Efficiency vs sanctity

In opposing a mansion tax, David Cameron reminds me of Corrie's Tommy Duckworth. And I don't just mean that both are hapless oafs whose efforts at getting out of debt have backfired.

Instead, take a common argument against a mansion tax - that it would hurt asset-rich, cash-poor widows living in big houses.

To an economist, this is not a bug but a feature. In forcing (very few, but let that pass) widows out of big houses, a mansion tax would encourage a more efficient use of scarce housing by freeing up big houses for bigger families. To non-economists, this seems heartless.

What we have here is a clash between efficiency and sanctity. Efficiency requires the widow to sling her hook. But sanctity says people should be able to live in places where they have happy memories. Cameron seems to have chosen sanctity over efficiency.

Which brings me to Tommy Duckworth. His qualms about Tina acting as a surrogate mother for Gary and Issy are of the same form. Just as homes are more than economic assets, so too is Tina's womb.

Objections to immigration take the same form. Whereas economic efficiency argues for freer migration, sanctity doesn't. Countries, like wombs and houses, have value beyond their narrowly functional economic uses.

There are other examples. Opposition to prostitution and legalizing drugs and to having markets in transplant organs (pdf) are all based on the idea that some things are too valuable to be traded away.

The point here is that efficiency is not an incontestable value. It collides with others, the belief in the sanctity of some goods.

Economists tend to have a tin ear here - they just don't hear the arguments against efficiency.

Which raises a question. How might we argue for efficiency over sanctity. I'd suggest three lines:

1. In many cases, the clash between efficiency and sanctity is also one between liberty and sanctity. This is true for immigration and trade in organs and surrogacy, though not the mansion tax example.

2. The cost of having some sacrosanct assets which are beyond trade often falls upon third parties. For example, banning a surrogacy market would deprive Gary and Issy of their chance to have children; keeping widows in big houses deprives families of the chance to live in them. In this sense, the desire for sanctity is a cheap preference - it's borne by others. It should therefore be discounted.

3. Who decides what assets are sanctified? Consider this argument:

OK, let's assume that high taxes on top incomes are inefficient, in that they deter productive activity. This doesn't mean we should oppose them. Allowing people to have huge incomes is repugnant in itself, as it elevates individualistic selfishness, and undermines social solidarity. Equality is sacrosanct. It shouldn't be traded away for efficiency.

Very few people take this line. But why not? Why are wombs or homes or countries sacrosanct and not tradeable against efficiency, whereas equality is? Who decides what's sacrosanct and what's not, and on what grounds? Could it be that sanctity thus serves a reactionary function?

 I don't say all this to take sides. I do so merely to show that values are contestable, but that a debate about them is possible.     

Comments

[Simon Cooke]

Which I guess is why Conservatives aren't Liberals?

[Metatone]

Surely if old people in big houses are so sacrosanct you could create an age related mansion tax?

If you're past pensionable age, no mansion tax?

It wouldn't be properly efficient, but it might be an improvement...

[Keith]

You could combine tax on the market value of Land with an income relief for the inhabitants of owner occupied dwellings. Then low income Pensioners would pay little or nothing. Is that not the obvious solution?

The fuss over a "Mansion tax" is a distraction from the obvious absurdity of cutting income tax itself when the coalitions justification for its formation is reducing deficits!

[Bernie G.]

I guess that’s what changing social values are all about. Negotiating change, now there’s the rub.

[Anonymous]

An elderly widow can always let some of the rooms in her mansion to pay for the mansion tax.

I suppose sanctity v efficiency could be extended to the royal household. It would be more efficient to turn Buckingham Palace into a hostel for rough sleepers but it will never happen for reasons of sanctity!

With respect to high taxes on top incomes, is there a more efficient way of reducing hoarding and the consequent withdrawal of money from the economy? If there is, I can't think of it.

[Jim]

"obvious absurdity of cutting income tax itself when the coalitions justification for its formation is reducing deficits!"

Not if a lower top rate of tax brings in more tax revenue. I'm not saying the 45% rate necessarily will, but the concept is not 'obviously absurd'.

[Neal]

Chris
Not convinced by your examples, particularly the mansion tax: which would reduce, not increase, efficiency.

Blogged a response here
http://nealhockley.com/2012/10/07/chris-dillow-efficiency-and-sanctity/

[Keith]

Jim,

The idea that if a lower top rate of tax brings in more tax revenue it is not absurd; is absurd, as it is obviously rubbish. No one provides any proof of this idea about marginal rates and it would only be plausible if rates were very high which they are not by historical standards. There are other reasons for high rates as well as revenue ones.

[Frances Coppola]

Hmm. Since the majority of expensive property in the UK is owned by over-50s, I rather think that introducing income relief for pensioners occupying mansions would clobber the revenue from the mansion tax, possibly to the point where it simply wasn't worth while having the tax at all from a revenue point of view.

I suspect the Lib Dems, whose baby this is, believe that mansions are mostly owned by evil foreign tax-dodging drug barons - but as is all too frequent with Lib Dems, belief and fact are some distance removed....

Chris, you seem to be suggesting that an economist would regard a mansion tax as a Pigouvian tax, whereas I thought the Lib Dem proposal was very much a revenue-raising one. Pigouvian taxes don't necessarily aim to raise revenue, do they - since their objective is to change behaviour? If you regard this as a Pigouvian tax, then the political question is whether you want pensioners forced out of their expensive properties. I very much doubt if the Conservative party does, despite the good that might do from an economic point of view, since those pensioners are almost certainly their core voters. I don't know that I would regard political expediency as sanctity, though.

[Zorblog]

"values are contestable, but [...] a debate about them is possible."
Very true, and that's what people with "values" try hard to avoid. Conservatives, Ecologists, Christians, Marxists, etc., they all behave like if their values couldn't be contested.

And so do economists, whose "efficiency" is supposed to be the best way to attain an objective. Except that the objective is never discussed. Free time or equality might be more valuable objectives than GDP or employment.

[Keith]

Frances Coppola is right.

It has to be said that the well off pensioners I know sell their large houses and move to smaller places to increase their income by equity withdrawal. Some small number of extremely rich oldies might live in huge houses all alone but probably not many.

The size of a place has little to do with market value but more with the limited supply. More supply of land for building would cut prices far more then any tax revision.

The Lib Dems are a joke. They used to have well articulated progressive policies and now are a mess. Just like the Labour lot!!

[Yet another Chris]

How about the government spending a lot less of our money? Why is it that everyone is so intent on finding more ways of taking our money? In this case, money we've already been taxed on.

[Neal]

Thanks for commenting on my blog Chris, have replied here
http://nealhockley.com/2012/10/07/chris-dillow-efficiency-and-sanctity/comment-page-1/#comment-5

I think I'm still in disagreement about efficiency, but I generally think rule utilitarianism deserves more attention from economists!

[Dave Birch]

There is no problem about this at all. The elderly widow can borrow against the value of the home in order to pay the tax using a loan repayable on death. The sooner this country has a proper land value tax the better - we need to rebalance away from income tax.

[charlieman]

Assuming that government treats mansion owners with respect, those who have modest income will be allowed to borrow against property to pay their taxes. My mum borrowed against her flat for six years to pay care home fees before it was sold. Or rather, fees were deferred by the local authority.

That consideration limits the amount of money that can be immediately raised by a mansion tax. A lot of money will start to arrive five years after the tax is introduced, but there will be much less in year one.

[Anonymous]

@YetAnotherChris

Fine in theory, but how do you propose essential public services are financed? Do you have a viable alternative?

[Yet another Chris]

Anonymous @ 10:47

It depends what you mean by 'essential'. As someone who is in his later years, I look back at times - without nostalgia, I might add - when the government provided far less and we were taxed far less as a result. I don't remember being any worse off.

A more recent example is the employment of 100,000 teaching assistants (TAs) in our primary school classrooms. I was a governor when this was introduced, what, ten years or so back. A local authority guy told me this would cost £1.5 billion nationwide. Just how is this an 'essential service'? There are plenty of other examples like this.

I can't see how our ever growing government, which needs ever more tax income, has helped anything.

[Account Deleted]

The cash-strapped little old lady living in a mansion is, of course, a myth, cynically created by the Tories who are now hoist by their own petard.

A mansion tax would not be efficient due to thresholds. If set at £2m, you'll have 2.2 houses sold for 1.999 and a separate transaction in which the fridge freezer changes hands for £201k.

A more efficient approach would be both a land value tax (which would be very small for even mansion owners as the amount of land is relatively tiny) and capital gains on primary homes. House value appreciation is pure unearned income (your DIY makes negligible difference).

[Neil]

This is not so much a tradeoff of efficiency and sanctity as it is of efficiency and basic respect for human rights. In this country we tax income and consumption - you earn money, you are taxed. You spend money, you are taxed. A "mansion tax" is a tax on doing neither.

Such a tax says to home owners "You may have paid income tax on all the money you earned and saved up to buy your property, and you may have paid stamp duty on the purchase of your property, but now that that's all over with, we're doing to dip our hands into your pockets again, and help ourselves to yet more of your money. If you didn't want us to do this, you should have just blown all your cash on well-taxed things like booze and fags when you were younger. If you don't like it, feel free to sell your house at the reduced price you will now get for it as a result of this tax - we pocket the difference either way."

There is simply no moral justification for this. It's naked theft.

[john malpas]

"the idea that some things are too valuable to be traded away.'
Yes it is called tradition.
Your view seems to be that of a Bailliff working for a supreme state.

[Staberinde]

Why bother with a mansion tax when you can simply introduce new Council Tax bands at £50K increments?

You could link valuations to the most recent sale price for the property and introduce mandatory valuations for any property not sold within the last 10 years.

And you could gear the actual tax rate to local house price levels versus the national average, so that Londoners wouldn't be penalised unfairly.

If one then doubled the tax rate for each property which wasn't the owner's main domicile you'd then also help stimulate the private rental market too!