Tuesday, Dec 01, 2009
Interesting Kite...
Times: Bank's Posen calls for housing bubble taxes
Let's see where this goes. I've always thought capital gains for ALL houses should be applied. It is everywhere else. It's a crazy state of affairs (no pun intended) that we tax all sorts of income, but leave the one that earns people the most money untaxed!
Posted by growler @ 05:02 PM (746 views) Add Comment
13 Comments
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1. mark wadsworth said...
Correct.
A land value tax applied to the capital value of land would also act as a property price bubble tax. It would either a) raise loads of money enabling other taxes to be cut (hooray) or b) do its job and keep house prices low and stable (hooray).
What's not to like?
2. mark wadsworth said...
BTW, having read the article, Posen is a complete and utter TW4T who doesn't know what he's talking about. What he means is that Stamp Duty should go up if prices go up. But it already does, and quite savagely at that.
3. paul said...
If the BBC got hold of this (or rather if they stopped pretending not to notice it), the headline would read:
"Independent Bank member calls for controversial property tax"
"Bank newcomer proposes radical property plan"
"Posen recommendations receive muted response"
or possibly ...
"Evil BoE loony want to confiscate our houses"
4. drewster said...
I'm not overly impressed. People don't care about a few extra pounds in stamp duty when the value of their house is rising by tens of thousands. Besides, raising stamp duty hinders labour mobility - that's why it's such a bad tax in the first place.
- "The solution is simple: Mandate life time fixed rate mortgages."
- "Property bubble prevention is easy and it doesn't need additional taxation. Just set interest rates at a long term neutral rate between 5 and 7%."
- "Simply impose maximum lending rules. If borrowers can't raise the finance houses won't rise in price."
I like this quote though - it looks like he has some idea of what's going on:
"The main point I wish to make is that we should start discussing going directly after the source of the costliest bubbles, that is real estate fluctuations, when the costs of so doing are small."
Some interesting comments below:
"What these chaps do not understand is that not everyone is in public sector jobs with massive indexed linked pensions. For a lot of people their house is their only pension so they will not be able to downsize to survive as they would have a massive CGT bill if they have owned their house for 20 years."
Wow, that just goes to show the mentality of the bubble years. There would be no CGT payable if prices were stable! It's only because people expect prices to keep rising that it's a problem.
More amateur economists:
5. mander said...
Om my God somebody please shut up Adam, I mean how would the wealth be created then? By building better and more homes ? No way, what about the myth about housing shortage?
6. the number cruncher said...
Well if Posen proposed a Land value tax or a capital gains tax on property he would be off the MPC and many other lucrative Non executive directorships.
I am sure the BBC/main stream media have an editorial ban on any form of mention of Land Value tax and its economic implications
The comments are priceless - had great fun reading them
7. mark wadsworth said...
@ Drewster, Number Cruncher etc, I couldn't bear to read the comments.
From what you say this is classic Home-Owner-Ism. One of the most bizarre aspects of HOism is that it is an economic philosophy based on hating your own children - house prices can only be propped up at the expense of future generations. I would rather know that my kids will be able to afford a nice house at a reasonable price, that gives me a lot less to worry about, and if I spend all my money and leave them nothing, then so what? They won't actually need it, will they?
8. crunchy said...
7. mark wadsworth, I agree with your point, but if you owned a house at present would you sell it for half the market price? Markets control most people. That's the beauty of the con and also why it always works for the big players.
9. ontheotherhand said...
mark w. I've been meaning to ask you. The US has land value tax in many states and it did not stop a bubble there. Why do you think that is? Apologies if this has been covered before.
10. mark wadsworth said...
@ OTOH, bubbles in US housing had more to do with strict planning laws (in some areas) and cheap credit. If you have LVT of 0.5% on the land value, that acts like an 0.5% higher interest rate, so dampens bubbles but only ever so slightly. To do it properly, you'd have to have LVT of approx. 5% on land value, or at least 1% on total property value.
11. ontheotherhand said...
Thanks MW. So if the US bubble was more to do with strict planning laws and cheap credit, wasn't the UK bubble more to do with, err, strict planning laws and cheap credit? Therefore how does LVT solve bubbles? Don't get me wrong, I like the idea of LVT, but I want to be able to understand it fully.
You say to do it properly it needs to be at least 1% of property value. See this chart of property tax by county in the US and see that in many it is between 1% and 2%. http://www.taxfoundation.org/taxdata/show/24052.html and yet it didn't stop the bubble.
Should we therefore conclude that LVT has a lot of benefits, including reducing speculation in housing, but the effect is small compared to cheap credit and planning laws?
12. crunchy said...
One way to prevent bubbles is to not put people in a position where they feel that they have to speculate on houses to ensure a bloody pension. House prices were never this crazy when people were looked after in retirement and credit was a dirty word. Simples really!
13. mark wadsworth said...
OTOH, the UK bubble was of course also the result of cheap credit, strict planning laws and a whole other raft of thinking which I call "Home-Owner-Ism".
At their simplest, LVT or PPT act like a higher interest rate on property values (that's a simple mathematical fact). In the UK we have a fairly high tax on the rental value of commercial properties, called Business Rates, Although the bubble (in relative terms) was just as big in commercial property values, in absolute terms it was a lot less, i.e. land zoned for commercial use is a lot cheaper than land zoned for residential use.
Which is why the best kind of LVT is a tax on capital values.
OK, even if we had ultra-cheap credit and ultra-strict planning laws, there would still be bubbles, but at least those people benefitting from the artificially induced price rises (the Home-Owner-Ists) would actually have to shell out in hard cash every year via LVT. So maybe (just maybe) they'd have more sympathy with the priced-out generation (who have to shell out far larger amounts in mortgage repayments).