This post was written by Richard Tol
Higher taxes are unavoidable. Property taxes are less bad for economic growth than are higher income taxes. It therefore makes sense to replace the stamp duty with a property tax. There are two snags to this.
First, a property tax is regressive. Poorer people would pay a greater share of their income in tax. This can be repaired, either in the design of the property tax itself (e.g., income-dependent exemptions or a non-linear tax) or through changes in income taxes and benefits.
Second, a property tax should be based on the value of a house. The Revenue does not know this value, and building up the required data will take a few years at least. The government may be tempted to introduce a flat tax instead, or use self-assessment. A flat tax is very regressive. Self-assessment without proper sanctions rewards dishonesty. It is feasible, however, to introduce a property tax based on assessed values, and assess the value using simple rules (e.g., county and size).
A property tax would hit people who are income-poor but property-rich. It would act as an incentive to mobilise their wealth.
(family matters delayed this post)
Tags: Property Tax