The people on the Tube must have thought me rather sad, scribbling furiously on my copy of the FT. But Martin Wolf’s take on the Mansion Tax is the best possible endorsement of the idea, both because of the authority of the writer and the arguments posed. Selected excerpts:
What makes [property] taxes attractive is that they bear not on effort, but on “rent” – value over and above the economic costs of production. Income tax, by contrast, bears on successful effort . . . Taxes on property have other benefits: they automatically rise with prosperity; they are hard to evade; and they are automatically imposed on otherwise untaxed foreign owners. The latter benefit from the amenities of the UK without paying for them. . . . Higher taxation would also lower the intensity of property speculation. Can anybody doubt the damage that highly geared purchases of property can do to the financial sector, the economy and even the purchasers?
On council tax:
Even today, astonishingly, the bands are based on the valuations of April 1991. Presumably because it was seen as a replacement for a charge for council services, rather than as a tax on property, all houses in the top band – above the then-valuation of £320,000 – pay the same tax . . . It would be better still if the council tax itself were proportional. That would work best if properties were revalued regularly. This is far from impossible: many high income countries manage it.
And, (implicitly attacking the daft idea that this is war on the middle class – see Paul’s earlier comment)
Only in a country both besotted with property and determined to tax the middle classes, rather than the hugely wealthy, would people object to this obviously just idea. The UK should either impose several further upper bands on the council tax, or a proportional tax within the top band.
And on what about those grannies forced to move out? Support for Chris’s views on allocative efficiency:
At this point, people will bleat about the injustice done to the house-rich, income-poor elderly. My reaction is: tough. The UK has decided to make it as difficult as possible to expand the supply of housing. Can it then really make sense to encourage the elderly to remain in valuable houses that are far too large for them? The costs of this policy for families with young children are horrifying, forcing them into poky little flats
He adds that the local income tax is (both by comparison, and I suppose absolutely) a bad idea.
So, given the evident good sense of the Mansion Tax, it is all the more of a pity that it’s launch was so botched. If you disagree, you could go tell Martin Wolf yourself: I would normally try to join in on the Wolf Forum on this subject, but right now any contribution would be an embarrassing piece of fan mail.