Left Foot Forward sets out five reasons progressives should support Ed Miliband's proposed 'mansion tax'.
The most important (and the most substantial) part of Ed Miliband’s speech in Bedford today was his pledge to reintroduce the 10p tax rate and fund it through a mansion tax.
Not only does it answer the deputy prime minister’s critics in that it provides some substance to Labour’s recent ‘one nation’ sloganeering, it also differentiates the Labour Party from the administration of Gordon Brown, whose scrapping of the 10p tax rate has been used against Ed Miliband’s party repeatedly since 2010 (and was used again yesterday).
Why should progressives support a mansion tax, though?
1. It would only target the very rich; it would only tax houses worth over £2million pounds. Many if not most young people will never get on the property ladder, let along own a house worth more than £2million pounds. Introducing a mansion tax would redistribute money from a small minority to 25 million working people.
2. It would offer less room for tax avoidance than other forms of taxation. In our globalised economy it is becoming easier to escape paying a fair share of tax. While it may be relatively easy for a person with the knowledge to move money into an offshore account, it’s more difficult to conceal a tangible piece of real estate.
3. It would raise significant sums for a future Labour treasury at a time when the nation’s finances are likely to be tight. Should Labour win power in 2015, it will take time to repair the damage done to the economy by the coalition. Money will be tight for several years even if the economy does begin to pick up again.
4. Spiraling property values make an unfairly low contribution to taxation receipts. Current taxes on property were introduced in easier times. As yesterday’s Office for National Statistics report showed, times have changed, and real incomes have been in decline for almost half a decade now. At the same time those who own property have seen a windfall. Our tax system should reflect that.
5. It is deeply unconservative. It taxes wealth that is often unearned and it returns money to working people.
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30 Responses to “Five reasons progressives should support Ed’s mansion tax”
Mr Reasonable
Ah, nice to see the Tory trollers are back after their weekend break swigging Bolly and urinating on the homeless down on the embankment. Milton Friedman rules, yah?
hobson
Interesting post. I suggest you read Left Foot Forward’s analysis of the impact of cutting income tax to learn why progressives should oppose this measure. See: https://www.leftfootforward.org/images/2010/03/Think-Again-Nick-FINAL.pdf
The paper looks at the Lib Dem’s plans to reduce income tax from 20p to 0p at the lower end of the income scale – not the same as Labour’s proposal to reduce it from 20p to 10p but similar.
It makes the following points:”it excludes the poorest from help altogether. This is because it can only benefit those earning enough to pay tax. Yet many individuals and households in the UK have annual income less than the income tax threshold of £6,475.” (Yes, at the time the threshold was £6,475 – the argument is even more valid today that the threshold is £8,105, soon to be £9,440).
The Left Foot Forward report also points out: “Another potential issue with the Lib Dem proposal is that, because the measure helps people through the tax system (which is individualised), richer households with two earners will gain more than poorer households with one or no earners.” Surely this is also true of Labour’s plan?
It continues: “Because the policy would increase the incomes of those in the middle by more
(proportionate to household income) than it would for those at the bottom, the result is
that low-income households would fall behind relative to those in the middle.” And it adds: “In welfare terms, the gap between the bottom and the middle is a very significant
inequality (arguably more significant than that between middle and top), since the ability
of the poorest to participate in society is in important ways determined by how close or
distant their household income is from those in the middle”. The good news is that Labour plans to lower the threshold for the top (40p) tax rate, so that the richest don’t benefit from the new 10p rate. The bad news is that middle earners don’t pay the 40p rate so this won’t affect them, and as Left Foot Forward explains, increasing the gap between the poorest and the middle has a damaging effect on society.
Left Foot Forward does set out measures progressives should support. It states: “An even more progressive way to cut taxes would be to give larger tax cuts to those on lower incomes than to those on higher incomes. Thankfully, there is a mechanism that already does this: tax credits.” Tax credits, not a new 10p rate.
Also “cuts in indirect taxation should be considered as another fairer alternative – for example, cuts in VAT.” And “Another fairer alternative would be to spend these resources on benefits or public services; as the analysis above showed, both of these can be of particular benefit to lowincome households.”
But sadly, cutting income tax at the bottom end of the income scale is not progressive at all, according to this blog.
Hope that helps.
hobson
An alternative view comes from the Institute for Fiscal Studies, actually a pretty right-wing think tank but one that Labour has quoted endlessly in the debate about capping benefits and tax credits.
It says: “A 10p tax rate would reduce taxes for those on low incomes and strengthen their work incentives. A far simpler and more sensible way of achieving these aims would be to spend the same amount of money on increasing the personal allowance – a policy on which the current government has already spent £9 billion a year. This would have virtually the same impact on individuals’ tax payments (see figure below), be slightly more progressive, take some people out of income tax altogether and avoid the complexity involved in introducing a new income tax rate. An even better alternative, which would help those who already pay no income tax because their incomes are below the personal allowance but do pay employee National Insurance Contributions (from April, there will be 1 million such people earning between £7,748 and £9,440), would be to increase the point at which individuals start paying employee National Insurance Contributions.”
http://www.ifs.org.uk/publications/6606
blarg1987
Growth is created by demand, at the moment their is no growth as their is no demand. Economic history has shown that demand is increased when the state sets a policy, be it build more houses, land a man on the moon etc. This creates a demand which the private sector invests in i.e. houses need to be built so we need to employ builders. it also encourages innovation, i.e. houses need to be more energy efficent so will use new materials.
This will fuel growth as no one is willing to take risk unless their is a return, since their is no return nd the risks are to high business is unwilling to invest.
Mr Reasonable
Honestly, Edward! “Nazi thug”? Brown? Really?
(Oh, by the way, the banks are responsible. Even the Republicans admit this.)