Monday, Jan 08, 2007
Recommended - The argument for a land value tax
The Guardian: A land tax is 200 years overdue
Ashley Seager assesses the socio-economic impact of sustained house price increases. He argues that this reinforces the idea of an 'underclass' as they are unable to take advantage of this mechanism to create wealth. As land increases in value, therefore, these gains should be taxed, which will enable the government to reduce council tax or VAT, and discourage speculation from property developers.
Posted by jellycaster @ 10:42 AM (220 views) Add Comment
12 Comments
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1. talking rot said...
Great idea.
But it will never happen for the same reasons that it failed to happen when Churchill suggested it.
Our politicians just do not have the balls to incur the level of wroth this would generate. The mainstream media would have a field day and it would lead to decimation at the polls.
2. Surfgatinho said...
Sounds like a pinko commy SOB to me!!
3. sold 2 rent 1 said...
Fred Harrison said in his book that Nov 2004 (pre-budget report) was that last chance GB had to introduce this tax to prevent a housing bubble.
Introducing it now will cause the crash not prevent the bubble.
4. rich said...
This tax is fine if you accept that people who live in an area where prices increase rapidly could be forced to move to somewhere cheaper in order to pay the tax bill... that and triggering a massive crash.
5. the bald man said...
UK tried this one before with development land tax. From memory it did not work very well.
Anyway I thought we already had this one. Its called the community charge. (although I suppose renters have to pay as well).
IMHO I am not sure tax is the answer as it creates unfairness and distortions plus it puts money in politicans hands.
6. monty said...
"The world's super rich who spend much of the year in London but avoid paying income tax could not avoid the tax on a big house in Mayfair." This is a complete lie. The world's super rich are still liable to pay income tax on money brought into the UK. They only escape paying UK tax on income on their investments abroad if that income remains abroad which is the way it should be. Why should Gordie get his grubby mits on any of some random sheik's oil millions just because he chooses to live in Mayfair? The cash he brings into the country is taxed on entry as income and then incurs VAT when he spends it at Harvey Nicks, Harrods and the Bentley dealership (please excuse the sterotypes.) In order to avoid capital gains tax on the sale of the Mayfair mansion he will have to be non-resident (less than 90 days in the UK on average for 5 years) and in order to avoid inheritance tax this is 17 years. That's hardly the tax haven these champagne socialists make it out to be.
Why shouldn't the rich gain from the "tax claw back"? The top 20% pay for their own healthcare, schooling, housing, travel and cost the Treasury less. The same can not be said for the bottom 20%.
"And people withdrew about £45bn of this untaxed capital gain last year to spend". No they didn't. As we well know on this forum, they borrowed against their property to spend. The property is collateral. The money is still owed to the bank and if it is ever paid off will be liable to inheritance tax.
What these sandle wearing meusli munchers fail to mention is that this is not a tax on the super rich. Like all taxes past and present it's going to be the 60% poor bl**dy middle class who shoulder the burden.
Taxes and the government are never, ever the solution. They are the problem.
7. iguana said...
There is so much that is wrong in this article that it would require a posting of eqivalent length to make a full response, so an edited version follows. It would seem that a new indirect tax is being proposed that would apply to the UK only, the EU will not allow this, additionally, the new tax would result in double taxation (a tax upon a tax) again a 'no-no'. Looking at the 'practicalities', who decides what is and what is not a true valuation for taxation purposes, and what happens when a 'true' valuation falls, what expenses will be allowed to be claimed against the increase in 'true' valuation? In short, the only people that would stand to make a profit out of such a move (EU allowing) would be the super rich land owners with their attendant army of tax advisors, valuers, offshore havens and trusts. You may be certain that these are the people that would get refunds and rebates and the rest of us would pay out
8. Mjchum said...
I'm just reading Harrisons new book at the moment. I think this thing about 'your house has gone up in value and you could have borrowed money against it and thus it is income upon which you should pay income tax is simply nonsense. And you pay tax on income earned for which that income is used to pay interest. If you invest the money rather than piss it up the wall you pay income tax on the returns. If you piss it up the wall you pay VAT and income tax on the money earned to pay interest.
If your house goes up in value, so do all the others, you've made no money, not even paper gains really unless you sell and jack the country in (if it's your only home). Fred Harrison is a smart guy, but sometimes I feel some of his long chain arguements have the occassional very weak link.
I don't hate tax, it's what 'society' is built on. But I do hate over-taxation. This Govt for instance is living well beyond the means of the people. And yes, the middle classes are shouldering the burden. But I still want to see a big tax on 2nd homes.
9. Rimmer said...
Iguana
Quote "the EU will not allow this"
Like they have stepped in for the last of Gordons 10000 taxes changes !!!
10. Dohousescrashinthewoods said...
Time to "vote" with my taxable income and jack the country.
Mjchum, I too don't mind paying a *proportion* of my income in tax - I think that's part of giving something back and building something up - but as I'm sure you'd agree, paying the *majority* of my income is not fair, particularly when I pay high rate tax and then get re-taxed on my taxed income.
If I was a company, I would earn, spend and then be taxed on the remainder (profit), yet as an individual, I earn, pay tax and then get taxed on the remainder (VAT, coucil tax, air tax, hair tax, high tax, heat tax, feet tax, street tax anything but no tax..!)
Why do most wealthy people own companies..?
11. Ticktock said...
Bald man said -IMHO I am not sure tax is the answer as it creates unfairness and distortions plus it puts money in politicans hands.
.. which is surely better than in the hands of (largely foreign) property speculators
Surfgatinho said -Sounds like a pinko commy SOB to me!!
Could you translate that 'yank' into queens English for us old chap?
Monty said - Taxes and the government are never, ever the solution. They are the problem.
All free market fundementalists hate democratic governments, and in particular the methods by which they raise revenue.
What I think it might be worth remembering, is that despite Middle Class dillusions of security, they can actually only exist as long as the Working Class allow them to. In effect, the middle class, the rich, and the super rich, pay via tax for the social security of those at the bottom, in order to secure their aquiecance in a system that does not serve their interests. In fact their interests could be said to be diametricaly opposed.
Tax cut advocates, and the politicians under their sphere of influence, often miss the point of this unspoken Social Contract, and furthermore grossly underestimate the concequences of their actions.
Taxes may seem like 'The problem' for the Middle Class (who of course shoulder the lions share of the burden) but I would suggest taking a far broarder view.
Consider the contemporary political views of the British Working Class, the macro economic situation, and the lesson that History tends to repeat itself, and then consider the wisdom of reducing tax for ' Rich foreigners' at the expense of the 'neo-Proletariat'.
Tax cuts do not serve the long term interests of anyone. There are bigger problems for the Middle Class than that of tax, problems that require sensitive handling in todays uncertain, and increasingly unstable, World.
12. Jock said...
I realise this is long ago, but I like resurrecting moribund threads! Several points have been brought up in the comments in particular that are quite easy to respond to.
Europe - of course they''d have no say in this. Denmark and Sweden already use Land Value Taxes and nobody's crying foul at them.
Double taxation - the classic model of Land Value Tax (Henry George's "Single Tax") is that LVT would ideally be the only tax. I know of no advocates of LVT who see it as raising additional revenue, but replacing less economically beneficial taxes (Council Tax, Inheritance Tax, Stamp Duty, National Insurance [especially employers' side], VAT [now there's one that Europe would probably object to], CGT, and even eventually Income and Corporation Taxes). Henry George proposed that government should never have to spend more than it can raise through the Single Tax, and that ideally most oof that would be returned to citizens as a Citizen's Dividend. Furthermore, whether you pay tax on the income you use to buy a property or not, the capital gain in the site value of that property has absolutely nothing to do with your efforts as a landowner. Land, as David Ricardo showed, absorbs the value of others' efforts, usually others who are worse placed than the landowner.
Causing people to move and/or borrow against their house value to pay the tax - well apart from the fact that it would ideally replace things like income tax so people would have more money in their pockets if working from which to pay such a tax, these are measures needed only during the transition to an LVT based fiscal regime. Within a generation people would view home ownership slightly differently and since houses would be cheaper in capital terms save what they would today be borrowing to pay for the site values they'd be better placed to build up productive investment savings to see them in comfort when their regular working income fell such as at retirement.
But ultimately, yes, the price of making land use more efficient is that people are more likely to want to shop around for lower tax sites as they no longer require access to the facilities that make their existing location so valuable. This is not a bad thing - 40+% of people approaching retirement say they would like to "downsize" if only there were suitable properties for them to do so in their area. Many of the better off already do - either here or as one of the 60,000 pensioners who emigrate every year.
So, it would substantially reduce the overall tax take, it would be a fairer tax, in that it taxes something you do not earn instead of taxing your work and investment in productive economic assets like business or industry and it encourages the more efficient use of land.
Have a read of http://www.jockcoats.org.uk/two_local_examples_why_land_and_planning_reform_needed and tell me that arrangement is fair to anyone. It's not and it costs us, the taxpayer a whole load more to deal with the consequences of the currently skewed and inequitable land market.