Tuesday, Aug 11, 2009
Charts showing distributions of incomes and residential property wealth
ALTER: Property Tax in the UK: the Social Justice Argument
NB, this is not a plug for the Lib Dems (I am a Ukipper) but it's a good article with some most interesting tables showing that inequality in the distribution of property wealth are far, far greater than inequality in incomes (the latter being pretty irrelevant, as lower income people simply get far better value for money on what they spend).
Posted by mark wadsworth @ 01:52 PM (652 views) Add Comment
12 Comments
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1. Brett said...
I am hoping I missunderstand this but...
If I work hard for years and save up (paying income tax + tax on my savings) and then buy a small holding with 10 acres, and try to be as self sufficient as possible with a very low income, would land tax mean that I would pay more tax than someone who has regular job, disposable income and who lives in an average sized home?
If that is the case, then the tax would force me to abandon my lifestyle that I had worked all my life for because I wouldn't be able to afford the tax.
Surely any tax would have to be based on what you could afford to pay (i.e. income related at some level) rather than making you give up what you had previously worked for and already paid tax on.
2. paul said...
People probably understand why the stakes are so high for property-rich baby boomers in government and central banking to keep the bubble inflated at all costs - to serve their own ends first, everyone else's second.
This will eventually ruin what is left of our economy.
3. Bill said...
Frankly this is absurd. Joe Bloggs earns and pays his tax accordingly. He buys with his hard earned a house, land or both. His choice. Some do gooding pillock says "hey, that's unfair Joe Bloggs owns a house, land or both, so let's tax him".
Let's look at it another way. Joe Bloggs earns and pays his tax accordingly. He doesn't buy anything. He spunks his dosh on superficial tat, gambles, takes drugs and is inebriated most of the time. His choice. Suddenly through his own stupidity he has no money left as he has lost his job. Do ggoding pillock says "hey, that's unfair Joe Bloggs has no money, so let's house him and give him every benefit known to man and if he breeds fund his kids too".
The world has gone bonkers. Tell that freeloader who wrote such tripe to go and earn a living and I hope he's not charging the taxpayer for his written garbage.
4. icarus said...
Recent increases in govt deficits have been due to a significant fall in govt revenues rather than a surge in spending. Say what you will about govt spending it is difficult to cut quickly (it may require legislation, the renegotiation of contracts, redundancy payments etc.) and is especially difficult to cut in a recession. The govt needs to compensate for the recent significant drop in income tax, NI, stamp duty, corporation tax etc. revenues. Also asset price falls have led to a much bigger drop in revenue (inheritance and capital gains taxes, stamp duty and the like) than the govt expected.
Which all adds up to the need for new thinking on how to increase revenue. Apart from any social justice argument it makes sense to look at increasing taxes on wealth rather than on income, businesses or consumption. As the OECD puts it, such taxes are most harmful for growth "with recurrent taxes on immovable property having the least impact (on growth)". In Oct 2007 the ONS estimated UK wealth at £7 trillion, of which £4.3 trillion was in housing. Even allowing for the fall in property values since then it would take a levy of only 0.4% of property value to raise 1% of GDP annually - enough to make a big contribution to solving the deficit problem. This levy could be on properties above a certain value threshold. This would have little effect on business or entrepreneurship or the problem of displacing activity across borders.
5. mark wadsworth said...
Icarus "Recent increases in govt deficits have been due to a significant fall in govt revenues rather than a surge in spending"
That's not true actually. GDP is down 3%, tax revenues are down 3% (= £20 billion shortfall), welfare spending is up 10% (= £10 billion extra spend). The other £145 billion of the planned deficit is because they were running £40 deficits anyway and they are going to splurge another £100 billion on [heck knows what].
But apart from that, agreed.
6. icarus said...
mark w - re no 'surge in spending' I was thinking of new spending plans rather than something like soc security expenditure, which is automatically triggered by recession. A recent IMF report also points out that the UK's 'discretionary stimulus' package for supporting demand when consumers are retrenching was relatively small within the G20. In comparative international terms the UK has suffered more than most from falling revenues (others have similar rises in soc sec / recession spending) and this is what makes the UK deficit increase over the last two years relatively high.
Apart from wealth taxes - globalisation is a farce since it enables transnational corporations to avoid taxes by carefully choosing where to incur costs and take profits so that their tax liabilities are minimised, yet it doesn't seem to mean inter-government co-operation to close such loopholes and tax havens. Anybody calculated what government revenues could be from these sources?
7. mander said...
Property is not a free market but it will become sooner or later. "UK wealth at £7 trillion, of which £4.3 trillion was in housing" To put more than half of your money into property is not diverse enough to survive in any times.
I think in 1-2 years they will have to tax property heavily.
8. drewster said...
Great post Mark. It would be interesting to have the second graph (wealth) broken down into property, shares, bonds, cash, etc. I expect we'd find property actually takes up a greater proportion of the wealth of the wealthiest.
The first graph only shows income from "normal" jobs, doesn't it? There's no mention of dividends, rent, or interest. Presumably the income graph would be almost as skewed as the wealth graph if it included non-earned income?
9. icarus said...
drewster - good point about non-earned income. Owners of wealth and recipients of non-earned income are also pretty much one and the same, so relatively few should be unable to pay a property tax on the grounds that they are land-rich but cash-poor. Those that are could 'borrow' their tax liabilty from the govt, to be re-paid in death duties.
10. mark wadsworth said...
@ Drewster, the second chart is just residential property. The other stuff you mention is mainly held by insurance companies, pension funds and foreigners, the amount privately held is neither here nor there. So therefore the amount of dividend and interest income received by private individuals from privately owned shares and bonds is minimal as well.
And don't forget that investment returns are pretty low, let's assume a chap in the top 5% with £1.5 million in property lives in one house worth £500,000 and rents out property worth gross £1m, he might get £50,000 rent but chances are he has BTL loans and other expenses and so on, so that would put him in a much lower income percentile.
PS I do NOT and have NEVER supported "wealth taxes" on shares or bonds or cash deposits - this is more or less the same thing as income tax (i.e. if you have £100 in the bank and get £5 interest and pay 20% tax = £1, it's neither here nor there whether you call it "income tax of 20%" or "wealth tax of 1%"). All that would happen is that people shift stuff abroad etc, as Icarus says. And yes people have tried to calculate it but it is IMHO a futile exercise.
But conversely, you CANNOT shift land abroad. And land ONLY has value because the government protects your title to it. No other reason whatsoever, ergo if land ownership is theft and taxation is theft, make the pubishment fit the crime and tax land but not incomes!
11. ontheotherhand said...
Hang on a minute. So the LibDems want local income tax instead of Council Tax because it's fairer, but they want national property value tax to replace some national income tax because it's - erm - fairer. Eh?
Let's just explore the transition to a property value tax. Banks would give a lower multiple on income on the mortage knowing the state will take income on the property every year. Also, every foreign millionaire who presently has spare cash parked in bricks and mortar in London, where there is no witholding tax on capital gains, would leave. Retired people with valuable homes but a fixed income will be forced to downsize. All of these factors would drive property prices down and people would throw out any politician who implemented it.
12. David Cooper said...
Dear Brett,
"If I work hard for years and save up (paying income tax + tax on my savings) and then buy a small holding with 10 acres, and try to be as self sufficient as possible with a very low income, would land tax mean that I would pay more tax"
No, you would not pay more tax, since you can choose to buy land in an isolated area at a low price, in which case your land tax would be low. If you buy land near transport links or other facilities, or in a town, then it could of course be high.
Even if you buy land in an isolated area, you are benefiting from the security and safety of living in the UK, which is maintained by government and paid for by taxes (try farming in Zimbabwe if you disagree with that- I'm sure land there is extremely cheap!). Therefore it is reasonable you continue to pay some taxes while you use this land.
The idea is to REDUCE income tax by the amount raised by land tax, so you would not be double taxed as you seem to suggest.