By Tim Nicholls / @tim_nicholls
I’m a leftie. I believe, to my very core, in the redistribution of wealth because more equal societies are better functioning, happier and more just. I believe that the rich have a moral duty to help pay for those in need. So, I must be positively cock-a-hoop about the Lib Dem’s new plan (if infighting does not cause them to retract it) to implement a new mansion tax. I should be calling on Labour to propose the same. Right?
Wrong.
First of all, I find it shocking and more than a little hypocritical that the Lib Dems can spend years railing against Council Tax and how unfair it is to base a system of tax on house value, only to then proclaim it as the fairest base for their new policy. David Laws showed this hypocrisy, wholeheartedly but quite obliviously, last night on Question Time: one minute defending Vince Cable’s new tax, and the next lambasting Michael Heseltine for bringing in Council Tax. Now, don’t get me wrong, there is nothing wrong with lambasting Michael Heseltine, but by unconsciously admitting this double standard in their tax policy, the Lib Dems have shown themselves to be just as untrustworthy on tax and redistribution of wealth as the Tories.
But my main problem with the Mansion Tax is not that it is patently hypocritical: it is that the Lib Dems actually had it right before. Council Tax is unjust and house value is not a sound basis for tax liability. In my mind, taxes should be levied on the transfer of wealth or the use of services. We pay tax on our income, the purchase of a house, the purchase of shares, the sale of a business, and inherited wealth, among other things. All of these revolve around a transaction of some sort. Road Tax and TV Licences are fees for the right to use something and go towards its maintenance: i.e. there is a tangible gain for us to be able to use it and this nominal profit is what legitimises the charge levied by the Government.
But the Mansion Tax does not have this underlying legitimacy. Instead it is a tax on continuing to own something. It is like having to pay VAT every year on, say, a computer. You pay more tax simply for the right to carry on owning something.
I agree with higher rates of Income Tax and proposals for higher levels of Capital Gains Tax and Inheritance Tax without any difficulty. The prime function is pay for state services and to redistribute wealth, but a person is receiving a nominal gain every time they pay tax. That is not the case with the Mansion Tax and, even though it will redistribute some wealth, it is still a bad tax. Furthermore, it carries with it all the flaws of Council Tax (it ignores that a house worth over £1 million may not be a remarkable house in some areas, or that the person living there may not be wealthy themselves).
Tax, in a redistributive system, should be based on ability to pay: i.e. levels of actual wealth. House value ignores this. Aiming it at the presumed rich (although this may not be the case in reality) does not give the plan legitimacy. If house value is an unsound basis (and it is), it is unsound for everyone.
Why the left should resist the temptation of the Mansion Tax
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I think in response to where Tim was discussing how a society with higher levels of redistributive tax is happier and more equal, I assume he was talking about the statistically proven research that shows that in societies with higher tax rates (particularly redistributive tax rates - Scandinavian countries are generally good examples, with Sweden in particular) measurable standards of living are higher, indicators of general happiness in the population are higher, educational attainment in terms of skills level tends to be higher, unemployment is lower , life expectancy throughout the population is higher, and for the whole 'more equal bit' child poverty is at a much lower rate and more generally there is a much MUCH smaller gap between the very poor and the very rich.
So in general, with the examples that we have available from other contemporary countries, evidence points towards the fact that more redistributive tax systems seem to correlate with societies that are happier, more balanced, more equal and with greater health and welfare prospects.
If any of the above sounds like crap, please don't take my word for it, see http://news.bbc.co.uk/1/hi/country_profiles/1021823.stm#facts.
The problem is getting people like yourself to see things from a different perspective, that is, what is good for you is actually for everyone else to be happy and well off also, as it will raise your own standard of living, so it is actually likely to make you happier to give up that extra bit of money on your monthly pay check. Though of course in our post Thatcherite world, that paradigm shift is never going to happen....
oh and p.s. not to REALLY rock your world view, but not everyone is poor because they 'choose not to work'. I can only hope you get made redundant someday to help explain that to you...
I've heard that the mansion tax could damage the entire housing market. The argument goes: you tax property over £1m which devalues those houses over a million. That devaluation in turn damages the evaluation of those houses just under 1 million and so on right down to the 60-100k properties.
I imagine there would a damping effect as you move away from £1m but the logic seems sound.
Any thoughts?
Why do you assume that someone who lives in a £1.5 million house paid the current market value? Why do you assume a widow on state pension who has lived all her life in a house bought for £3,000 in the 1950's and now worth £1.5 million should have the ability to pay an extra tax?
Any a half-decent property bought in 1980 in a middle-class suburb of London for £65,000 would now be worth £1 million-plus.
The £1 million-plus does not exist except as a notional virtual valuation (eg on Zoopla.co.uk)
The capital growth does not turn into a 'profit' or a 'capital gain' until the property is sold. Why would anyone assume a householder could afford another £2,500-plus out of NET INCOME for a mythical valuation?
Who is 'wealthier'. Someone who earns £200,00 a year and pays £200 a month rent? Or someone who lives in a £1.5 million house and is on a state pension?
In one ill-conceived speech Vince Cable lost all the economic gravitas he had earned in the last two years.
"I believe that the rich have a moral duty to help pay for those in need".
I disagree and I don't feel any moral duty to pay any more than the bare minimum. I do not feel it a moral duty to pay for people who are not prepared to work to better themselves.
"I believe, to my very core, in the redistribution of wealth because more equal societies are better functioning, happier and more just"
How is taking money I have worked for (including working to get the skill and experience needed to earn what I do) to give to those without my skill/experience and workload "more equal".
Why is it you think that everyone you punitively tax is going to be "happier" giving up 50%, 60% or 70% of their earnings to you?
"The prime function is pay for state services and to redistribute wealth, but a person is receiving a nominal gain every time they pay tax"
No the prime function of taxation is to pay for state services and state services alone. To most of us in the middle classes we do see paying our taxes as a mechanism to provide charity to those who choose to do nothing.
Also I do not gain 50% in value from every 50% of every £1 I pay in tax. I receive no "nominal gain" from paying a high level of taxation. I am a net loser once I hit a certain level of income and it is deeply dishonest to pretend otherwise.
"I agree with higher rates of Income Tax and proposals for higher levels of Capital Gains Tax and Inheritance Tax without any difficulty"
Then how do you square with the issue that those of us paying these proposed higher levels don't agree with them and will avoid them where we can even to the extent of leaving the country?
With IHT in particular, I have no intention of paying a peny in it. I'll use every allowance open to me and every ruse. If you force me into a position where I have to give massively to the state upon my death I will, if able, choose to burn my money and belongings rather than give them over (I am deadly serios about this).
We agree that the Mansion Tax is a idiotic proposal but that's where our agreement ends. I do not agree nor ever will that I have any moral obligation to pay tax the way you imply I should.If you want to pay tax at those levels do it form your own pocket, my money is not yours to politically steal and distribute as you see fit.
It was called 'The rates'.
In terms of local taxation and raising funds for local government; I like the Lib Dems local income tax idea greatly. There it is on your payslip paying for the local government that you elect.
I would go further and push for a annual statement to be sent to every taxpayer showing what your local income tax is spent on. I'd also like to see that with every P60 I get in terms of central government spending.
I would also like to see local taxation pushed further; a local sales tax as well used to finance local government. Local taxation on income and expenditure, progressive taxes that mean that all residents to a locality pay their share towards services.
Then you can forget property ownership taxes altogether.
As for road tax and TV license; these are bad taxes. Road taxes pay five times over the cost of maintaining roads. TV license is nothing more than a tax on watching TV and a tax on choice.
Very well put. Another flaw in the Lib Dem plan is multiple occupancy. Who pays in that case?
I fully agree with all the points you raise above, most importantly that you can not continue to tax someone on something that they have already bought and paid tax for once. Continued private ownership of any item or good should not be subject to government intervention, it's trying to skin the same sheep over and over again.
However, I think the underlying aim of this proposal, to raise enough revenue to lift those earning under £10,000 out of the tax system, is EXACTLY the right thing to be trying to achieve. And if there is no 'mansion tax' then how exactly do we fund something like this?
And furthermore, I again agree with you that tax should be based on ability to pay, but when those in the position of being able to pay so often are able to find ways out of it (good accountancy/knowledge of how/when etc to play the system) how do we ensure a set, tangible basis on which to assess someone's wealth? A system based on housing has its shortcomings (which you've pointed out and I agree on) but at least it's a tangible asset that exists and is able to be independently valued.
And I know it's a very middle class fear, but honestly, do we think there are large numbers of poverty stricken families living in Million plus homes? You need not be rich to live in a million plus house in some areas of the country, but in all honesty, you won't be poor either. And anyway, you can always introduce an exemption based on proof of inability to pay, i.e. presume that someone with such a large asset has the money to afford it, and make it the exception that they may not be able to.
Interesting post though.