Complexity in politics

The people who are giving Alistair Darling stick for his U-turns on CGT and taxation of non-domiciles are missing an important point - that his problems should never have arisen.
Truth is, there is a very simple solutions here: don't tax incomes or capital gains, but land values and consumption instead. If we had more of these taxes, non-doms and hedge funds managers would be taxed upon their Kensington mansions and dinners at the Mirabelle whilst incentives to work would be preserved, insofar motives for doing so were not to have lavish lifestyles.
This would be, potentially, both more equitable and more efficient than current arrangements. If we had them, Darling would not be in the mess he is.
So why are neither more progressive consumption taxes nor land value taxation being even considered? 
Part of the answer, I suspect, lies in a peculiar pathology of politicians' thinking - namely, that problems must have complex solutions.
But why? In our everyday lives, most problems are solved either easily or not at all. And yet politicians hardly ever believe this is true in politics. Their response to the endless "crises" that characterize managerialist politics is hardly ever either "there's nothing we can do about this"  or "this one's easily solved in principle - just give us a few weeks to sort out the details."
Why is this? Part of me thinks it's the representative heuristic - people think that because problems have complicated causes, they must have complicated solutions. Another part, though, thinks it's to do with politicians' self-image. To believe that one is wrestling with complex issues - in an fast-changing modern globalized world of unprecedented challenges of course - is to cultivate a heroic self-image. No such image is projected by believing that solutions are easy or just unattainable.
In this sense, Darling's troubles are the result not (just) of personal individual failings, but of our political class in general.

Comments

[Matthew]

I've never really understood LVT. Presumably it only works properly if there are no planning laws?

[john b]

It works with planning laws too.

A field in the Green Belt is worth sod-all, whereas a plot in the Green Belt with planning permission for a big house is worth a million quid.

Under LVT, the farmer would be charged x% of sod-all, and the property developer would be charged x% of a million quid - this seems about right.

[ad]

I suspect that the main reason such changes are unlikely is not that they are simple, but that they are radical. I imagine there would be some pretty dramatic changes in the taxes, rents etc paid by different individuals.

People like some stability in the world: better the rulers do the same wrong thing consistently than keep changing things. At least that way, you can plan your own life.

[reason]

ad Has it correct. What is complicated is getting from where we are to where we want to be, not where we want to be. It is not enough to say doing it so would be better. You need to have a plan to get there. And there comes a hitch from democracy. You need to get both parties to agreee - because the planning period is longer than the electoral cycle.

[reason]

Lets put it another way, people react more to losses than wins, to risks than opportunities. And that means changing things is awfully hard. Don't underestimate the power of inertia.

[reason]

P.S. I don't know who "ad" is, but I find I often agree with him. Unusual on this site.

[Mark Wadsworth]

Hurrah for Land Value Tax! It wouldn't take more than six months to implement (like Council Tax) as HM Land Registry already knows plot sizes and recent prices paid, all that is required is deduct rebuild costs (per insurance quote on current sales, one extra item of info to go on the TR1 form, that's all) a bit of judicious averaging over each postcode sector and we are away!

And to help overcome resistance, it should replace IHT, CGT, SDLT, Council Tax and the TV licence fee on a fiscally neutral basis. Further, it should be introduced at the bottom of the house price crash (on the basis that LVT will dampen future bubbles and busts), in other words, they'd better start preparing the ground right now!!

But, boo to consumption taxes! You might think that extra VAT on posh dinners is paid by the rich, but it's also hitting incomes of the lower paid - waiters and cleaners.

I shall take the liberty of linking to this again...

http://markwadsworth.blogspot.com/2007/12/business-taxation.html

which explains it properly.

And that ECB paper you linked to a couple of weeks ago shows that VAT (a type of consumption tax) is the worst tax (along with Employer's NI), so the next best tax after LVT is a flat income/corporation tax that's on the upward slope of the Laffer curve - no more than 30% seems about right.

Milton Friedman said so as well.

http://www.cooperativeindividualism.org/friedman-milton_interview-1978.html

[Patrick, London]

Chris,

Presumably you favour a tax on realised land value gains as opposed to annually levying the value of land? If you tax absolute values there are some whopping problems:

1. How is 'value' determined and by whom?
2. What about those who are asset rich but have little or no income from it? You'd risk forcing the elderly out of their homes - a real vote winner!
3. It would drive huge corruption into the planning approvals process - and local councils are useless and venal enough already thank you
4. Land or property? Key distinction in law!

As for using big increases in consumption tax to relieve other taxes - with you all the way.

[john b]

"What about those who are asset rich but have little or no income from it? You'd risk forcing the elderly out of their homes - a real vote winner!"

this would be a very good thing (it's completely daft for people to sit around in penury in a massively expensive asset that they can't afford to maintain, so incentivising them to move is a Bloody Good Idea), but sadly not a vote-winner.

[reason]

Patrick,
you hit on the transition problem I was talking about. LVT inevitably forced DOWN the price of land. No land owner is going to happy about paying the government large sums for what they are (or have) already paid the bank large sums for. However, the effect on little old ladies, is one of the pluses (subtle argument this). It forces them to move somewhere they can afford to maintain. Or sublet the property that is far too large for them. No more mansions falling down because the person in them can't look after them.

[Mark Wadsworth]

Patrick - value of location/land = value of property minus rebuild costs, minus margin of error, averaged out per sq yard for each area. Simple. Taxes on capital gains (and SDLT) = bad taxes as they cause illiquidity.

As John b says, encouraging little old ladies to trade down = good idea (and encourage second homers to sell up and use local hotels instead etc), but why not just allow then to roll up unpaid tax, as a quid pro quo for scrapping Inheritance tax. They could effectively do this anyway with a lifetime mortgage from a bank.

Reason - nobody wants (for political reasons) to force down the price of land, which is why it is best to introduce LVT at the bottom of the market (when values can't go any lower anyway). The land location value of my house when I bought it ten years ago was under £10,000 (cost minus rebuild) and when I sold it, it was about £200,000 (selling price minus rebuild). Had they replaced my council tax of £800 with a land value tax of 8% x £10,000 = £800 I wouldn't have cared less.

And instead of making a stupendous unearned windfall gain, I would have made a much more modest windfall gain when I sold. So on a personal level I am against LVT, but from a political-economics point of view I am totally in favour.

[Scott Hughes]

I think politicians like things to seem complex because it excuses the fact that they don't solve the problems (which I believe they are actually helping cause because they are on the payroll of special interest groups).

About your tax suggestion, I agree. I think it would make more sense to tax people only on the basis of their use of natural resources, and not by income. Taxing people on their income is essentially stealing their labor.

[ajay]

A consumption tax would shift the tax burden massively onto the poor, who save and invest less than the rich. Presumably you know this.