Replacing council tax with a local income tax?

[Jon_in_london]

The LibDems are proposing replacing council tax with a 3.75% local income tax (LIT).

They claim (with some justification) that this is fairer as it better reflects a persons ability to pay. Yet, there are obvious flaws with this system.

Thoughts?

[shanek]

First, can I get you to please explain what a "council tax" is?

[geni]

Originally posted by shanek
First, can I get you to please explain what a "council tax" is?

It's a tax imposed by your local council based on the value of oyur house (I think so anyway students are excempt).

[The Don]

Basing taxes purely on income and consumption may be unfair. The issue with the council tax is that the amout of money required is approximately LOADS.

Basing an element of tax on property values is fair, it is a tax on property. It is a tax on assets and means that people like my parents who are retired and hide their income well at least pay SOME taxes.

If the hope is that pensioners won't have to pay anything then some people will have to pay double or triple particularly in those places where there is a greater proportion of retired people.

Also, where there are more poor people, to achieve the same revenue a greater % of income would be required.

[Jon_in_london]

Originally posted by shanek
First, can I get you to please explain what a "council tax" is?

Prettymuch what Geni said.

[Jon_in_london]

Originally posted by The Don
If the hope is that pensioners won't have to pay anything then some people will have to pay double or triple particularly in those places where there is a greater proportion of retired people.

Also, where there are more poor people, to achieve the same revenue a greater % of income would be required.

Indeed, this seems to me like the LibDems fishing for the grey vote. Of course, making things easier for the aged means an even greater burden on the young who are already feeling the pinch of supporting an ageing population.

They say that all the tax will be put in a pot and redistributed to councils based on some criteria or other so people in hackney wont have to pay huge tax to meet the grade.

[richardm]

I think there are obvious flaws in the Council tax, as well.

My feeling is that you should be taxed based on your ability to pay, rather than on any particular item you happen to own. In that way, pensioners who want to live in the same big house they raised a family in won't be put in the position of perhaps having to move out to bring the council tax down to a sensible rate.

So a local area income tax has always seemed to me to be the fairer way to raise the money needed.


(Edited to replace "only fair" with "fairer")

[richardm]

Originally posted by Jon_in_london
They say that all the tax will be put in a pot and redistributed to councils based on some criteria or other so people in hackney wont have to pay huge tax to meet the grade.


.. If you do this, how is it different to a regular income tax?

[richardm]

.. Apparently 75% of local council revenue comes from Whitehall. That's a larger proportion than I was expecting.

[Jon_in_london]

Originally posted by richardm



.. If you do this, how is it different to a regular income tax?


Ask Charles Kennedy!

[BillyTK]

The current system is clearly unfair, being calculated on a bodge between estimation of services used and assumption of ability to pay based on house size, so for instance, some old granny whose only got her pension but lives in a 4-bedroom house will pay more than a family of four living in a 2-bedroom house.

An income tax surcharge would be fairer in that it would be based on ability to pay, but would be unfair in that it wouldn't reflect usage of local services. User fees might be fairer in this respect, but there'll be the inevitable situation in which Mr. Blokey up the road refuses to pay for waste collection, with the resultant health risks for the rest of us <del>which is why I think we should have guns</del>.

The main advantage I see with the current system is that I can withold my payments if I'm in disagreement with the council. That wouldn't happen with an income tax surcharge, and purely for that reason I'd be against it.

[Jon_in_london]

Originally posted by richardm
My feeling is that you should be taxed based on your ability to pay, rather than on any particular item you happen to own. In that way, pensioners who want to live in the same big house they raised a family in won't be put in the position of perhaps having to move out to bring the council tax down to a sensible rate.

Aha!

But is it right that pensioners should pay nothing?

Is it right that somone who is retired but has vast wealth squirreled away should be subsidised by young taxpayers?

Is it right to have a tax that does not differentiate between income and wealth?

Is it right to have a tax that will hit young proffesional couples living together who are desperately trying to save enough money for a mortgage, save for their own retirement or to provide for their children the hardest?

Obviously income is a key factor but I think you need to take into account a lot of other stuff too before its fair.

[Jon_in_london]

Originally posted by BillyTK
The main advantage I see with the current system is that I can withold my payments if I'm in disagreement with the council. That wouldn't happen with an income tax surcharge, and purely for that reason I'd be against it.

You can withhold payment? Wont you end up in court and get slapped with a hefty fine?

The problem with charging according to service usage is that a lot of the people who are least able to pay need a lot of service- like Mrs Biddyolfart who needs meals-on-wheels to feed her and wipe her bottom but is on a minimal pension.

[richardm]

Originally posted by Jon_in_london


Aha!

But is it right that pensioners should pay nothing?


No, they should pay according to their means. If all they're getting is a small company pension, then they should pay less than someone getting a huge pension. People who are only getting state pension should still be exempt, as they are at the moment.


Is it right that somone who is retired but has vast wealth squirreled away should be subsidised by young taxpayers?


That's tough to overcome, but it's not overcome by the current Council Tax either.


Is it right to have a tax that does not differentiate between income and wealth?


Is it right to have a tax that takes no account of your ability to pay it?


Is it right to have a tax that will hit young proffesional couples living together who are desperately trying to save enough money for a mortgage, save for their own retirement or to provide for their children the hardest?

Obviously income is a key factor but I think you need to take into account a lot of other stuff too before its fair.

If you can think of a fairer way.... I mean, the money has to come from somewhere.

[Matabiri]

Originally posted by richardm

If you can think of a fairer way.... I mean, the money has to come from somewhere.

Tax per capita!

(No, wait, that didn't work)

Personally, as someone who might want to buy a house sometime soon, I'm in favour of anything that limits house prices - and if council tax does that, yay council tax!

In terms of "fairness", though, the value of a person's house will generally be linked to their ability to pay a mortgage, which is linked to their income/ability to pay council tax. As it stands, this is (effectively) a fixed charge which pays for services, rather than a progressive one in which you can pay far more to receive no more.

(And assuming that the average council tax (which I'm guessing, to be fair) is about £800 per year, a household only has to have an income of £21,333 per year in order for the proposed LIT to match that - which means that almost every working couple will be worse off under this system. How is that fair?)

[Jon_in_london]

Originally posted by richardm


No, they should pay according to their means. If all they're getting is a small company pension, then they should pay less than someone getting a huge pension. People who are only getting state pension should still be exempt, as they are at the moment.


Well, Im certainly not suggesting that the present system is fair. However, there isnt much point in replacing one unfair system by another.

You mentioned the key word here which is 'means'. However, is it practical to means-test every person in the country?

I suppose you could have a declaration of means (based on income and wealth) upon which a tax rate will be set but this would rely on people being honest. I suppose you could wave a big stick by slapping big penalties on those who cheat.

[Jon_in_london]

Originally posted by Matabiri

(And assuming that the average council tax (which I'm guessing, to be fair) is about £800 per year, a household only has to have an income of £21,333 per year in order for the proposed LIT to match that - which means that almost every working couple will be worse off under this system. How is that fair?)

Thats my major objection, Matabiri.

Me and Trouble could end up paying twice what we pay now while Bill Gates could retire and live next door while I subsidise him! The Bastard!

From the LibDums website:
http://www.axethetax.org.uk/page.php?bills


Average UK pay £24,498 (single earner household)
Council Tax Band D - £1,102
LIT at 3.75% - £746
GAIN £356


Which is all well and good but if a working couple lived together?

Nurse, grade D £17,500 and Police officer £20,436 (double earner household)
Council Tax Band D - £1,102
LIT at 3.75% - £1,079
GAIN £23


This stat gives a distorted picture by listing two people earning below the mean-average wage (if they worked in london, add another £8k)

[BillyTK]

Originally posted by Jon_in_london


You can withhold payment? Wont you end up in court and get slapped with a hefty fine?
Very true, witholding payment is not a legal right, but at least it's an action that you can take. Y'know, the civil disobedience thing that it's better to commit a smaller crime to prevent a greater crime.
The problem with charging according to service usage is that a lot of the people who are least able to pay need a lot of service- like Mrs Biddyolfart who needs meals-on-wheels to feed her and wipe her bottom but is on a minimal pension.
I agree with what you're saying—although I don't think social services are paid for out of the council tax—but I carnt see a way of beating the curved bits of the problem into nice pointy ends. Maybe the single person discount should be extended to all pensioners, or a maximum level of charge set for pensioners?

[Matabiri]

Originally posted by Jon_in_london

I tried quoting you and got a whole extra bit of post... odd:

Originally posted by Jon_in_london

From the LibDums website:
http://www.axethetax.org.uk/page.php?bills

Which is all well and good but if a working couple lived together?

This stat gives a distorted picture by listing two people earning below the mean-average wage (if they worked in london, add another £8k).

I wonder why they chose median instead of mean for this?

I was wondering if anyone had an estimate of the average TOTAL tax burden in the UK - including income tax, National Insurance, VAT, council tax, fuel duty, stamp duty, and whatever else it's called?

[richardm]

Originally posted by Jon_in_london
You mentioned the key word here which is 'means'. However, is it practical to means-test every person in the country?

I suppose you could have a declaration of means (based on income and wealth) upon which a tax rate will be set but this would rely on people being honest. I suppose you could wave a big stick by slapping big penalties on those who cheat.

Actually, when I said "Means" I really meant just income. You're already legally obliged to report this, so it's quite easy to measure. Of course there will always be rich gits who find loopholes, and the council tax is quite a good way to catch them.

It is, I think, a difficult problem and possibly an impossible one to resolve to everybody's satisfaction. But I think we need to ditch or at least completely remodel the current system. At the moment, the poorest fifth of families pay three and a half times as much as the richest families, as a share of income (on average). Even the Government admits that. And there must be something wrong there!

[Jon_in_london]

Originally posted by Matabiri

I was wondering if anyone had an estimate of the average TOTAL tax burden in the UK - including income tax, National Insurance, VAT, council tax, fuel duty, stamp duty, and whatever else it's called?


The Grauniad says 29%
http://money.guardian.co.uk/tax/story/0,1456,681871,00.html

But this includes, I think, non-incometax payers and others. It must do, because this is far too low.

I'd like to know what the rate is for the second tax band.

[richardm]

Originally posted by Matabiri


I tried quoting you and got a whole extra bit of post... odd:



I was wondering if anyone had an estimate of the average TOTAL tax burden in the UK - including income tax, National Insurance, VAT, council tax, fuel duty, stamp duty, and whatever else it's called?

29% on average. (http://money.guardian.co.uk/tax/story/0,1456,681871,00.html) Apparently.

Edited to add: Half of that figure is due to "Social Contributions", whatever they may be. I don't know if it includes VAT and all that, to be honest.

[Matabiri]

Ah, I assume you edited while I was looking.

Also from the axethetax website:


Cabinet Minister, £127,791

Council Tax Band D - £1,102

LIT at 3.75% - £4,619

LOSS £2,475 (Due to cap on LIT at income of £100,000)

Nice of them to throw that in...

They mention allowances (and have compared to tax band D every time):

so to match the band D £1102 (actually £1037 in my area) you's need a combined income of £38,617. Not bad, you might say. To match the £800 (approx. band B) combined income would need to be more than £30,000.

All this aside, one has to ask, if almost everyone is better off under this system, won't the councils be short of money...?

[Matabiri]

Originally posted by richardm

Edited to add: Half of that figure is due to "Social Contributions", whatever they may be. I don't know if it includes VAT and all that, to be honest.

"Social contributions" would be national insurance, I guess.

It doesn't read as though VAT is included.

(Nor inheritance tax)

Edit to add:
A quick calculation based on the rates they give for saving in the UK, and assuming half the remainder goes on rent at approx £1000 per month, the rest must get spent (if it's not saved). VAT at 17.5% on the spending = 6% of the average total income, making the "total tax" 35%...)

[richardm]

Cabinet Minister, £127,791

Council Tax Band D - £1,102

LIT at 3.75% - £4,619

LOSS £2,475 (Due to cap on LIT at income of £100,000)


Well, let me put it this way. I'm paying substantially more than £1102 in council tax, yet I'm only earning about a quarter of £127,791.

So I'm all for LITs! Who do I need to vote for?

[wollery]

Just a minor point, but council tax is means tested in a way. People on low income (eg dole, or pension) and with few savings can apply for council tax benefit, and in some cases may get completely exempted, regardless of how much their property is worth.

This means that the picture of the poor pensioner who can't afford to pay their council tax to the oppressive uncaring council is complete tosh! If you really can't afford to pay then you are elligible for benefit, so you can afford it!

[BillyTK]

Originally posted by wollery
Just a minor point, but council tax is means tested in a way. People on low income (eg dole, or pension) and with few savings can apply for council tax benefit, and in some cases may get completely exempted, regardless of how much their property is worth.

This means that the picture of the poor pensioner who can't afford to pay their council tax to the oppressive uncaring council is complete tosh! If you really can't afford to pay then you are elligible for benefit, so you can afford it!
Complete exemption isn't automatic, and IIRC is dependent on actually claiming benefit, not being on a low income per se. So for instance, if someone is living on a small private pension, they'd be liable for council tax regardless of their level of income, and simply because they're not claiming benefit.

[Matabiri]

Originally posted by richardm


29% on average. (http://money.guardian.co.uk/tax/story/0,1456,681871,00.html) Apparently.

Edited to add: Half of that figure is due to "Social Contributions", whatever they may be. I don't know if it includes VAT and all that, to be honest.

Found it:
http://www.taxfreedomday.co.uk/

155 days out of 365 = 42.5%

Presumably calculated by dividing total tax revenue by total income, or something similar.

[Jon_in_london]

Originally posted by Matabiri


Found it:
http://www.taxfreedomday.co.uk/

155 days out of 365 = 42.5%

Presumably calculated by dividing total tax revenue by total income, or something similar.

I dont know- I would think that most people pay around 30% straight income and NI tax, then there 17.5% VAT, plus council tax, plus bigger VATaxes on booze and fags and petrol etc etc etc...

I'm skeptical of anything below 50% really.

[Jaggy Bunnet]

Originally posted by Jon_in_london


I dont know- I would think that most people pay around 30% straight income and NI tax, then there 17.5% VAT, plus council tax, plus bigger VATaxes on booze and fags and petrol etc etc etc...

I'm skeptical of anything below 50% really.

To have an overall effective rate for income tax and NI of 30%, I think you need gross salary of c£39k.

On median earnings of (I think) c£24k the effective rate would be around 25.5%.

Allowing for items on which no VAT is charged (food, mortgage payments etc), 42.5% sounds not far wrong.

[corplinx]

We have property taxes here in the US for most localities based on the assessed value of your home.

Its a god-awful tax.

A. is it really any of the government's business how many square feet your home is or how much it is worth?

B. they raise rates two-fold, they overestimate your property value in addition to raising the tax per dollar of worth

An income tax is only better in that they can only raise the overall rate so at least its more honest. It still puts your local government into the business of knowing how much you earn.

[Tony]

Either way, it sounds like you guys are getting it up the a$$.