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Mansion Tax - why it's a bad idea

A 'mansion tax' would be unfair, impractical to implement, and would bite hands that feed us.

What's the difference between a hoodie who raids a shop to take a TV because he doesn't have enough money to buy one for himself, and a politician who advocates taking someone else's money because it doesn't affect him or most people who vote for him?

This might sound a ridiculous comparison, one party being irresponsible, and the other believing they're taking responsibility for the well-being of society, but I'm suggesting in reality there are some unhealthy similarities between their attitudes. "It doesn't matter if I'm not the one losing out - it will only affect a small number of people who can probably afford it". The hoodie grabs TVs they can't pay for, the latter is planning to grab money from people who own larger houses than them. Both do it because it's easy and their peers encourage them to do it. It makes them popular amongst people they are trying to impress, and it only affects a small number of people - none of whom are them.

'I'm alright Jack' apparently works for politicians who believe in fairness.... "lets tax the rich because they got us into this mess". "Let's make them pay their fair share to dig us out of this mess (that they got us into)". "Let them take their fair share of the pain".

First a quick lesson in mathematics... something neither hoodies nor politicians seem to have the most basic grasp of. If something is big, then a percentage of it will be bigger than the same percentage applied to something smaller. It's called 'proportionality' or 'fairness'. 10% of £100 is ten times less than 10% of £1,000. So a blanket tax at a fixed percentage is innately fair because those with more pay proportionately more than those with less. What is not fair is a rising percentage, or randomly applied bands, according to how wealthy you are. Guess what - the percentage automatically adjusts for this.

So why a 'mansion tax' on properties worth more than £2m (or even £1m as I saw in one report)? If they want to tax fairly, tax all properties the same percentage. 1% of the value of a small house affects it's owner in the same proportion as 1% of a £10m house. And since only 80,000 people own properties in the UK worth over £1m, then an additional 20m houses could be included in this tax - not that I'm advocating more tax - I believe the chancellor is right that the priority is to cut excessive expenditure, although this does mean that those who rely on state handouts will receive less. No-one loses sleep over lifestyle benefits scroungers getting their cheques withheld, but the old, the infirm and all kids do need to be ring-fenced.

So the first point is if you're thinking of inventing a tax, at least make it simple and fair for all citizens, not just hurting a few you think no-one will care about. And an across-the-board property tax is not going to get a party re-elected, so it's probably a non-starter.

So what else is wrong with it? Let's consider who lives in 'Mansions'.
  • Old money: People who have inherited it. Since the income that originally bought it has probably disappeared long ago, they're probably poor as church mice and struggling to pay for the upkeep. Many will simply have to sell up if they're hit with a big tax bill.
  • Successful entrepreneurs: Typically they risked everything to create companies and employment for many more people - both of whom (the companies and the people), in addition to themselves, paid tax over the years - that's personal tax, employee and employer taxes, and company taxes, all thanks to the same person. They achieved their wealth because they took risks, and they were taxed at every point along the way. Britain needs as many of these people as possible. Importantly we need to keep them in the UK not only to continue to risk their own money in tomorrow's businesses (banks won't), but also so they can continue to buy lots of stuff - which keeps a legion of small businesses in business (gardeners, house cleaners, nannies, Waitrose etc).
  • Top employees: Senior business executives, top professionals like lawyers, medics and sports stars. And yes, even entertainers/celebs. These people worked harder than everyone else who compete for their jobs. The only reason they are paid a lot is because employment is a competitive game and the best are attracted by high salaries. We also need as many of these people as possible.
  • The final type are gamblers: They did nothing for the country other than (presumably) pay taxes on their gains (if they reported them). They play with odds. Sometimes they have huge results with their bets, often using other people's money so their personal risk was about reputation only. Whether they worked for Ladbrokes or Lehman's, they took punts or made books for others to take punts. The 'credit crunch' is of their making. They borrowed too much and now they are refusing to lend. Their business is numbers. They make nothing physical. They move money around. If they disappeared tomorrow and left behind a big computer that was programmed to have one global currency, one taxation system for all humans and one interest rate, we'd manage well enough without them... I think... maybe we'd need a few of them to programme the computer with insurance stuff and lending risk assessments, but the idea is that we could train computers to make all the judgement calls which would, ideally, work without needing to be paid a bonus!
I would hope that the majority of fair-minded people in the land would have a different attitude towards the first three types of fat cats, compared with the last. But when it comes to who lives in which mansion and what's it worth, I am hoping the government will simply abandon the Nick/Vince idea, not because it will be unfair (unless they tax everyone who owns a home) but because it will simply be unworkable. Here are the possible issues:

The ownership of a property may not be clear-cut. In principal mortgage companies may actually own chunks of many.

What's it worth? Some may not have changed hands for decades. The original purchase price will be a poor valuation tool. Some (mine included) will have been bought at the peak of the market (2006). It's value at any point in time depends on who is looking for what, when and of course, where. One side of a street may be more desirable than another. A property bought many years ago might have been allowed to go into serious dilapidation and be worth only the land it sits on. Who's word are they going to take? Local estate agents will be the only people who have any idea, and many of them live in mansions... The amount of time and effort the state would have to invest in agreeing or imposing a value for each property (especially in London where many apartments, let alone mansions are worth upwards of £2m) would probably end up costing the government far more than it ever collects. And the value of every property would need to be re-assessed every year.

And then there's the political implications. There are only 80,000 owners of properties worth more than £2m in the UK (not that anyone really knows for the reasons above). But their influence on the way people vote will be huge. They are the captains of industry, the media kings, the top writers and broadcasters, the celebrities whom our young idolise, and the party donors, not to mention most of the house of Lords... need I say more?

It's a bad idea dreamed up by hoodie politicians who shout about the rich 'not taking their fair share of the pain' without understanding GCSE maths, and with a desire to bite the hand that feeds them. Sure, nobody's going to cry if a few rich people get felt by the taxman, but it's not that simple, and it still needs to be fair - otherwise lots of rich people will say bye bye and spend the rest of their days where the sun shines a bit. And we need all the people we can find who are prepared to take risks AND WHO CREATE JOBS. Don't punish them for their success because the less well off didn't take the same risks. Jealousy is not only ugly, it's potentially destructive.

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