Thursday, 8 March 2012
Wealth tax is typical Llib Dem insanity
Also though, it is the economic illiteracy of the Lib Dems that is on annoying. They love the 50% tax rate and don't want to get rid of it. Instead the moronic Vince Cable has fallen in love with his idea of a Mansion tax - the one he looked so stupid over at the last election. Determined to get it through they want some kind of deal with the Tories.
The illiteracy is that you can't tax capital. Taxing 'wealth' as they call it only makes it disappear. The Land Tax concept hits the same point. Its a simple example:
I earn a million pounds and pay 50% in income tax today. With the remaining £500,000 I buy a house, which now attracts a large council 'mansion' tax, say £5,000 a year. After 10 years, I have been taxed for 10% of my investment. Now that our property bubble is over, maybe there is no or only a nominal increase in house prices. I am worse off. With inflation, this affect is even more damaging as the taxes will rise and the value of money will shrink and if house prices stay stable I will have had my equity eroded away. Now £500k does not buy you a very nice house in London, maybe a half decent flat. But there will be no point to this.
You just can't tax wealth, only income. If you tax wealth then it will all disappear over time and then you have nothing left to tax (or its value drops below the threshold where the tax is set) - you literally erode away long-term value in return for taxes today. On income or spending people retain control over their spending and can try to save or keep their heads above water. Even capital gains is on income.Once you move to pure wealth taxes the game is up as it becomes so hard to store any value without the Government taking a chunk of already taxed income - it is a disastrous policy.
Of course, this won't happen as people are not stupid. Instead they won't buy houses that face this wealth tax. They will rent from Special Purpose Vehicles or find some other way of getting around the taxes. Ultimately they will store their wealth offshore away from the wealth taxing state. The stae will rapidly become poorer as capital flees. This is not sensible policy, its madness.