Is there an award for economically illiterate ideas?

westernpromise

SDLT is a classic Laffer curve tax. Increasing it has trashed transaction levels so it's highly likely that reducing it would increase them. One can split hairs till blue in the face about whether you agree it's a transaction tax or not but when it's triggered by transactions and multiplies the cost by thousands of percent, we can all I would think agree that it discourages transactions.

Taxes levied at the level of SDLT are normally reserved for things considered unequivocally bad, such as smoking. It has come to something when to relocate yourself from one house of value X to another of value X can land you with a six-figure tax bill.

westernpromise

SouthLondonUser wrote: »

Just to make an example, in many US states there is an annual property tax on the value of your property. Not in the UK (no, council tax is not the same thing). In the US capital gains above a certain threshold on your main residence are taxable. Not in the UK.

And in the US, mortgage payments are tax deductible. Not in the UK.

SouthLondonUser

westernpromise wrote: »

SDLT is a classic Laffer curve tax. Increasing it has trashed transaction levels so it's highly likely that reducing it would increase them.

See, economics is bull**** and not a science because its 'theories' are not subject to rigorous scientific scrutiny. In real scientific subjects, when a theory is proposed, it gets scrutinised with a rigour unknown to economists. If economists had to prove their 'theories' the way physicists or biologists or chemists do, they'd all be fired! And no, I am not a scientist, in case any one is wondering.

Sure, there is little point in working at all if the government is going to tax me at a 95% tax rate. However, how much more will people work if the government reduces taxes from x% to y%? The truth is, no one can know.

Similarly, how many more transactions will there be if stamp duty were abolished? Again, no one can know for sure. If you beg to differ and have any specific insight on how to quantify this effect and why, I'd be most interested.

westernpromise

Economics is not classified as a science not because it has chosen to avoid "rigorous scientific scrutiny" but because its claims and theories usually aren't testable; you can't have two economically identical models into one of which you introduce one variable to see what then happens.

This isn't a new insight nor even an especially valuable one. Cambridge University classifies Economics as an Arts subject and always has. A number of propositions from economics make obvious sense, however. If you tax someone at 100% of their earnings they will not bother working and you'll collect no tax; likewise if you tax them at 0% you'll collect no tax. It follows that at some point between the two extremes you'll collect an optimal amount, which is or should be an uncontroversial insight.

As raising the rate of SDLT appears to have had a minimal effect on revenue raised but has reduced transactions by 60 or 70% versus previous levels, we may surmise that we are at the top of the curve. We don't know for sure whether lower SDLT would create more transactions but,

1/ it is generally understood that taxing transactions discourages them and
2/ there should always be a presumption that the state must justify why taxes should exist or be as high as they are; it's not the state's money so its goal should be take as little as possible.

It's either an objective to have more owner-occupiers or it's not. Taxing the process of becoming one suggests it's not.

Malthusian

SouthLondonUser wrote: »

See, economics is bull**** and not a science because its 'theories' are not subject to rigorous scientific scrutiny. In real scientific subjects, when a theory is proposed, it gets scrutinised with a rigour unknown to economists. If economists had to prove their 'theories' the way physicists or biologists or chemists do, they'd all be fired! And no, I am not a scientist, in case any one is wondering.

Clearly not or you'd know that there are numerous issues on which physical scientists are at loggerheads, from the Copenhagen interpretation of quantum mechanics vs many-worlds theory downwards. And these are issues which in theory can be objectively proved one way or the other.

Sure, there is little point in working at all if the government is going to tax me at a 95% tax rate. However, how much more will people work if the government reduces taxes from x% to y%? The truth is, no one can know.

If I throw a ball up in the air it is impossible to compute with 100% accuracy where it will land, but it doesn't mean the theory of gravity is a load of rubbish. What we do know is that people will work more if the government reduces taxes, and this is still a useful model of the world. It may sound like the bleeding obvious but millions of human beings have been killed by politicians who believed the opposite, so clearly it's not obvious enough.

SouthLondonUser

westernpromise wrote: »

If you tax someone at 100% of their earnings they will not bother working and you'll collect no tax; likewise if you tax them at 0% you'll collect no tax. It follows that at some point between the two extremes you'll collect an optimal amount, which is or should be an uncontroversial insight.

Like I said, this is self-evident. What is not is estimating with any degree of accuracy by how much the activity taxed (house purchase, work, etc) changes as the tax changes.

westernpromise wrote: »

As raising the rate of SDLT appears to have had a minimal effect on revenue raised but has reduced transactions by 60 or 70% versus previous levels,

Really? By this much? How was this measured, exactly? And, most of all, how can one be sure of the impact of each of the many, many factors which contribute to the decision of whether to buy a property or not? Even if we simply want to compare two years in which SDLT was different, house prices, to name just one, are unlikely to have been the same in those two years. Were there fewer transactions because house prices have gone up too much? Because new tax rules have made buy-to-let less advantageous? Or only because SDLT has changed?

westernpromise wrote: »

It's either an objective to have more owner-occupiers or it's not. Taxing the process of becoming one suggests it's not.

Don't forget that SDLT applies to any purchase, whether the buyers are honest, law-abiding families who buy their one and only family home with their hard-earned money, or whether some dodgy character is engaging in speculation and money laundering. In fact, the 3% additional SDLT does not apply to main homes.

tara747

wotsthat wrote: »

I'd get rid of SDLT, wouldn't bother with a land value tax and would reduce income tax as well. You or I (depending on our circumstances) might gain or lose but, ultimately, SDLT/ property tax/ income tax/ VAT etc are different vehicles for raising taxes on consumption.

I expect Mr Hammond has other ideas involving complicated methods of taxing anything that moves so the government can continue overspending.

And what government spending would you cut, to make up for the hole that would leave in the public finances?

antrobus wrote: »

Does that mean to say that you regard property and land as an 'unproductive asset'? And how is productivity taxed?

Yes, I regard property and land as an unproductive asset.


Productivity is taxed by taxing income from work and other forms of economic activity.

SouthLondonUser

Malthusian wrote: »

Clearly not or you'd know that there are numerous issues on which physical scientists are at loggerheads, from the Copenhagen interpretation of quantum mechanics vs many-worlds theory downwards. And these are issues which in theory can be objectively proved one way or the other.

You can also mention that mathematical axioms are taken as an act of faith and cannot be proven. Still, the point stands that economics is just a set of theories which do not withstand the scrutiny of facts. The mere fact that there is practically no consensus on anything in economics shows the subject is just guff. In every field there will be debate and disagreement on the most advanced topics, but there will also be a body of knowledge agreed on, and a very measurable progress over the years. Medicine cannot cure every disease, medical doctors can and do get diagnoses wrong, medical doctors can and do disagree on diagnoses, but, equally, there are conditions which were not treatable decades ago and which are now; there are agreed protocols on how to treat some basic conditions, etc.

Physics does not have the answer to every question, but it can answer a lot of questions with an extreme level of precision and accuracy.

AFAIK nothing even remotely similar applies to economics.

What do economists agree on? Ask 10 economists what happens when a central bank raises interest rates, and you'll get 12 different answers...

Malthusian wrote: »

If I throw a ball up in the air it is impossible to compute with 100% accuracy where it will land, but it doesn't mean the theory of gravity is a load of rubbish.

I really, really, really struggle to see how this comparison is of any relevance. The theory of gravity does withstand the scrutiny of facts. It is an accepted theory because it was proven as per the scientific method. Tell me, which economic theory has been successfully proven and verified with the rigour of the scientific method?
Where the ball will land will depend on a number of factors, e.g. the wind, the force you applied, the direction in which you threw it, etc.

Malthusian wrote: »

What we do know is that people will work more if the government reduces taxes, and this is still a useful model of the world.

Up to a point. Some workers may decide they'd rather work more if they are taxed less. This may work for a taxi driver who is in control of his hours; it may partially work for employees who can demand to work overtime; but is utterly false for the many employees who do not get paid any overtime, for example.

Malthusian wrote: »

It may sound like the bleeding obvious but millions of human beings have been killed by politicians who believed the opposite, so clearly it's not obvious enough.

It is of course self-evident that taxing people at 5% is a greater incentive for them to work than taxing them at 95%. But in the real world, in the UK now, we do not have these extremes; how to measure, with any degree of accuracy that does not make the whole exercise utterly pointless, by how much an activity increases when the taxes on this activity decrease? I do not think it is possible. Of course I may be wrong, in which case I am all ears.

This is very typical of economists: taking banal concepts which are self-evident to any ordinary individual with a modicum of common sense, trying to formalise them in formulae, but utterly failing to produce any actionable result...

GreatApe

it should not just be a question of raising taxes as taxes often have impacts elsewhere.

The transaction tax known as stamp duty also has an impact on new build rates and house prices. Put the transaction tax up too far, imagine a 50% flat transaction tax it would result in lower prices and new build rates would crash toward zero.

We know the transaction tax has gone up so prices and new build rates will be lower, the amount we can not quantify easily but the direction is clear. So removing or decreasing the transaction tax would likely result in higher prices and higher build rates which is a good thing.

MyOnlyPost

SouthLondonUser wrote: »

As much as I would have loved not to pay stamp duty on my property, I disagree with you.
Properties are easy to tax because they cannot be hidden away; and, well, the money to pay for the NHS and all the other services we hold dear must come from somewhere.
Zero stamp duty would not be a good idea for two reasons: it would not be fair because it would reduce tax revenues too much, benefiting those who can afford to buy a property, to the detriment of those who cannot; and it would risk exacerbating housing bubbles, because one of the impacts of transaction costs like stamp duty is to disincentive excessive short-termism. In other words, it terrifies me to think how much worse the housing bubble would have become without stamp duty.

It's not often someone disagrees with me so politely, thank you.

I appreciate taxation is necessary, I just don't agree with SDLT. In some areas of the country it is virtually impossible to buy a house without paying it and yet in other areas houses are plentiful below the threshhold, so it is as much a tax on where you live as it is on the actual transaction.

I am not a big fan of indirect taxation anyway, it always has a higher burden on the poorest in society in terms of percentage of income. However because it is widely acknowledged that indirect taxation cannot be avoided or evaded it is what we are largely stuck with.