Thursday, 24 September 2009

Property Tax - The Price of Folly

The Three Card Trick

This is guest post by The Cynical Tendency

No apologies for dealing with this topic again. This is not about the philosophy, morality, or justice of differing tax systems. It is about the brutal realities of the now and immediate future. It is an issue that is not going to go away because of the fiscal situation the government has created for itself, and a network of problems that cannot be easily solved because essentially the horse has bolted taking the jockey with it. At present there is a major debate about how much is to be cut from government expenditures, by what means, and in which services in the public sector. A great many promises have been made by all parties that simply cannot be met without major adjustments.

What is being consistently ignored, because they do not fully understand it, are the issues about revenue, how much can be raised, by what means, and who from. A key feature is that few people realise by how much the tax base has atrophied in recent years in relation to commitments. There is almost too much to explain. To start with the young, if you keep them all at school longer, and then require up to a half to attend university to the age of 21 or more, and demand time out for training almost all the rest, then many fewer are paying much in the way of tax, and moreover greatly add to costs. If as a result of this many are heavily in debt in their early 20’s, then this will impact on their spending, and all the indirect and other taxes involved, and on their decisions on lifestyle.

At the other end of the age scale, early retirement has become a feature of modern life, notably in the public sector, and either in unfunded pension schemes, or in funded ones that are now seriously in deficit. Many of these people do not feature in the unemployment statistics, but even those with better pensions, the minority, will not be paying as much in tax, or spending as much on taxable goods as those in work. As for their savings, many seek out tax free options, and a good many have been inveigled into financial products that are claimed to reduce liability because they have offshore features. Many of those who invested savings recently in the Isle of Man will be paying even less, as their savings seem to have been lost.

Those that did retain savings for income in the UK have now seen major cuts in their investment income, and their tax liability and spending power. Beyond all this there has to be a possibility that one way or another, pensions will have to be reduced or at least capped for the foreseeable future and it is likely that more stealth taxes on pensions could be needed to reduce the burdens. Many of the very old have now been virtually stripped of most of their savings, either by “care” or property rackets run by close contacts and friends of our politicians.

Amongst the working population the scenario is much worse. At one time access to and use of tax havens and related financial schemes and products was restricted to a small and select minority. Over the last decade this has been developed into a major service sector dedicated to tax avoidance and often connected tax evasion. It has now reached out, if not to the toiling masses, then at least to anyone with the wit or ability to manage their funds, income, and assets by their own decision.

A jobbing builder down the street who does lofts and kitchens etc. but nothing big registers his vehicles in a tax haven and conducts his business through one. He does not employ anyone but makes use of a select group of self-employed craftsmen, who I suspect do not pay much tax at all. When I buy goods by phone or on the net, it seems that arrangements for billing and delivery are such to either eliminate or hugely reduce tax payments. Earwigging travellers on their mobile phones on the train tells me that many “suits” in middling jobs have complicated arrangements on and offshore for this and that. Tax avoidance is no longer the preserve of the bosses, it has become a feature and a “right” of the middle classes, broadly defined.

Our local High Street etc. is full of offices of banks, building societies, and travel agents etc. all of which can move handle and move money easily and readily. Yet in the back streets are a handful of “internet facilities” with a little payment office for transmitting funds here and there. There are rarely any people using the computers but often a little queue of men from other shores holding wads of cash. In the last decade many of these men have moved into rented accommodation, and I believe are entitled to housing benefit. The owners of very many of these properties have accounts for transmitting funds abroad, beyond the reach of British taxes. The idea that inward migrants will pay lots of clear tax with few commitments is substantially a fiction. Many are low paid, many do not figure in the financial statements, and morever those in cultures that demand strong family ties often bring over their aged and infirm, at least those in our vicinity do.

Then there are the NEET’s, Not In Education Employment Or Training class of youngsters who may now number up to million, who knows? They have their own tax free zone and where does their money comes from and go to? Last but not least are the several areas of criminal activity, some with apparently legitimate fronts, but which have major funds and assets, often abroad, untouched by any tax liability. Nobody knows how much may be involved here, but the figures are likely to be very large indeed.

You may have noticed, I have not mentioned the very rich, the governing classes, or the magnates of finance and commerce. I suspect that they will be taking every possible advantage to minimise their personal taxes. They are certainly a major factor, but a greater one in creating the path that so many now are following. Nor will I go into all the fiddles, VAT, benefits, etc. off balance sheet arrangements, all yielding incomes and assets to many all of which are untouched by tax.

So, if the government cannot now get at the incomes of so many, if consumer tax raising in the UK is steadily being eroded by outside sourcing, if in creating a greater number of “clients” the government is hugely reducing its tax base, who is left to pay? Those that are will not be able to stand the full price of the financial folly of the last decade from either their incomes or spending, and these in any case are the substantial part of the people who actually vote. In a worst case scenario this is the stuff of revolution, as in 1381, whether it is a property or a poll tax and many in other years and places since. When regimes fail to conserve and balance income and expenditure then they revert to the historical default of property taxes (in regimes with servile or bound labour poll taxes are a form of property tax) that cascade down the classes one way or another and can reach a point where it all breaks down, often with violence.

What is left, that cannot be moved abroad, that you know where it is, and can have a reasonable estimate of its worth and potential for tax? It is physical property, and that is why Property Taxes on an altogether different scale will be part of the struggle and anguish in the coming decades as the government seeks out funds. Vincent Cable’s tentative suggestion of a 0.5 figure on homes over £1 million in value is only the first toe in the ocean. My guess is we could eventually be looking at much higher levels on all property depending on conditions, vital to cover the ongoing deterioration in the fiscal position.

It is within my personal experience that until the 1960’s the then Schedule “A” tax applied to domestic owner occupied properties. On the basis of the kind of property I owned, a modest semi-detached without garage, that tax together with the council rates, also a property tax, the total annual bill ran to about 10% of my gross annual income and they amounted to 4% of the value of the property. So Vince Cable’s modest proposal to tax property asset millionaires is chicken feed.

The Schedule “A” tax on owner occupied domestic property was abolished as a means of encouraging home ownership and for the outgoing unpopular high spending Conservative Government to buy badly needed votes. In those days the whole shape and impact of taxation was very different, so it is very difficult to compare then from now. All I do know was that as a young family with children and an income slightly above the average, we could not afford a car, the housekeeping was very tight, we had little to spend, we hired the TV, and holidays were out of the question. So much for the “Swinging Sixties”.

The past is coming back to haunt us, and the bill will be in the post.

12 comments:

bofl said...

it's quite simple.........
the govt have spunked £trillions in ruining the country.....they have no understanding of finance because they personally have NEVER taken risks and worked for themselves.
they are happy to be parasites.

the country is bankrupt.interest is mounting daily.someone has to pay.......

guess who?

of course.the proles........

mark my words.........the uk will NEVER recover from the present malaise. this is only the start!

Ampers said...

I read somewhere that 52% rely on the government, in one way or the other - will these people really vote for Christmas?

Old Holborn said...

Even the East Germans did.

Eventually

Jim said...

This goes to what I said earlier on another thread. As a tax payer, I am expected to pay money into a Government who in turn spends that money on things that I have no wish to spend that money on. The analogy being that I go to Tesco and hand over a hundred quid at the door and the trolley man walks around the store buying what he thinks I may or may not like or want, yet I have no say in what is bought, who it is bought from or at what price and I have to accept those items irrespective. The final irony being of course, that If I then want something of a better quality than the provided product, I can buy it, but I am not entitled to a refund for the sub standard tosh I have been sold; I have to pay for that too, even if I leave it in the trolley.

I can vote for a different trolley man every five years. The best ‘alternative’ that can be thought up is that we have referenda to decide what goes into the trolley. I can either have the choice of the ‘trolley man’ or I can have the amalgamated choice of 35 million shoppers.

What about this for a crazy idea? Sack the trolley man and let me decide what I want, when I want it and how much I am willing to pay for the product according to the free market?

The tax system is dying off. Some people are able to completely avoid income tax, one way or another, so why force others who cannot avoid it pay? Surely, the simplest way of dealing with this is to scrap all forms of National taxation. Privatise the entire public services and make everyone pay for every service they want?

Everything I want/need the private sector can, would or should provide me. So why tax the poorest workers to provide for me? On the other hand, why should I pay for things that I will never use and used for people I will never meet?

Those same people who avoid paying tax will still expect an army and a nuclear deterrent, yet they can more or less pay what tax I want, yet I have no choice. That cannot be moral, can it? If he can avoid tax for things that he wishes to be Paid for, then why I am I forced to pay tax for things I neither want or need? Where is the morality there?

Scrap ALL public services and end an immoral system.

Anonymous said...

I dont actually have much of a problem with land tax.

Colonial Hong Kong, about as libertarian as a government will be, was very low tax, even zero income tax I think - but with one exception, very high land tax. It was essentially run along Georgist lines.

Young people in this country are fucked up the ass after 10 years of ramping house price inflation which amounts to nothing more, nothing less, than intergenerational theft.

I do appreciate that the shitty planning laws have not helped, and the fact is that the G blew that bubble, but still.

Mandelson's Gerbil said...

Debt Collection Agencies love people who don't own a home.

They always write me the nicest letters.

I am still not paying those illegal bank charges, and they cannot threaten me with the loss of my home.

The state is exactly the same. Except they are outside of the law, as most lawmakers are.

Unless there is a rock solid way to have a house registered outside of government control, I will never get one. I know of many elderly people that have had their homes ripped off to pay for care homes that cost more than the Ritz but look more like the house in Rising Damp! £300 a week for a room and one sausage for lunch and fishfinger sandwiches for Tea! Better to spend the money now and have a brief retirement in a ditch!

Old Holborn said...

Gerbil

It's not the days in your life, it's the life in your days.

Margaux, Pall Mall Reds, Lurpak and fresh meat will negate any pension OH may have.

I'll sleep when I'm dead.

ClickMonster said...

To the list of reasons for falling taxes, you need to also add the relative ease fo emigration these days.

Not just because tax-payers can choose to reside in a more hospitable tax regime but also the financial cost of the brain drain that results.

Rogerborg said...

Nice plan, Jim, but the problem is that it's only you and I that hand over our £100 to the trolley-monkey. He pockets £80, gives us £30 each worth of shopping, and then hands out a £30 worth of booze and fags to the next two dole scrounging waste of DNA that knuckle-walk in.

All of us get a vote at the next election. So it's you and me versus DuWayne, Shanasta and the trolley monkey. Any party that tries to dry up the State money teat is in for a short and quickly reversed term in office.

Blas said...

On the plus side, property taxes will mean... far lower property prices. That IS a good thing.

The less attractive property is to speculators, the better for all.

Jim said...

That is exactly what I am saying Roger. The Goverment spends MY money irrespective of my wishes. Arguing about which "trolley man" is in power is not relevant to me, I would rather spend my income the way I want. If people would want to spend money on helping the lazy or buying Trident then that is their affair, not mine. Same for everything else, be it schools, hospitals and everything else.

Send me a list of what the local Government want to offer me, police, roads, refuse collection etc and a price tag. I get to tick what boxes I want, tally up the cost, write a cheque for that amount and it is either provided or the council is booted out.

You want welfare? You pay for it.
You want trident? You pay for it.
You want Royalty? You pay for it.
You want schools? You pay for it.
You want police? You pay for it.




Why is that simple concept too difficult to implement?

Anonymous said...

OH I think you are on the right lines here. I always remember the story about the bank robber who when asked why he kept robbing banks told the judge that that was where the money was.
Taxation is a bit like that. Window tax, etc etc and on it goes.
The bastards are running out of our money but are always thinking of how to spend more irrespective of the current clusterfuck the full extent of which is yet to unfold.
As far as your house is concerned,the postponed -suprise suprise -rates revaluation has got some nasty suprises in it. The valautions are going to squeeze out more value and the proposal is to change the bands to put pull in higher tax. That's before they start talking about a 'Schedule A' type annual tax. Interesting to see what Dave's lot will do about this.

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