Helping first-time buyers is noble, but movers need a stamp duty cut too, says SIMON LAMBERT… and perhaps the seller should pay
Incidence, incidence!
However, the general whining over on the left is that this won’t reduce house prices. So,? And?
Transactions taxes gum up a market, make it less liquid. That’s why they’re such bad taxes. Their deadweights are hugely high as compared to income, consumption or land taxes. They’re actually even worse than capital and corporate taxes in this manner.
So, get rid of bad transaction taxes, raise other less bad ones for a neutral overall stance and we’re better off just be changing how we tax, not the level of taxation.
Interesting factoid – the IFS has an old paper out there pointing out that stamp duty on shares, total revenue will rise upon its abolition such are the deadweights of transactions taxes. Another factoid – the EU insisted that a financial transactions tax would lower total revenues, such are the deadweights. I wouldn’t want to insist that this would be true of stamp duty on houses but it wouldn’t surprise me if that were the outcome as well.
Transactions taxes are bad taxes, we shouldn’t have them.
Whats the difference between a transaction tax and an consumption tax? If I buy a house and pay stamp duty how is that different from buying a car and paying VAT?
You paying VAT on a second hand car?
@Jim
VAT is not a consumption tax….. it is a tax on the Value Added in the supply chain of goods and services. In that sense it is a tax on business gross margins.
The clue is in the name.
It is also a really shit tax invented by a French Socialist and mandated by the EU as a condition of membership – which is all you need to know really.
“Transactions taxes gum up a market, make it less liquid. ”
Back to the HK experiment, the government has been cranking up stamp duties, special stamp duties and so on to dampen the hot mainland money coming in to property.
It has made the government a fuck ton of money, hasn’t dampened demand at the top end of the market as the hot money still needs to go somewhere. Meanwhile, the secondary housing market has died.
http://www.scmp.com/property/hong-kong-china/article/2059328/home-sales-hong-kongs-secondary-market-drop-21-year-low
http://eprints.lse.ac.uk/59637/1/Besley_Incidence%20transaction_2016.pdf
Shows that 60% of the incidence of stamp duty falls on the buyers.
Of course if you want to move from one house of the same value to another you pay 100% of it.
I have never understood why moving house is something that should be taxed so much. It is not a sign of wealth nor does it damage the environment (if you move house to have a shorter commute you help the environment).
“I have never understood why moving house is something that should be taxed so much.”
It’s more to do with how easy it is to tax. More than we would like to think, taxes fall on what can be taxed, rather than what should be taxed. It’s one reason why governments in the dim and distant past used to rely hugely on transaction taxes of various types.
It’s a large fixed transaction, that requires official approval to complete and lawyers to check. It’s a point at which people tend to have a lot of cash.
It’s a pretty evil tax.
Any tax-raising body wants to get as broad a tax base as possible so as to extract the maximum possible with the least amount of effort or pain to the pay. Transaction and consumption taxes are much easier to calculate and collect than income taxes. Property taxes are also easy. Wealth taxes are both complex to administer and narrow in scope. Hence the attraction to governments of something such as a Tobin tax. But they have to be careful not to damage the economy too much with these deadweight taxes, which is something they tend not to be very expert at assessing.
It should be easy to calculate income tax.
Or rather, it would be, if every income tax return had only one box on it.
For income.
“You paying VAT on a second hand car?”
Yes if you buy it from a dealer, you pay Vat on his margin. And anyway who said anything about second hand, I’m talking new. Or indeed anything else you buy that has Vat on, handing over the money is a transaction, ergo Vat is a transaction tax. I have to charge vat on all my sales, and pay vat on all my purchases, they’re all transactions so someone is paying each time a transaction occurs.
“VAT is not a consumption tax….. it is a tax on the Value Added in the supply chain of goods and services. In that sense it is a tax on business gross margins”
And none of the incidence of VAT is on the consumer then? If VAT were removed would prices paid by consumers rise, fall or remain the same?
And regardless of the basis for calculating a tax, the trigger point for it being imposed is to some extent what it is a tax on. If there was a tax that was calculated on the number of windows in your house, but it was only imposed every time you purchased a car, what is that a tax on?
@Oblong
“It’s more to do with how easy it is to tax. ”
I wouldn’t mind if they said that, a bit like a mugger saying, “I mug old women because they cannot punch very hard”
Anon,
Or “why do you rob banks?”, “well that’s were the money is!”
@Jim
“And none of the incidence of VAT is on the consumer then? If VAT were removed would prices paid by consumers rise, fall or remain the same?”
As always, it depends on the elasticity of the demand and supply and the power in the supply chain. Some products, say iPhones, would probably remain at the same price. Others, such as FMCG goods, might fall in price as competitive pressures force supermarkets to drop prices by the VAT.
And the savings in compliance costs and fraud loss would be HUGE.
As I said – a shit French tax imposed by the EU.
Jim – you pay VAT on the dealers margin, not the car
Transaction taxes are levied on transactions regardless of who the buyer/seller are.
VAT is only charged where the seller is VAT registered and what is being sold is subject to VAT.
A second hand car dealer (usually) only charges VAT on their profit from selling the car, not on the value of the car.
The difference is that the car is only taxed once being the VAT when if was new. Whereas with stamp duty, the house is continually taxed over and over again – or rather the house is never taxed, the transaction is, but the amount of tax due is calculated with reference to the value of the house.
” you pay VAT on the dealers margin, not the car”
Which is why I wrote ‘ if you buy it from a dealer, you pay Vat on his margin’.
The Robin Hood Tax advocates who understand what they are talking about understand exactly this, which is why they advocate a Robin Hood Tax. Tax financial transactions to slow down financial transactions.
Jim,
You said that in response to the question -“You paying VAT on a second hand car?”
You then go on to say;
“And anyway who said anything about second hand, I’m talking new.”
Most houses are second hand. If you are going to compare SDLT on houses and VAT on cars, most of the time you need to refer to second hand cars, on which you don’t pay VAT.
If you can’t work out the answer to your initial comments from Tim’s short response, the slightly longer answer is that, buying a house and paying stamp duty differs from buying a car and paying VAT, because when that house or car is sold again there will be SDLT levied on the transaction as a % of the full value of the house, whereas the VAT on the sale of the car will only be on the dealers margin.
So VAT isn’t a tax on the transaction. Its taxing the good or service provided. So once VAT has been levied it can’t be levied again on the same item (as all that value that was added has been taxed). Only new value added, such as the dealer being a market maker in the second hand car market can be taxed.
SDLT is a tax on the transaction itself. So it doesn’t matter if the property has already been part of a transaction before where transaction taxes were levied.
“So VAT isn’t a tax on the transaction. Its taxing the good or service provided. So once VAT has been levied it can’t be levied again on the same item (as all that value that was added has been taxed). Only new value added, such as the dealer being a market maker in the second hand car market can be taxed.”
And when a good or service is provided to a consumer there is a corresponding transaction, money one way, goods/services the other. VAT is not charged if there is no transaction – I’m a dab hand with the carpentry and made a bed for myself. I paid no VAT on that. Yet if I’d parted with money for it from DFS I would have. Ergo to some extent its a tax on the transaction, not just the good/service. It may be a one time tax per individual item, but given that many of the items that have VAT are consumable items and are repurchased repeatedly, in practical terms to the average person its a transaction tax. If you never made any transactions, and lived entirely from your own efforts you would pay no VAT. Yet you would have added a lot of value to the economy (none of which would be measured by the statistics of course).
“If there was a tax that was calculated on the number of windows in your house, but it was only imposed every time you purchased a car, what is that a tax on?” Dunno, but it would make horses fashionable again.
@jim,
“…If you never made any transactions, and lived entirely from your own efforts you would pay no VAT. Yet you would have added
a lot ofno value to the economy (none of which would be measured by the statistics of course).”Correct as all the Value Added his been by you for your consumption.