Mark Wadsworth

This is a spare 'blog in case my main 'blog at markwadsworth.blogspot.com isn't working

Killer Arguments Against LVT, Not (131, 132)

Let’s speed things up by doing two at a time, they tend to cancel out:

# 131, from The Guardian (this one was slightly tongue in cheek, hence the speech marks): One problem with a tax of this nature is that it ‘punishes’ pensioners who happen to live in a house for many years that goes up in value ‘through no fault of their own’. You can’t sell 5% of your house each year to pay the tax. The tax would force old people out of their homes. That may be a good thing but it doesn’t play well on television.

#132, from the Adam Smith Institute Blog: …it would effectively be like having a never-ending mortgage or renting forever – currently most mortgages are 25 years long, and then your living costs decrease as you approach and enter retirement…

Yes, it would be like a never ending mortgage, it would be like a variable rate, interest-only, non-repayable and non-recourse mortgage taken out to pay for the land element when you buy a home. It’s like these shared ownership schemes, but instead of ownership being split vertically (e.g. you own 25% of the buildings and 25% of the land), the ownership is split horizontally; you own 100% of the buildings (subject to a normal mortgage) and you own 0% of the land (or own it subject to aforementioned non-repayable mortgage).

So instead of worrying about capital repayments (on the land element) or a ‘repayment vehicle’, your monthly repayments are correspondingly lower and you can divert the monthly cash saving into paying off the mortgage on the buildings element and/or saving up for a pension to pay the rent/interest. By and large, the two will net off.

So that’s young people sorted. Anybody over the age of 45 or so has had their chance to buy a cheap house (any time before 2000, let’s say, and could have paid off the mortgage by now) and so, compared to today’s First Time Buyer, they have plenty of spare income to save up for a pension.

Then we return to the eternal thorny problem of The Poor Widow In A Mansion who is asked to pay ‘rent’*, but let’s not forget that ‘rentier’ can mean either ‘pensioner’ or ‘landlord’. What is an old age pension if not a form of rental income? The government collects income tax etc from working age people and gives it to older people, so people who live off rental income will be paying some of it back. AFAICS, there is no natural law that says that old age pensions have to be funded out of income tax and can’t be funded out of LVT.

The first Killer Argument #131 is even easier, LVT is a tax on the annual rental value, not the capital value. On a street of identical houses, your tax bill is the same whether you bought it last week for £160,000; bought it at the peak of the market in 2008 for £200,000; or bought it half a century ago for £2,000. There is no concept of retrospectively taxing capital gains.

Even if you based the tax on selling prices rather than rental values, then absolute changes in prices do not matter, only relative prices. So if all house prices doubled (or halved) from one year to the next, then the tax bill on each individual house would be exactly the same.

And if half of all houses went up by 10% and the other half by 40%, the tax base goes up by 25% on average, so the headline rate comes down by 20% (to keep revenues constant) and so the people in the houses which ‘only’ increased by 10% would be paying 12% LESS in tax, and those whose house went up by 40% would be paying 12% MORE in tax (not 40% more).

* In practice, I would cop out and have exemptions, discounts, rebates, roll-up option. The purist view is make ’em pay full whack but double the old age pension.

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