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« So do the Lib Cons have a mandate in Scotland? | Main | The inevitable outcome of that x-factor election »

May 13, 2010

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Whilst I agree absolutely with the sentiment of Greg Philo's letter, with regard to this wealth being held in property values - how does he suppose this can be captured by the state to pay for the debt incurred?

One way would be to confiscate the property and sell it on the market. The original owners couldn't buy it back (they obviously no longer have their wealth) so it would really have to be sold to foreign investors. This doesn't sound politically feasible (partly because such things are never discussed of course).

The other way that is initially more imaginable is to tax this property wealth. However, if owning property attracts a tax, the value of the property falls (*). The full value of this wealth is therefore not available for the government to capture - and any attempt to do so would reduce the nominal value of this supposed £9Tr wealth.

Taxing wealth would, I believe, provide a far superior "steady state" situation for us all. However the dynamics of moving from a situation where we tax income to one where we tax wealth are pretty uncertain. Interestingly, under Calman we'd have responsibility for land taxes, but given the trumpetting the council tax freeze has been given, I don't see property taxes being prioritised in the near future.

(*)[e.g. suppose a house provides a stream of "housing services benefits" worth £1000 per year to the owner, who discounts this income stream at 0.5%p.a. The value of the house to the owner will therefore be £200,000. Suppose this is also the market value of the house and the government proposes a wealth tax of 0.1%p.a. i.e. £200 per year in this case. The benefit stream would then only be £800p.a. and the market value of the house would be £160,000.]

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