Sunday, Mar 21, 2010
Tax? That's for the little people.
Sunday Express: GORDON BROWN MOCKS HOMEOWNERS
The [plant to revalue houses for council tax] has sparked outrage as critics slammed Labour for making light of council tax hikes which have brought misery to millions. Caroline Spelman, Shadow Communities and Local Government Secretary [spouts her usual Home-Owner-Ist drivel] “They have created a virtual world for the clipboard-wielding tax officials to learn how to ... put a value on your scenic view.” [No love, the markets are perfectly capable of deciding the market value of a view]. Matthew Elliott, chief executive of the TaxPayers’ Alliance, said: “Council tax revaluation has been a nightmare for many taxpayers when their bills have gone through the roof following a band change.' [Dude WTF? A couple of hundred quid extra is "through the roof?]
35 Comments
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1. paul said...
The homeownerist vitriolic outrage at having to pay for riding the credit boom by sitting on one's arse in a property is palpable. From the comments:
My Community Bill this year was £1890 and at this point I will admit to receiving a Benefit as a low income Widower, I could not pay it all otherwise.Before my Darling passed away, I had Double Glazing, New Patio, French Windows,Central Heating, Shower Wet Room, resurfaced my Driveway and front garden area.On revaluation am I going to be asked to pay for these facilities over and over again in increased Taxes.
What what what what?
2. This comment has been removed as it was found to be in breach of our Blog Policies.
3. mark wadsworth said...
I haven't dared venture into the comments section yet, but the one you quote really has his finger on the pulse - "Community Bill"? What on earth is he talking about? How does a "low income widower" afford all those improvements? A bit or MEWing, perchance?
PS, to be fair, I don't agree with the idea of valuing individual properties and charging people more if they've got double glazing or whatever, it's best to add up total property values (from HM Land Reg) in each small areas (like a postcode sector or a local council ward) and then average it out over plot sizes.
4. righttoleech said...
Maybe when her husband died an income died with him. What do you want her to do Mark? Rip out the double glazing? Let's tax current income, not savings made by prudent living in better times.
5. mark wadsworth said...
RTL, he said "widower" not "widow", and even if you were right, did they not think to put some proper money aside?
I agree that physical improvements should not be taxed, just the windfall gain/unearned element (i.e. the land/location value) - I fail to see how owning a home at the top of a price bubble has anything to do with "savings made by the prudent living in better times". These windfall gains have everything to do with "reckless borrowing made by the gullible living in better times" and "the government desperately propping up banks and house prices with taxpayers' money".
6. righttoleech said...
Mark......yes I did not read it properly.....Your MEWing scenario is of course a possibility.....equally my 'prudent home improvement scenario'. The truth could be anywhere inbetween. Tax changes should never be so extreme as to markedly change living standards in one sudden hit, especially when the vunerable are victims.
7. mark wadsworth said...
RTL, but what if we did the job properly and replaced Council Tax with a flat property value tax?
Those at the bottom end would end up hundred of pounds better off, and only the top ten per cent would be paying noticeably more. So who counts as more "vulnerable" - somebody in an ex-Council House or somebody who can MEW enough money to pay for fancy improvements?
8. righttoleech said...
Not a bad idea Mark, though I would favour an income based tax. Many of us on here agree that HPI is bad. The tax would have trebled in the recent boom, and before you suggest it......why should people sell and move to a cheaper property/area? The gain is on paper for an owner occupied property, and if the gain is sufficient inheritance tax will take care of it in the end.
9. enuii said...
All Fur and no Knickers brigade.
10. mark wadsworth said...
RTL: "The tax would have trebled in the recent boom"
1. That's the point - it wouldn't have trebled because prices wouldn't have trebled - a property value tax, if updated regularly acts like a higher interest rate so it keeps prices low and stable :-)
2. If prices are still rising too quickly, the rate is obviously too low so the rate should be hiked anyway.
3. Remember that house price bubbles are bad for us and massive transfers of wealth from future buyers to existing owners - but with such a tax the boot would be on the other foot - Home-Owner-Ists wouldn't be celebrating rising prices, they would be cursing them and calling out for more new development to ease the pressure.
4. Higher property tax receipts = they can cut other really bad taxes like VAT or National Insurance, or they can hike old age pensions or whatever.
5. Inheritance Tax would go in the bin anyway, that's a spiteful tax.
Please, people like Adam Smith or David Ricardo, Henry George or Milton Friedman weren't messing about when they said that taxes on land or property values were the least bad tax. Smith & Ricardo will be turning in their graves at the thought of marginal income tax rates well in excess of fifty per cent.
11. doomwatch said...
Not sure how a view or if you live in a deemed "nice" area should affect the CT ?!! I'm guessing the
Express have got this wrong [on purpose ?] to cement a few more Tory votes for Eaton Dave "man of the people".
12. Topher Bear said...
Although I agree with a re evaluation. It has got out of kilter in the last 20 years, but this could impact tenants more than homeowners. If someone has improved a property it does not get re valued for council tax until it is sold, therefore developers who do up a wreck and rent it out or a homeowner who became a reluctant landlord these properties are currently on a lower band than they should be and tenant is a winner, but after re valuation...
Also the council tax is unfair on tenants in that it is us who has to pay it, but only the owner can object to its banding!
13. mark wadsworth said...
Doomwatch, if we accept the premise that council tax bands are based on relative property values, then having a nice view is one of many factors that influences property values. There's no need to account for it separately of course, market value just is whatever and whyever it is.
Now, the Home-Owner-Ists will argue that "a nice view" doesn't cost the council anything, in cash terms, which is sort of true but misses the point. What the council does is prevent other people from enjoying the view by restricting planning permission. NIMBYs want to restrict new development as far as possible, which places a burden on those construction workers who aren't building anything, and places a burden on those who would also like to enjoy the view but can't, so why shouldn't the NIMBYs pay the council for this fine service?
14. the number cruncher said...
Mark can you expand on why you call Inheritance Tax a spiteful tax. Something so subjective is rare from someone logical like your good self. I Think it is moral to re-level the playing field every generation, which does not sound to spiteful to me. but I would welcome your thoughts
15. mark wadsworth said...
TNC, because if we had more property or land value tax it would do the job of levelling the playing field much better - and not just "every generation" but month by month and year by year :-).
IHT is very much hit and miss and after the event. Even though it is 40% of the value of an estate above £325,000, it raises a laughable £2.5 billion (about a tenth of what it should raise in theory if there were no 'planning') - even less than the TV licence fee (another spiteful tax, being a Poll Tax) - and achieves nothing apart from annoying people and creating work for tax planners.
If it comes to it, rather than taxing some people and handing it out again, it would be better to give every young person free and portable planning permission for half a house for free, so a young couple only needs to borrow the cost of bricks and mortar.
16. Natalinbrazil said...
it was thanks to this site that Mrs natalinbrazil and i pulled out of buying a property in 2008. the best part of HPC though is the COMMENTS section. love reading the usual suspects debate amongst themselves. mark wadsworth,the number cruncher et all...you guys should have your own TV show! fantastic stuff, and i am half wishing another boom doesn't happen, making this site obsolete. i will admit the graph charts and economic forecasts are often over my head, but brilliant stuff guys and keep arguing!! LOL
17. str 2007 said...
I like that one Mark
Can I decide where to port my planning permission to and build my house ?
18. mark wadsworth said...
STR, yes of course, you just need to find a farmer or somebody with a big garden who will sell you the land.
The flipside of this policy has to be that all new residential construction is strictly forbidden unless you first buy the permission of said young folk (many of whom would rather live in an existing house and not in a newbuild). This prevents landowners having young folks over a barrel.
19. ontheotherhand said...
MW - "1. That's the point - it wouldn't have trebled because prices wouldn't have trebled - a property value tax, if updated regularly acts like a higher interest rate so it keeps prices low and stable :-"
I like the idea of land tax, but can you remind me why it didn't stop a boom in the USA? In much of America there was no shortage of land with permission to build on, and there are already land value taxes, and yet they had a boom anyway. LVT as a brake gets swamped and ignored when prices are rising and people have 90%+ mortgages. i.e. If somebody puts down 20,000 equity and borrows 180,000, and their house price doubles over a few years, what do they care that their tax has doubled as well if they have made 200,000? In good times they can pay the added tax with some extra MEW they take out to buy the BMW 3 series.
What's your evidence that LVT is as strong a brake on bubbles as you make out and why didn't it work in the USA?
Also, doesn't rising property tax from rising property prices make the government scared of falling property prices as they become addicted to the revenue i.e. even more HomeOwnerist? California goes bust every time there is recession because it relies on the windfalls from taxing the richest 5% on rising asset values during the boom times, but makes no provisions for falling values when those taxes dry up. Therefore they are addicted to booms.
Perhaps LVT only works in a stable or rising interest rate environment? If you are right that it acts like "a higher interest rate", if interest rates are far to low anyway and dropping, its effect is negated?
20. dbc reed said...
Larry Elliott of the Guardian has come out strongly in favour of Land Value Tax with a rocking People's Budget riff.
21. mark wadsworth said...
OTOH, there was not a single house price boom in the USA. In places with no planning restrictions, prices only went up a few per cent, on East & West coasts they went up hundreds of per cent. There is probably a similar correlation between areas with higher property taxes versus those with no or low property taxes.
The tax in California is largely frozen at outdated valuations - to work properly, the values need to be updated regularly, of course.
I take your point about rising tax revenues from rising prices (e.g. IHT and SDLT in the UK - receipts from which have since plummeted - this is another argument against IHT or SDLT of course). LVT on the other hand prevents prices rising, and if prices rise anyway, well great, it's an entirely voluntary tax on the gullible.
22. luckyjim said...
You cannot stop inflation through tax. If demand outstrips supply prices tend to rise. If you try to solve this by taxing inflation the underlying problem simply manifests itself in a different way. It has been tried many times and failed. There is no reason why house price inflation would be any different.
23. mark wadsworth said...
LuckyJim. "If demand outstrips supply prices tend to rise."
That's argument for LVT number 2,834 - we have plenty of houses, just a lot of them are vacant, derelict, underoccupied, second homes etc. If the owners had to pay tax on them, then they are far more likely to do them up and get them let out, or sell them, or downsize etc. And if some rich bod wants to have a holiday home, so what? He is reimbursing society and paying the external cost, end of discussion.
Similarly, a tax on derelict sites and sites with planning permission would mean that they get built on far quicker.
24. luckyjim said...
MW,
If we do have plenty of houses then we don't need to relax planning permission or dig up the green belt, do we ?
Lets assume, for the sake of argument, that we DON@T have pleanty of houses. That even if all the vacant houses were brought back onto the market etc some people still found themselves living in shoeboxes. Let's assume that house price inflation IS simply caused by an imbalance in supply in demand. Would you accept that LVT could not redress this imbalance?
25. mark wadsworth said...
LJ, it has to be a three pronged attack, like in the 1950s and 1960s:
1. More sensible lending/mortgage rationing.
2. Build more houses (to buy or social housing).
3. More property taxes.
As to the greenbelt, UK housing covers about one-twentieth of the UK by surface area. Whether we are short or not is a moot point, but even if we increased supply by a fifth, that's still only one per cent of the UK by surface area. Owning a house while wailing about the greenbelt is like going on holiday somewhere and complaining about all the bl**dy tourists.
26. luckyjim said...
I agree with points 1 and 2 but you are avoiding the argument.
"Let's assume that house price inflation IS simply caused by an imbalance in supply in demand. Would you accept that LVT could not redress this imbalance?"
Take the fictional island of Caspiar - House Price Inflation caused by a growing population competing for a fixed supply of land suitable for building on. Would LVT stop the inflation? And would everyone on Caspiar end up with a decent and affordable home ?
27. mark wadsworth said...
LJ, OK, if we literally had no land left (which is far from true), then we would have to build upwards, not outwards. LVT would encourage that - few people would be willing or able to pay the tax that could be collected from a block of flats just for the pleasure of having a big garden, for example.
And sure, the price that people are prepared to pay for land would go up, but LVT could soak off the unearned gains (and depress the capital value) and be used to reduce income tax or dish out as a Citizen's Dividend or whatever. So yes, it is far more likely that people on Caspiar would end up with an affordable home - the ultimate outcome would be that the LVT you pay = the Citizen's Dividend you get, so the net cost of land to an individual would still be zero. You just pay for the bricks and mortar and you wouldn't pay income tax.
28. mark wadsworth said...
PS, I am not dealing in hypotheticals here, this worked in the UK in the 1950s and 1960s, and after the govt reduced Business Rates exemptions for vacant properties, more of them were let out again (the owner has to get the money from somewhere to pay the Business Rates).
29. luckyjim said...
MW,
Again you've avoided the argument by assuming supply COULD be increased. A flat is not a house. Basically some people would still end up in shoe boxes, as they do now. The non-shoeboxes could only be afforded by the wealthy, because of the tax.
In the example given earlier in this thread, this would mean the elderly couple forced out their home. In the example I've given previously it would mean even fewer nurses, teachers and other key workers living in London. Even if they inherited their homes, LVT would soon price them out.
30. landofconfusion said...
"Please, people like Adam Smith or David Ricardo, Henry George or Milton Friedman weren't messing about when they said that taxes on land or property values were the least bad tax."
It's funny Mark, I've used similar arguments to yours against BTL'ers and they tell me I'm a socialist.
If capitalism deals with products who produces land?
31. landofconfusion said...
I can't see a way of fixing that. The wealthy will by definition always be able to afford more than those less wealthy than themselves. What LVT does is charge people for their use of the common asset (land). The more you use, the more you pay and this money can go back into things like a Citizens Dividend etc.
And? What would you rather have? An elderly couple living in a house which is too big for them and which they can't manage or a family living there who can?
At the moment we subsidize key workers living in London by paying for them. Doesn't it make more sense to reduce their tax burden instead?
32. mark wadsworth said...
LJ.
"Again you've avoided the argument by assuming supply COULD be increased." It can. Look at Hong Kong or Manhattan.
"A flat is not a house" ???
"Basically some people would still end up in shoe boxes, as they do now. The non-shoeboxes could only be afforded by the wealthy, because of the tax."
What is the point of earning a lot of money if you can't have the nicest car, the nicest house? Where's the problem? The point is, to the extent that some people have to (or choose to) live in shoeboxes, at least they should be paying peanuts. Are we talking about the UK (where there is plenty of undeveloped land) or Caspiar, where there is no undeveloped land?
"In the example given earlier in this thread, this would mean the elderly couple forced out their home..." You can't imagine how tired I am of this one. Plenty of Western countries have some sort of property value tax, i.e. Northern Ireland, and this problem can easily be avoided, by paying better pensions, allowing pensioners to defer, or in the absence of that, by pensioners taking in a lodger, asking their heirs to pay the tax, downsizing, MEWing etcetera. Were the streets of the UK lined with wealthy but homeless pensioners when we had Schedule A tax and Domestic Rates? Nope.
"In the example I've given previously it would mean even fewer nurses, teachers and other key workers living in London. Even if they inherited their homes, LVT would soon price them out."
Why would it price them out? I've answered that one to death, but to restate:
Land value tax receipts could and should be used to replace other property taxes and any receipts above that would be used to reduce income tax or dish out as a Citizen's Dividend.
See also what LoC says.
33. luckyjim said...
LOC,
It makes no difference to me whether it's the elderly widower or the young FTB couple who are priced out. The point is that, unless the supply problem is resolved, somebody somewhere will be priced out. LVT just redistributes the shortage.
MW - Most people are familiar with the approach of using a simplified model to test the logic behind a theory. Most people can also see that you cannot stop actual prices from rising by simply taxing inflation.
The fact that we would all like to have nicer houses for less money does not turn a bad idea into good one.
34. mark wadsworth said...
LJ, "unless the supply problem is resolved, somebody somewhere will be priced out. LVT just redistributes the shortage"
To some extent yes, like I said it's a three pronged attack and more construction is one of the prongs, LVT is another, and mortgage rationing is another.
Whether we apply a simplified model or look at real life, the answer is always the same. LVT is the least bad tax. Politically motivated supply restrictions don't work. Lax lending leads to runaway price bubbles and financial recessions.
35. landofconfusion said...
"The point is that, unless the supply problem is resolved, somebody somewhere will be priced out. LVT just redistributes the shortage."
I like to reffer to myself as a productivist and any tax which favors the productive over the unproductive is good in my opinion.
As for the supply shortage, I fully support the notion of population reduction. In the short term you can of course build more houses but as decades of roadbuilding has shown us, the more you build the bigger the problem becomes. IMO we need to discourage unproductive people from breeding, prefferably by linking it to wealth. After all, why should I have to work my ar*e off so that the single mother down the road can have 7 kids, a free council house and an unofficial live-in lover? All paid for by the state?