Thoughts on morality and wealth tax
by thethoughtgang
So I’m trying to work out if I agree with Frances or not.
I try not to be someone who thinks the world should be ordered in a manner that is convenient to me, so I argue with myself about the idea that wealth taxes like LVT and Inheritance* tax should be phased in/up to enable income taxes to be lower. I pay a relatively high level of income tax, and I neither own any property nor have any prospect of benefitting from a useful inheritance – so of course I think this way!
However, I aspire towards having the sorts of wealth that should be taxed. Notably, I intend to own property – that I don’t is a matter of choice, not affordability. In fact, I not only aspire to own somewhere nice to live, I aspire to have it entirely bought and paid for by the time I’m 40 so that I can live a life unencumbered by mortgage debt. I would like the option to move to a less financially attractive career, knowing that I can enjoy the property fruits of my previous efforts. In doing so I would also, as a by product, move to paying less tax.
LVT, therefore, puts a spanner in my life plan. Even if my property is bought and paid for, I must continue to pay my tax at a level commensurate with the property I bought with my income from more lucrative times. This is a feature, not a bug, of LVT. This is an inconvenience for someone with my particular plan, and it’s not an inconsiderable one. I would place significant value on the freedom to earn less money, doing something I find more rewarding.
But is this a moral issue? Is it immoral to prevent us from being free to pay less tax – albeit it’s a ‘soft’ prevention, in that we always retain the right to move somewhere without the LVT burden. We are currently taxed on things we do actively, but LVT is close to being a tax on existing. Someone who retires to a smallholding to live off the land, as removed from society as he is able, is still subject to LVT.
I think that my conclusion is that the tax itself is not immoral, but the implementation of it could be. The blindingly obvious solution to the ‘poor widows in mansions‘ objection is to allow LVT to be rolled up and paid on death. Why not the same for non-widows unable to meet their obligations from cash-flow? Even our man on his smallholding is a beneficiary of the state which enforces his property rights. Further, LVT combined with a Citizens Income ensures that all who pay LVT are also recipients of some of the proceeds, even though they may not cover the whole LVT bill (and if I personally wish to own an ‘above average’ property, we should assume that it will not cover all of mine).
We might also consider the moral dilemma of a transition from one mode of taxation to another. LVT is about replacing some of the rent collected by banks in the form of interest, with a rent paid to the society which gives the land it’s value. Those rents to banks are a sunk cost for all who’ve bought their property already – especially (in materiality terms) those of my generation who bought in the current century. A moral tax can have an immoral impact if it is disproportionately disadvantageous to people who just happened to be born in the wrong decade. If I were burdened with the high income taxes as I accumulated the money to buy property, then the high private rents to my bank, and then the LVT on top. then I might reasonably question the morality of that.
* I often hear IHT called a wealth tax, but I don’t personally see it as one. The person with the wealth is dead. It’s an income tax on the beneficiaries – and, with allowances for spouses and children, I would tax it as income.
Old post, but anyway. Yes, it’s a challenge to your plan, and to many others I do believe, including myself sometimes. On the other hand, I find that very few do this anyway, except hippies who really do move out to the sticks/downsize in some manner. In fact, since property has become everyone’s favourite pasttime, “people” (i.e. my own circle) seem to be mortgaged and paying regular payments right up, and some beyond, retirement. Both from the longer terms of mortgages, and from MEWing; using their house equity to get new cars, refurbish, etc. etc..
In a hypothetical LVT-situation, I’d assume there’d be adaptations both on the market side and per individual, to accomodate long term planning. Maybe market values/rents would be lower in the equillibrium, in anticipation of people planning pauses in income in the long term. And financial/”insurance” products would be developed to adress said pauses.
And also, payment flexibility on the part of the taxing authority. Although I’d be careful with unemployment deferment and stuff like that, for obvious reasons.
Maybe there’s a case for also setting rates on rental values to leave a certain equity in the land, and keeping it predictable. Say that 80% of the value is taxed away, leaving a few years of payments in the residual land value so there’s always something to fall back on for owners/security for the taxing authority irrespective of the condition of improvements.
As for the consequences of a tax shift, ofcourse it’s a big problem. Maybe he best one can do is to introduce it in a way that keeps nominal values stable, helped by the reaction from reducing non-land taxes. For the “moral” side of it, back to the changing of people’s plans above, well, it’s tough, but the morality of the current setup is so wretched it’s a trade-off I’d be willing to make. Which doesn’t mean voters and pundits would agree with me ofcourse.
“Someone who retires to a smallholding to live off the land, as removed from society as he is able, is still subject to LVT.”
That’s a traditional Killer Argument, Not.
Firstly, if this person really moves to a small home on a small bit of farmland, his annual tax bill will be a couple of thousand quid at most.
Secondly, this amount would fall under any sensible personal allowance/Citizen’s Income.
Thirdly, how many such people are there in the UK? A few hundred? A couple of thousand? It is madness to try and choose such a tiny minority and then build a tax system around their particular desires.
With respect to your first and third points, I entirely agree – The ‘scenario’ was intended to illustrate the principle.. a tax on existing.. the fact that LVT takes away the ‘right’ to opt-out of the tax system (not that we necessarily have that now).
I think it’s always valid to consider how a policy might impact people at various extremes. Where policy makers seem to struggle is in making peace with the consequences.. rather, they (as per your point) choose the madness option of building the system around them.
You second point, in all practical senses, is the one that deals with the theoretical problem (in my mind at least) of the ‘odd person an a smallholding’ (who may, or may not, be poor and a widow).