In defence of property taxes

Brandon Lewis seems to confirm the image of the Tories as the stupid party. On the Today programme, he said:

The problem with having a revaluation [of council tax bands] is that you'd then be moving people to a higher tax bracket that they are in through no fault of their own.

This, of course, is not a problem with property taxes, but a virtue. The case for taxing land is precisely that its value depends not so much on the efforts of its owner as upon society's efforts.If the value of your house rises because (say) transport links have improved, you've gotten a windfall because of other people's efforts. You should be taxed on that.As someone said back in 1909:  

Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains— and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived.

So spoke that notorious communist, Winston Churchill (quoted here (pdf)).

In this sense, a land tax is exactly the sort of tax we want. It raises money without deterring useful activities such as work, entrepreneurship or saving. This is why people as diverse as the IEA and IFS both support it.

In fact, far from deterring work, property taxes might even encourage it. What sort of person lives in an expensive house? In many cases, it's someone of high ability - the sort of person we want to be working hard. Forcing them to pay to stay in their home might therefore make them carry on working, rather than retiring or downshifting. Land value taxes, then, might be a way of "tagging" (pdf) high-ability people, incentivizing them to work. In this sense, they are an optimal (pdf) tax (pdf).

But what of those who can't afford to pay - say, the retired?

No problem. They should sell up, thus ensuring that a scarce resource - a big house - is reallocated to those who most want it. Property taxes are, then, just a "bedroom tax" for the rich. And what could be wrong with this? After all, we're all in this together, aren't we?

Comments

[Bob]

Probably a bit unfair to call them 'the stupid party' based on that.

Really it is a case of "party in power seeks to protect voting home owners from tax rises", just like the last Labour government got their support by using policy to massively inflate house prices and thus gain the votes of said voting group.

His reasoning may be wrong about why a council tax revaluation is bad, but his political intention is fine.

N.B. I support an LVT over other taxes, I am just playing devil's advocate here.

[Anonymous]

"But what of those who can't afford to pay - say, the retired? No problem. They should sell up, thus ensuring that a scarce resource - a big house - is reallocated to those who most want it"

Or they could let a few rooms to otherwise homeless tenants so as to raise the required income to pay the tax. Or they could claim a means tested property tax benefit, similar to council tax benefit. I doubt many would qualify though :)

[Shinsei1967]

He was being stupid but for a different reason than you suggest.

He was making the point that if you revalued everyone's house (but didn't change the banding values) then eventually everyone would end up in Band H, from studio flat in Liverpool to Mayfair mansion.

Of course, he didn't seem to realise that the existing bands would also be revalued upwards, so that the lowest valued 15% of properties would be in Band A (whether that cut off point was £60,000 in 1992 or £200,000 in 2030).

[dcomerf]

From the Mirrlees Review of taxation: ""The economic case for a land value tax is simple, and almost undeniable. Why, then, do we not have one already? Why, indeed, is the possibility of such a tax barely part of the mainstream political debate, with proponents considered marginal and unconventional?"

[fake]

People fear the idea of a property tax, because in their everyday life they have to deal with over-taxation (the poor *ARE* overtaxed, the middle classes *feel* overtaxed, the rich, ah who cares about the rich).

So people fear the idea of a property tax, because they fear being taxed excessively and unfairly on something where they have no way of avoiding it (as opposed to say, not buying fuel, or working cash in hand).

Now the counter argument is that making them write a check, will make them much more active in fighting tax increases, empowerment.

But who cares about that argument.

Fear rules all, and people are scared of land/property taxes, they don't trust the government to tax fairly and fear being bled dry as serfs to the state.

That's why the idea of land/property taxes is a dead donkey.

[gastro george]

"... bled dry as serfs to the state."

You are Ray Winstone and I claim my £5.

[Mick Beaman]

The problem with a land tax is that the ways of valuing land are both time consuming and very,very unreliable....

[alastair harris]

you are going to have to do better than that.

[aragon]

Yes, council tax is not a wealth tax, but the mansion tax is a poor property tax.

The council tax is an abomination and neds replacing but not with the current mansion tax proposals, but with a land value tax.

http://www.newstatesman.com/economics/2013/03/council-tax-isnt-wealth-tax

But as the graphic in this article just demonstrates how unfair the rangeb between band A and band H, and the premium for single people. Aginst the cap at band H.

Council tax should be replaced by a LVT, do the job properly and reduce taxes for smaller properties and single people.

Graphic:
http://www.newstatesman.com/sites/default/files/images/netpropertywealth_670.jpg

It would appear a mansion tax has more potential than currently proposed. It also provides an insight into the distribution of wealth in this country.

Planning gain been used to fund new housing implies the use of green field sites. This is not desirable, unless green field sites would allocated regardless of planning gain.

@Mick Beeman
With GIS (Geographical Information Systems) valuing land is practical and cheap, property website manage to value property.

[Twist Barbie]

On the stupid party point I hope that I'm not being patronising by explaining that it's a reference to the old, but enduringly accurate, JS Mill quotation: "I never meant to say that the Conservatives are generally stupid. I meant to say that stupid people are generally Conservative". In the same sense that you'd say that UKIP (or the SNP) are not generally racist but that it's easy for racists to support those parties. That said, the quotation doesn't get us very far on the land tax issue. Speaking as a homeowner, who rents out his old flat (with a 50/45% tax rate on the income) and has a sixth share of the ancestral family home in the old country (Co Mayo if you're curious so worth next to nothing now),I'm fully supportive of a land value tax (at a lowish but fair rate) - especially if that would help lower the rate on my income (I just don't feel happy with a marginal rate (inc NI obviously) greater than 50%), ignoring that I am probably paying the business tax suffered on the (unincorporated) business that I work for and am going to have to pay further misconceived taxes - eg FTT - shortly.

[Strategist]

"But what of those who can't afford to pay - say, the retired? No problem. They should sell up, thus ensuring that a scarce resource - a big house - is reallocated to those who most want it"

Or they could let a few rooms to otherwise homeless tenants so as to raise the required income to pay the tax. Or they could claim a means tested property tax benefit, similar to council tax benefit.

Or, if they could really prove they were cash poor with just the one single big asset, there might be a scheme to roll up the tax obligation and pay it after they move out or die, with the proceeds of the sale of the house.

[Keith]

Mick Beaman is wrong. Valuation of land is easy as there is a market to value it and a central register of ownership. The details of any tax are complex as various differences between tax payers must be provided for.

But I would say that a LVT should be integrated with the Income Tax. On the only or principle home tax should taper with income and there should be a abatement so pensioners on a small income are exempt.

The "Bedroom Tax" is a bad idea and should not be applied including to rich pensioners in the mythical big house. Forcing people to sell up the home they may have lived in for forty years like trying to force people in council houses to move to the outer Hebrides is a in humane idea we should reject in a democratic society. With all due apologies to any one living in the Hebrides!

Relation of the planning code to allow the increase of land supply for housing is a complimentary policy that should be combined with the LVT. Prices of housing will not become more affordable unless barriers to more supply are removed.

[Keith]

Sorry relaxation is the word at the start of the last stanza!

[dirigible]

"the image of the Tories as the stupid party"

Image?

[Neil]

Surely this argument fails to make the distinction between potential and actual wealth?

If the value of your house rises because of infrastructure development, you may indeed have a windfall - but only at the point when you come to sell the house. Until then, you have what you've always had: one house.

Let's say you buy a house for £100k and live in it your whole life. At one point, there's a property boom and the value soars to £500k. Then later there's a crash and it drops back to £100k. Where exactly is your windfall? You're coming out of this with exactly what you went into it with, so what's the justification for paying extra taxes just because *other people* are selling their houses for higher prices in the meantime? That seems fundamentally unjust to me.

The argument works reasonably well as a justification for capital gains tax on real estate, but is a pretty shoddy argument for ongoing taxation on the basis of estimated value.

[Steven Clarke]

Thank you for posting on my hobby horse.

I've gone and ordered your book in gratitude.

[The Thought Gang]

I'm yet to find a compelling argument against shifting the burden of taxation from income to land.. but in insatiable appetite politicians for new sources of revenue makes me rather fearful that an LVT would just be a new tax, without the concurrent lowering of burdens elsewhere.

[Stanton Carlisle]

'Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains'....

Wow! Was society really like that once? Must have been amazing to have councils actually 'improving' services and roads being made good and streets too. It's like living in Oz!

I can really see the argument for Council Taxes now...

It's too much, I need a lie down.

[stone]

I agree with all you are saying about property taxes but I think it would be preferable to include all types of property and not just real estate. The same arguments you give for replacing current taxes with a real estate tax would also apply to a tax applied equally to all asset values such as cash, bonds, stocks etc. Basically taxing what we own rather than what we do. Then wealth would need to be put to constructive use in order to be preserved.

[economic stability]

People are afraid of this because they do care of their everyday life and they maybe afraid that this money will just go straight to the pocket of our leaders.

[Mark Wadsworth]

Hooray for LVT, well said, etc.

I see you've received all the usual stupid Killer Arguments Against LVT... Not.

Which I have debunked here

http://kaalvtn.blogspot.co.uk/p/index.html

Neil completely misses the point with his £100k - £500k - £100k example.

LVT is on the annual rental value which does not jump up and down like that, it tends to go up fairly smoothly ever so slightly faster than wages.

[Soles4Souls]

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[Mark - Perrys West London]

This would no longer create the indicator of the quality or the expectation to have of a place of residence - to be honest, it has been like this for quite a while. They should just reclassify the tax bands.