March 03, 2007

Lib Dems' bonkers tax plans

At the last election, the Lib Dems wanted to scrap Council Tax in favour of a local income tax. There’s some sense behind this – many people, often retired, live in expensive houses but don’t have enormous incomes. Council tax in its present form ignores income and ability to pay, charging people purely on the value of their home.

Well now, they’ve come up with another proposal which sounds completely contradictory. They want to charge a Wealth Tax on people with homes worth more than £1m.

It’s a nice idea. It sounds like a tax against those nasty rich people. But it’s based on the same fallacy that makes council tax so stupid. It simply isn’t true that people in expensive houses are always rich. Many older people have lived in one house for more than half a century – and house price inflation has pushed their house value up to silly levels. That doesn’t mean they have a large income, and certainly doesn’t mean they’re able to pay – or deserving of – a wealth tax.

Surely a wealth tax on incomes would be far more sensible. And far less hypocritical.

- One comment Not publicly viewable

  1. Council taxes are good because the money needs to come somewhere and this way it discourages house price inflation instead of work; indeed it may be a good idea to increase them. As for your point about poor old grannies being forced to pay massive taxes with their small incomes, I don’t think that it really matter. As either:

    1) There has been no unexpected house price inflation. In which case she is paying as much council tax today as she expected to pay when she moved in 20 years ago. She would have taken into account the cost of future council taxes when she moved in, so there is no problem its just another cost to the house.
    2) There has been unexpected house price inflation. In this case then she would have to be paying more taxes then she would have previously expected to. However her house would be worth more also. Indeed the system is such that the gain in wealth due to an increased house price would be more then the lose in wealth due to higher taxes. Therefore this granny is quite lucky as she is now richer then before.

    03 Mar 2007, 13:46

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