Since I made the mistake yesterday of writing about my unpopular views on tax policies, let me follow up today with another one: I think wealth taxes are a bad idea and create so many unintended consequences that we are better off not introducing them in the first place.
Stamp duty on residential property is a wealth tax. This was originally a small percentage of the value of your home, but has already increased to the point where it seriously distorts the market for homes.
One further consequence of any large (over about 0.5%-1% pa) wealth tax:
People with wealth - who are mostly aged 50+ - can and will relocate to other jurisdictions. Several very habitable countries give residency for retirees. Saves the UK a bit in healthcare costs... but overall bad for public finances.
People running growing successful businesses would also have an incentive to scoot off elsewhere. So we would be mainly left with just those businesses tied strongly to the UK (eg property sector) or to uk govt money. Not great.
One area where i do diverge is i think we should scrap stamp duty and council tax and replace them with a tax on property ownership that is proportionate to value. Indexed to property values and revaluing after any major works. With suitable adjustments for single occupancy, holiday homes, probably with exemptions for some businesses (eg working farms, heritage properties open to visitors all week) etc.
Stamp duty is a brake on freeing up properties that are too big for their owners, and council tax fails to tax big properties adequately, fails to charge developers anything for sitting on land banks for decades.
Fixing this would be a big step to making housing more affordable.
Well, I have to salute your courage in publishing a post dealing with public policy. That'd be way above my pay grade, for sure. Too many complex second-order effects.
One can quickly agree however that a wealth tax is not a good idea for countries that suffer from too little economic dynamism. If you have few people starting companies, then introducing new penalties to those who are successful founders is toxic.
On the other hand, there is an argument to be made that southern european countries such as Italy have a lot of hidden private wealth (in real estate) in combination with public debt. Germany for instance is the other way around -- with little public debt but on average unwealthy. Why not shift some tax collection in Italy to those living in their own houses, and away from folks on a paycheck?
Conversely, if you have an economy that is very dynamic but has high or even growing inequality (USA), the cost/benefit analysis might be that taxing billionnaires makes sense. Warren Buffett would agree.
In the US wealth taxes are widespread but we call them property taxes and they are typically levied on real estate at the local level. It works just fine. People argue over whether to increase them or lower them, people argue about whether the value has been assessed correctly, but overall it just works.
Stamp duty on residential property is a wealth tax. This was originally a small percentage of the value of your home, but has already increased to the point where it seriously distorts the market for homes.
One further consequence of any large (over about 0.5%-1% pa) wealth tax:
People with wealth - who are mostly aged 50+ - can and will relocate to other jurisdictions. Several very habitable countries give residency for retirees. Saves the UK a bit in healthcare costs... but overall bad for public finances.
People running growing successful businesses would also have an incentive to scoot off elsewhere. So we would be mainly left with just those businesses tied strongly to the UK (eg property sector) or to uk govt money. Not great.
One area where i do diverge is i think we should scrap stamp duty and council tax and replace them with a tax on property ownership that is proportionate to value. Indexed to property values and revaluing after any major works. With suitable adjustments for single occupancy, holiday homes, probably with exemptions for some businesses (eg working farms, heritage properties open to visitors all week) etc.
Stamp duty is a brake on freeing up properties that are too big for their owners, and council tax fails to tax big properties adequately, fails to charge developers anything for sitting on land banks for decades.
Fixing this would be a big step to making housing more affordable.
Well, I have to salute your courage in publishing a post dealing with public policy. That'd be way above my pay grade, for sure. Too many complex second-order effects.
One can quickly agree however that a wealth tax is not a good idea for countries that suffer from too little economic dynamism. If you have few people starting companies, then introducing new penalties to those who are successful founders is toxic.
On the other hand, there is an argument to be made that southern european countries such as Italy have a lot of hidden private wealth (in real estate) in combination with public debt. Germany for instance is the other way around -- with little public debt but on average unwealthy. Why not shift some tax collection in Italy to those living in their own houses, and away from folks on a paycheck?
Conversely, if you have an economy that is very dynamic but has high or even growing inequality (USA), the cost/benefit analysis might be that taxing billionnaires makes sense. Warren Buffett would agree.
In the US wealth taxes are widespread but we call them property taxes and they are typically levied on real estate at the local level. It works just fine. People argue over whether to increase them or lower them, people argue about whether the value has been assessed correctly, but overall it just works.