poll tax riots, reforming the present system is a political hot potatoe. I can't see LVT ever being implemented.

[Senor Chevalier]

I'm still on taxing "asset value" rather than land value. In particular, the issue raised by Undisputedtruth of people taxed people based on their land / property and trapped by high mortgages would be avoided. If we are taxing "assets" or "net assets" to be precise, then we are taxing people's net worth and so people who are debt free are taxed more than people with mortgages and can afford to pay it as they are more wealthy.

Everyone taxed on what they are worth. The most wealthy people pay the most and tax paid does not change if one person has decided to buy a large house on a small plt in an expensive area or a small house on a large plot in a cheap area or whatever.

I still can't see what's wrong with this system. Could someone blow this idea out of the water please as it is really bugging me.

[LadyDeliah]

So you think that someone with a big house or land that is too expensive for them to pay for by themselves in an LVT system, should be allowed to just sit there?

Maybe that is the problem. Maybe they shouldn't have such a big house by themselves. Maybe they could invite people to live there and share the burden of the LVT.

Maybe one person owning huge swathes of our countryside should not be propped up by our local tax system, infact the reverse should be the case.

If they can't afford the tax on a huge piece of land, sell it. Or sell bits of it to other people who need homes/land etc.

[david_carnell]

SC - the property bubble with excessive mortgages trapping people in their homes is something we should be looking to eradicate.

Part of the problem is that a generation of people have grown up seeing a house as an investment that HAS to make money rather than be a home to shelter them and their family.

That is something that needs to change.

[Undisputedtruth]

Raising stamp duty was designed to curb the property bubble. It didn't work as the root problem was supply. Doubt if LVT would have any effect.

[Jeremy]

This LVT thing seems like a great idea if we want farms and smallholdings turned into Barratts housing estates!

[Huguenot]

If you took the Aussie approach then farms and smallholdings would be exempt, as would the primary residence.

In fact in Oz LVT gathers less than 5% of the total tax take, so it's not seen as a revenue generating programme, it's seen as a way of imposing the cost of localised development (which increases the land value) upon the people who benefit from it most.

They believed it had the secondary effect of increasing development (the tax is on the land NOT the building) so that the land is more productive, and it disincentivised speculative land squatting (because landlords were paying even if they didn't use the land).

This was Brisbane's summary, and it seems well thought through and very persuasive.

LVT can never generate much revenue, as if it reaches the point where the LVT exceeds the revenue generated by the land it leads to land abandonment and a collapsing total tax take.

The asset tax proposed by SC suffers the same problem. The tax generated by such a system at the levels he proposes could never return enougb cash to the exchequer to cover his proposed 30% income tax rate (also SC called this a 'flat' rate, is that a rejection of progressive taxation?).

Besides which SC's asset approach seems illogical if put in the full context, as the same money would be taxed twice - once when you earn it, and again when you save it. It seems bizarre that the impact of such an approach would incentivise people to spend money recklessly on perishable goods and services just to avoid tax. This is not what a sensible nation should be doing - it should be incentivising investment and long term development.

It is the rich person's investment in stocks and shares that creates the jobs for blue collar workers.

[Senor Chevalier]

If you tax people on their assets (including property) over a certain threshold then this will provide a downwards pressure on house prices. People in large houses end up forced to sell up as they can't meet the asset tax. It's a bit like big executive cars that have huge servicing and running costs. After 5 years they have depreciated by 70% as there is no market for them.

People's mentality would change from property being an asset to accumulate as it is a no-brainer, to considering property as something of a burden with careful consideration required as to affordability before deciding to indulge in the luxury of an expensive house.

If we are setting thresholds for such an asset tax, then we might find that after introduction, the heat is taken out of house prices and so the tax stops raising as much. I would suggest we brought it in at a high level and then gradually reduced the threshold if need be over time.

[Huguenot]

I'm not sure that quite fits together.

If the prices are 'kept down' with your asset tax then the owner would be taxed on the other products or investments that they spent the money on instead.

Hence it makes no difference whether the price of a house goes up or not - rich person is going to be taxed on his assets regardless.

For this reason an asset tax has no impact on house prices.

[david_carnell]

Interesting read, Huguenot.

What's interesting from the use of LVT in some areas is that in urban areas, the existence of vacant plots and empty buildings decreased because it made financial sense to ensure you were getting rent from them.

This would alleviate the need for urban property and reduce pressures on waiting lists.

[Senor Chevalier]

Huguenot - I'm not rejecting progressive income tax per se, but I felt that the asset tax would provide the progressive element as that would deal with the people that are most able to pay. We could keep income tax progresive as well and the whole thing needs to be calibrated, but overall I think it is desirable to keep things as simple as possible and my main idea is to tax wealth rather than income. Calibration could also set the thresholds and income tax and asset tax rate in order to achieve tax take breakeven (or improvement).

Double taxation - seems illogical. To an extent I agree. But there again is it a problem other than for philosophers? Imagine one system where we tax income only. Now imagine one where we only tax wealth. Now a third that is a hybrid taxing both income and wealth at a lower level. The third one taxes us twice, but at a lower rate. If we assume all 3 systems are calibrated to achieve the same tax take, then really what this boils down to is which system causes the fairest distribution of tax payment amongst individuals.

In fact there are 3 ways of taxing us:

What we earn (Income Tax, Capital Gains)

What we have (Council Tax, Inheritance Tax)

What we spend (VAT)

All I am saying is that the balance needs to be shifted from the curent income heavy approach. Only a pure system (e.g. VAT only) avoids double taxation, but I don't see avoiding double taxation as an important aim in and of itself.

People spending their income on perishable goods. Not sure I buy this argument. Yes maybe a bit more spending incentivised, but better that it is earning spent in this way rather than cheap credit which we have relied upon to date. Maybe this spending is the shot in the arm the retail sector needs.

A wealthy investor should be aiming for a return in excess of the 2% drag in terms of the proposed asset tax. For people with the big bucks there are only so many baskets of fruit and veg that they would buy before they consider that any further spend in perishable goods is 100% wastage. They would surely rather invest in an asset that will only erode at 2% year on year but could also appreciate.

Perhaps here's where the progressive bit should come in with the asset tax rate tapering upwards to limit to the extent possible disincentives to invest.

[Senor Chevalier]

Asset tax would reduce house prices.

Your argument is quite neat, but like most economic theory makes implicit assumptions which I don't think hold.

If everyone has all assets in cash and then the tax system is introduced and then has to choos their asset allocation then I am with you. Rich people will have a certain asset portfolio value as will poor people. The tax payable will be fixed for each person and independent of asset allocation hence no impact.

However, if we shift to an asset tax system the tax burden will shift from high income low wealth people to high wealth low income people.

People sat on assets that are disproportionately high when compared to their income will need to liquidate a portion of their asset base to meet the tax. To an extent this will mean selling property and this is where the downward pressure comes from.

ETA: i.e. individual asset values and therefore personal wealth will change - it is not a zero sum game.

[david_carnell]

I'd love to see you sell that one politically!

"You know that house you've lived in for 30 years?"

"Yeah"

"Well now you have to liquidate it - but the good news is that income tax is down!"

Not that I disagree with the fundamentals behind it, mind you.

[Huguenot]

I'm not sure how you could keep things as simple as possible with an asset tax - are you considering having forced entry hit squads breaking into houses to value however many old masters are hiding behind Athena posters? ;-)

How are you considering identifying overseas assets? Won't the rich just put all their assets overseas where they can't be found even today because the UK has no jurisdiction to demand transparency in a different country?

@David_Carnell - I was secptical about an LVT when you first proposed it a couple of days ago, but now I've spent an hour reading up on it I'm absolutely converted!

It works so well BECAUSE it taxes the land value, and not the property. It's massive incentive for private money to tackle urban blight - a cost that is currently carried by a reluctant and mistrustful general taxpayer at the moment.

[Huguenot]

"People sat on assets that are disproportionately high when compared to their income will need to liquidate a portion of their asset base to meet the tax. To an extent this will mean selling property and this is where the downward pressure comes from."

Your system only works if you are deliberately seeking to make people poorer, in other words it's a tax deliberately setting out to asset strip wealthy people. This is morally unsound. It's just robbery.

If the tax is less than their income then there's no incentive to to liquidate the property anyway. Besides because you're talking about properties in the multi million pound range it'll have no impact on the people you claim to be trying to help - the ones at the bottom of the chain.

This seems like simply revenge attacks on wealthy pensioners.

[Senor Chevalier]

OK so we're agreed on the principles and now the trickier bit around implementation....?! :)

We could have some sort of measure of lifetime tax paid (HMRC bound to have the data at their fingertips). If your assets are worth less than 4 (?) x tax paid then they are exempt from asset tax. That get's round the people getting kicked out of their home argument (unless they are freeloaders). Not sure we need this to be honest - tough luck!

Asset valuation. This could be self-assessment with inspections and consequences. People will lie, just as they do on income tax, but the regime of inspection and consequence needs to have teeth. For house prices, I like the idea of the government exercising expropriation rights, by exercising a call option over property at some prmium (20%?) to declared asset value. Oh you think your house is worth ?2m do you - well here's ?2.4m, can I have the keys please?

Overseas issues - this is where it probably all comes tumbling down. HMRC tries to tax UK Dom individuals' worldwide income at present and probably misses more than half of it. The same ham fisted approach could apply to assets.

I think the bigger overseas issue, is a competitiveness of UK compared to other countries argument. It's always the way though with tax systems and would clearly be easier if all systems were the same or if we put a wall around the country but neither is feasible. The "UK competitiveness" argument is getting a bit tired anyway - kind of who cares after a point...?

[Senor Chevalier]

OK - cross posting extravaganza.

Re Huguenot 4:45

Philiosophically I'm not trying to make rich people poorer per se. But, I am trying to make poorer people richer and given the tax we need to raise is assumed to be constant then we are back to allocating the burden and yes I think rich people are better placed to pay it.

Currently earners are being robbed of 20% or 40% or 50% of their income in tax. I am proposing to rob (in your words) a % of rich people's wealth.

Is there a difference between this year's earnings being taxed and money I already have (whether earned or gifted to me) being taxed? I don't see it. I mean psychologically it is easier to never have been spoilt and then not know what we are missing. But there again some say better to have loved and lost then never to have loved...

It isn't a revenge attack. It isn't motivated by a desire to lash out. I wish wealthy pensioners very well and hope to join them as soon as possible. But comparing the plight of the wealthy pensioner to the plight of the recent graduate trying to get on the housing market, I find myself more sympathetic to the latter group.

[Huguenot]

Yeah, but I don't think it's an accurate assessment of the figures.

Firstly as we've seen the bottom quartiles only averages 10% of their income in tax, and the top quartiles (over 50k a year) pays around 25%.

If you're averaging 50% in tax then you're in the 'massive earner' 0.00001% of the population category which is the same group you're trying to target anyway.

Then I think you've got an overall challenge with the maths - I think there are so few people in your target group, and the tax so limited, that it'll make absolutely no difference to the overall take.

In other words you could impose this tax, but you couldn't use it to change taxation further down. Don't forget we're borrowing 40% of our government expenditure figure anyway.

[Senor Chevalier]

Yeah, I'd need to get hold of some data to try to make a decent fist of the numbers. Starts to turn an interesting debate / distraction from work into something a bit more dull and work-like. The principal though in terms of the approach applied and the behaviours / consequences that follow should be the same whatever the levels and everything can surely be calibrated.

But I disagree that people in the top tax bracket currently at 50% on incremental income are the same people I am necessarily trying to target. If someone in that tax bracket has assets of say ?300k then why should they be taxed as hard as they are?

People with incremental tax of 50% could be earning ?150 - 200k. With a family to support, post tax they and living costs they are netting several 10s of thousands but not 100s of thousands. It therefore takes them 20 years of holding down a top job without getting sacked or burning out to accumulate the ?2m threshold I had proposed.

Meanwhile there are plenty of people that are sat on property worth ?2m plus that have lower incomes. Is it right that the latter group contribute less tax than the former? Income and welath do not go hand in hand. If they did then I agree we should be indifferent whether to tax income or wealth as we target get the same people either way.

The shift in approach I propose should make it easier for people to accumulate wealth but harder to keep wealth so that we reduce the disparity between richest and poorest and make it easier for people to start with nothing and do well for themselves.

An interesting debate - I appear to be inadvertantly convincing myself that property is theft - not what I was necessarily aiming for...

[Senor Chevalier]

Oh and I'm not just trying to help the poor suffering high income low wealth group - there are of course needier groups. However, making it easier for people to make something of themselves and for poor to become richer (and yes, rich people to become poorer) would improve social mobility. It would help in persuading young people that hard work pays as success would be attainable without a lottery win...

Looked up the land tax wiki link. Actually seems like an incredibly good and dare I say it implementable idea should the asset tax plan prove too difficult.

[LadyDeliah]

Yes you can hide assets, hard to hide a piece of land!

[Brendan]

Talking about inequality do you think you would ever get an Englishcunt doing this? http://www.bbc.co.uk/news/world-europe-14646975

[StraferJack]

joking aside, when you have the likes of Buffet and the French saying things like this, it's clear that something is up

[Brendan]

Joking? I?m being inflammatory and disparaging.

[Loz]

People with lots of (earned) money didn't get where they were without some serious political savvy. What you are seeing is them noticing which way the wind is blowing so they can throw a few sheckles into the pot and then resume normal service.

It really won't make a blind bit of difference, except to make them look good and get them some attractive publicity. Warren Buffet is worth (according to Wiki) about ?62bn. If he was to, say, throw half a billion into the pot it would hardly dent his fortune (less than 1%) and do squat all for the US deficit. But wow, look at the publicity.

The guy is a genius.