Saturday, May 01, 2010
That should do it
The Telegraph: Radical tax on debt put to parties
Households should pay a new tax on every pound of debt they owe, according to one of Britain's leading economists.
Martin Weale, director of the National Institute for Economic and Social Research, said the winner of the election should consider the plan in an effort to wean Britain off its reliance on debt.
Posted by devo @ 09:06 PM (1969 views) Add Comment
31 Comments
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1. britishblue said...
I Imagine the very such sort or taxes were discussed in France before the revolution.
People go into debt for a variety of reasons (loss of jobs, health, divorce, not being paid by suppliers, having to fund a business, etc). Not all debtors are bad. But many 'lenders' are extortionists. The average credit card interest is 20% for outstanding balances which jumps to 30% if you miss a payment, which equates to doubling of a persons debt in 3 years, just through legalised extortion. Bring in taxes like this and we no where the country is heading
2. Pyracantha said...
Brilliant! Lets tax people into even further debt. The author thinks that this form of taxation will discourage people from taking on debt. Presumably in the same way health statistics discourage people from drinking alcohol...
3. sneaker said...
The horrendous deflation that such an approach would augur should be clear!
4. tenyearstogetmymoneyback said...
For starters I would charge stamp duty on MEWing.
I find it ridiculous that a person who HAS to move (e.g. due to new job) pays Stamp Duty while the person
who just wants to withdraw the equity from their house and blow it on a holiday of a lifetime and new car
pays nothing at all.
5. powerofnow said...
Britain's leading economists...? bullsh*t
If they really wanted to deal with debt they would pull away the curtain around money creation and the compounding interest which can never be repaid. Money should be created without interest and spent into the economy not leant into it. Do the maths. (key stage 1)
http://www.youtube.com/watch?v=mHm_rtTwNYA
6. mark wadsworth said...
A tax on debt? Pah!
When you buy a house with a mortgage, the value of the house = the value of the debt; the debt bubble is merely the flipside of the asset price bubble. The 'bubble' element of an asset price bubble can be easily measured, and is the total cost of the house minus bricks and mortar value which = land value. So just tax the land value, job done.
In terms of 'ability to pay', putting a tax on debt is an extra burden on recent purchasers with a big mortgage; putting a tax on land values spreads the burden more evenly (and enables taxes to be cut more evenly).
A tax on debt would reverse the trend towards more owner-occupation and would, in relative terms, favour long-established landlords with little or no mortgage debt.
Epic fail. This is yet another cack handed solution to a problem that Land Value Tax would sort out. To paraphrase General Franco "There are two kinds of economic problems. Those that LVT will sort out and those that are insoluble."
7. devo said...
the more we do to you, the less you seem to believe we are doing it
8. cyril said...
Good idea. Or they could just put interest rates up.
9. devo said...
7. cyril said... Good idea. Or they could just put interest rates up
you REALLY want a cheap house, don't you cyril?
10. Pickle said...
"For starters I would charge stamp duty on MEWing.
I find it ridiculous that a person who HAS to move (e.g. due to new job) pays Stamp Duty while the person
who just wants to withdraw the equity from their house and blow it on a holiday of a lifetime and new car
pays nothing at all."
Er, what are you on about. They mpay 17.5% VAT on the holiday to start with. Nothing at all indeed.....
11. quiet guy said...
Instead of taxing debt, why not stop taxing savers? That would be a modest improvement overall but still a step in the right direction.
12. gone-to-colombia said...
A bit like kicking a person when their down.
13. alan said...
Not really, haven't Gordo's nominees reduced the BoE rate to nearly nothing to ENCOURAGE those who stupidly took out more loans than they could afford?
...and how might it be interoduced? A big sideswipe at anyone who has just taken out a mortgage for (say) £150,000
14. mark wadsworth said...
QG: "Instead of taxing debt, why not stop taxing savers?"
Whether you tax 'debt' or tax 'savers' does not make any difference. The savers puts money in the bank; the borrower borrows the same money from the bank. The bank collects interest from the borrower; the bank pays interest to the saver. If the borrower has to pay tax on his debt, he has less money to pay interest to the bank; and if the bank collects less interest from the borrower it has less money to pay interest to the saver.
Simples.
You might as well suggest, let's scrap income tax on farmers and levy VAT on food instead. Growing food is A Good Thing and eating food is A Good Thing - so why tax either?
Borrowing to pay for bricks and mortar is A Good Thing and saving is A Good Thing. It's only borrowing to pay for artificially inflated and speculative land values that is demonstrably A Bad Thing, so before we worry about taxing Good Things, let's tax the Bad Things (i.e. land values) out of existence.
15. powerofnow said...
mark wadsworth: It's only borrowing to pay for artificially inflated and speculative land values that is demonstrably A Bad Thing
well said
16. tenyearstogetmymoneyback said...
quiet guy said "Instead of taxing debt, why not stop taxing savers?"
That is what an ISA is supposed to do. However, at the moment the banks seem to be keeping all the extra interest.
Does anyone remember the old Save As You Earn scheme. Although adminstered by the likes of Abbey National
Building Society, the interest (or more technically bonus) was fixed by the Goverenment and was actually very good.
(e.g. pay in for 36 months and get 44 months money back)
17. Bear Of Little Brain said...
The descent into madness continues…
18. Sin Nick said...
As long as they tax the banks for the debts they have incurred, or is only just the taxpayer who will get shafted?
The nutters are crawling out of the woodwork it seems.
19. bidin'matime said...
The point here is that, as governments foster inflation, this is in effect a built in tax on cash balances, which is handed over to the borrowers - inflation shifts wealth from savers to borrowers. So why not shift some back through taxation..?
Also, as the banks are now largely state owned and the state is making money out of keeping interest rates down, us savers are, in effect, paying a huge tax rate on our savings - where we should be getting say 5% less tax = 4% net, we are getting at best 2.5% net, so the 'tax' rate we are paying is, in effect 50%!
So I'm all for taxing the borrowers...
20. quiet guy said...
@Mark Wadsworth
I'll try again. Irrespective of the precise method used by government to raise tax revenue, taxings savings seems quite perverse to me:
1) Retail savers are taxed on their savings which are built up using taxed income in the first place.
2) Capitalism requires capital formation which requires savers. We aren't doing anything to encourage saving at the moment (obviously, taxing savers is not the whole story but it's part of the puzzle.)
@tenyearstogetmymoneyback
"That is what an ISA is supposed to do. However, at the moment the banks seem to be keeping all the extra interest."
The ISA system is an administrative mess which is another reason that I'd like to get rid of it. I agree that some banks are pocketing the difference at the moment. In theory, if all retail savings accounts were untaxed we might get better competition and a better deal for savers.
21. uncle tom said...
The bottom line is that some new taxation is inevitable, and one needs to look at ways that are reasonably fair, and reasonably efficient.
Mark's pet theory about land value tax fails because it is neither - the value of land is too subjective, and it fluctuates wildly. There are also a lot of people on very modest incomes (notably pensioners) who happen to live in relatively valuable properties.
Were a political party to sign up to a policy that would force thousands of ordinary pensioners to sell their homes, electoral suicide would result..
Stamp duty is an easy tax, but is seriously flawed, as it discourages people from moving, leading to longer commute times when jobs change, and more congestion as a result - it is not all 'green'.
Replacing stamp duty with a modest levy on mortgage interest (the rate needed would be nearer 0.2% than 1%) would be an efficient and equitable tax that would also takes the brakes off social mobility, so is a pretty good idea. It would probably be better received if the first £50k of a mortgage was exempt.
Unsecured lending is the scourge of modern society, and does far less for the economy than is sometimes suggested.
A tax on all new unsecured loans (making it retrospective would be too complex) would be a sound way to raise additional revenue. However, government must not then turn a blind eye to irresponsible lending practices, just because it raises funds.
There is an urgent need for a whole raft of brakes on the credit industry..
22. rumble said...
@quiet guy, "2) Capitalism requires capital formation "
Exactly, this is not a capitalist system, it is a creditist system. To its core.
The joy of vast swathes of regulation is that the gov can make a vote catching announcement about tax x, and somewhere else in the myriad rules nullify it, and though the tax gurus etc will figure it out (the closer you are to the crap, the easier it is to smell), the majority only get the initial headline, living forever in a quagmire of lies. How suitable for the gov, where a faulty process can be trimmed it will instead have regulation added to it. Expect simplification in, er, lalaland.
23. icarus said...
cyril @7 says it best. Savers or the banks would get the debtors' money instead of the government.......except that the government would then have to take the money from the savers or the banks. Whose turn is it to shuffle the cards?
24. Al Young said...
a tax on debt? isn't that normally interest? if we've become over-reliant on credit it's been because it was relatively cheap and agressively marketed by lenders. want to do deter debt? raise the rate of interest. that will also bring the cost of uk housing back to a rational level
25. mark wadsworth said...
Uncle Tom: "the value of land is too subjective, and it fluctuates wildly"
It is not subjective, but yes, under current rules, it fluctuates wildly, but it is relative and not absolute values that are important. Actual plot sizes can be calculated to within a good degree of accuracy.
To put this in simple terms, if we made a modest start, and rolled Council Tax less Benefit, Business Rates, Stamp Duty, Capital Gains Tax, Inheritance Tax, TV licence fee, VAT on domestic fuel, Insurance Premium Tax etc, and knocked off subsidies to land ownership like Housing Benefit for private landlords and agricultural land subsidies, we would require a tax that raises about £60 billion a year (about one-eighth of all tax revenues).
There are (about) 3 million acres of privately owned, developed land (i.e. let's exempt farm land for the time being, losing CAP subsidies is a better way of doing it) so averaged out, it would be about £4 per square yard per year.
We could, if you wanted, just leave it at that.
Or, we could make it more proportional to relative property values, i.e. a bog standard 1930s or 1950s semi in the cheapest areas is £100k, in an average area is £200k and round where I live about £300k. If we had done the workings ten years ago, the figures would have been £50k, £100k, £150k, so the 1:2:3 relationship is a known and fairly fixed figure.
So taking £4 as a good mid figure (the average semi with an average garden would pay about £1,200 to £1,600 - same as Council Tax plus TV licence, let's say) the tax in the cheapest area would be £2 per square yard, in an average area would be £4 and round where I live it would be £6.
I looked at Business Rates figures for Westminster, the most expensive in the country, and they around £250 per square yard per year!! So really, the tax at the very margin should be £1 per square yard up to £10 where I live (which would cover 95% of properties by value) and in city centres, there is no reason why it shouldn't be £100 or £300 or something. If, for political reasons, the rate for residential is capped at £10 or £20 a square yard, then so be it.
So for a start it would be "fair" and in any event "fairer" than a tax on outstanding debts (which ultimately hurts 'savers' anyway).
As to "efficient", you can go and look up what Adam Smith or David Ricardo or Milton Friedman said, let alone Tom Paine or Henry George, and you will find that not only it is stupendously 'efficient' it also has the merit of being easy to administer and collect and impossible to evade, so honest people don't end up paying more to compensate for dishonest people.
As to "There are also a lot of people on very modest incomes (notably pensioners) who happen to live in relatively valuable properties."
When you say "a lot", how many? I doubt more than a couple of hundred thousand pensioner households would end up paying noticeably more, and no tax system can produce only winners. Anyways, in practical terms, it is not an issue:
1. Sell up and trade down (no Stamp Duty any more!)
2. Agree with their heirs that they will pay it in exchange for inheriting the house (no Inheritance Tax any more as a quid pro quo)
3. Take in another family member as a lodger - if they live in an expensive area and the tax is £5,000 a year, they only need to let out one room to get their money back.
4. Allow pensioners to roll up the tax to be repaid on death (just like any other unpaid debts - they all come out of the estate - and I see no moral difference between unpaid income tax and unpaid property tax)
5. Allow councils to offer discounts or vouchers or something to pensioners if they so wish, or even better, take all the property tax that all pensioners pay and divvy it out evenly between all pensioner households, so those who live in average properties pay effectively nothing and there is a modest transfer from pensioners in £1m mansions (which they bought for a song fifty years ago) to pensioners shivering in council flats (and who did not strike it rich in the property lottery).
If you apply commonsense to the real world, all the perceived problems melt away.
26. Crunchy said...
What a great idea.
Hold on a minute but don't we now have a banking economy. Oh well!
Uncle Tom, I think MW has thought this subject out mate.
"If you apply commonsense to the real world, all the perceived problems melt away." Oh well!
27. sneaker said...
@20 - Mark, I love your contributions.
Could you suggest a reading list to mug up on this whole area in greater depth?
Despite having studied this area in huge depth I still feel I have so much more to learn...
28. uncle tom said...
"I doubt more than a couple of hundred thousand pensioner households would end up paying noticeably more"
Which is more than enough to sink any political party without trace..
..it is quite possible that for the first time, most of the people who actually vote this week will be pensioners - and pensioners really don't like seeing other pensioners hard done by, even if it doesn't affect them..
..move on Mark - it ain't gonna happen!
PS - and good luck in Uxbridge..!
29. mark wadsworth said...
Sneaker, there is no official or authoritative guide to land value tax, you just google it and make up your own mind.
I stumbled across "land value tax" while doing an assignment on tax simplification four years ago and at first the idea seemed completely bizarre ( the idea that "surely we should tax incomes not property" had been drummed into me just as much as anybody else) but then the more I thought about it the more I liked it. And I've never seen an intellectually coherent argument against it (which merely hardens my resolve).
30. inbreda said...
28. uncle tom said..."I doubt more than a couple of hundred thousand pensioner households would end up paying noticeably more" Which is more than enough to sink any political party without trace.."
which has no relevance to whether it is a sensible, fair, or proper tax. You can call the electorate stupid all you want, but it doesnt change the fact that LVT is the right method of taxation.
"..it is quite possible that for the first time, most of the people who actually vote this week will be pensioners - and pensioners really don't like seeing other pensioners hard done by, even if it doesn't affect them.."
I doubt this very much given the results of the election - i.e. some pensioners must have voted labour despite The Great Labour Pension Theft. Unless of course it coincides with pensioners being stupid or mentally ill.
"...PS - and good luck in Uxbridge..!"
oh well, never mind.
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