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.

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9 thoughts on “Mansion Tax: Martin Wolf writes one of the best columns, ever

  1. One of the immediate objections to the Mansion Tax was that we presently don’t really know which houses are worth over £1m. As I understand it, there’s no infrastructure in place to maintain up-to-date valuations of land or property. As pointed out, Council Tax hasn’t been revalued for 18 years. This objection always crops up whenever Land Value Tax is proposed too.

    This makes me wonder if the Mansion Tax is a gateway to LVT, in that it would require setting up a small-scale version of the eventually required infrastructure for up-to-date land valuation? This would side-step the issue of council tax revaluation and jump straight to a totally new set of valuations for LVT if and when that could be adopted.

  2. And I see you’ve just bought a house . . . so that’s ONE property you may know the value of.

    I believe Wolf touches on this – other countries do this, and if you regress from location and other variables I bet you can nail it down to 5% accuracy pretty easily. But if you ramped up the idea a bit, made it worth £5bn a year – then it would surely be worth spending a hundred million doing the work regularly

    BTW, the LVT is definitely a more rational idea, I agree. Possibly too radical for a fiscal crisis?

  3. And I see you’ve just bought a house . . . so that’s ONE property you may know the value of.

    Yes, though fortunately I’m untroubled by the prospect of a Mansion Tax!

    The “too radical” objection is one that comes up fairly regularly when LVT is mentioned. But it has many of the positives that Martin Wolf identifies in the MT – it’s a tax on rent rather than effort, would be harder to dodge, would be payable by “non-doms”, would lower property prices and improve allocative efficiency – as well as encouraging people and businesses to relocate to areas of lower land values thus boosting “deprived” areas. If LVT is too radical, the Mansion Tax provides a handy baby-step in the right direction, neutralising many of the objections to LVT in the process. It will be much harder to call LVT “too radical” if it can be framed as an extension of an existing tax rather than a revolution (and it would have to be coupled with substantial reductions in other taxes, chiefly income tax).

  4. I agree. If we get a decent Property tax in FIRST, then people will spot some of the probems with it, and LVT will be seen as fairer. I’ve become a real convert: I need someone out there to write “why land tax is a bad idea” – and not just from the Tory/Ducal point of view.

  5. For years I have been a supporter of the LVT and SVR, and now is such a great moment to bring these ideas forward but to do so with so little preparation of the ground as Cable did is hugely negligent. Bravo to dear Tony Vickers.

    I don’t agree that LVT campaigned for by the Lib Dems is too radical for today’s economic situation.
    Better to be hung for a full blown LVT proposal than a muddled ‘mansion tax’.

    It just proves that to carry the day on such reforms requires the highest personal and political skills.

    BTW, Giles, is there really no longer a relationship between the money supply and agg demand, and between money supply and escape from the liquidity trap?

  6. I entirely agree with you about the political skills thing – it almost goes without saying. I have crude model in my head: real world on one side, ideal world on another, and the stuff in the middle is Political skills, the great residual in explaining why the world is not perfect . . .

    The relationship has got difficult, and is prone to changes caused by lagged effects: see this excellent blog I discoverd just today:

    http://www.moneymovesmarkets.com/

    I think this Mansion tax will be very hard on Susan Kramer – whom I hope to help in any way I can. But not most of the MP’s, particularly when contrasted with the Tories “bailing out millionaires worried about having to work instead of inherit”.

    see you around Bill

  7. I used to like Parris and am now beginning to loathe him. Does he not connect the dots with last week’s (also execrable, melodramatic, biased) piece in favour of Osborne’s pre-Keynesian debt views? We need to raise revenues.

    Squirrels and nuts, pah. Does he not know how much this raises in the US? Perhaps he also thinks the council tax bands should never move, in case the system should become less regressive.

    Hmmph.

  8. This is what I do like about the FT. The editorial line can be very partisan – e.g. calling the Mansion Tax “batty”, or defending tax havens – but then comment writers like Wolf have genuine free-reign to actually write what they want, against the editorial line.

    Hence we get this excellent piece re the Mansion Tax, and frequent pieces slamming tax havens/secrecy jurisdictions.

    Shows there’s still some real, thought-motivated journalism going on where it matters.

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