Art Laffer of “Laffer Curve” fame has put Stamp Duty back on the agenda, arguing that the UK would be better off replacing stamp duty with wealth taxes on property akin to those used in the US.
Economists tend to dislike Stamp Duty. It creates many distortions. It increases the cash required to buy a property, because a home-buyer needs not only enough cash for the deposit but also for the stamp duty. Because it is incurred on each purchase, it makes it very expensive to move house multiple times even if moving would be helpful to career progression (e.g. because one job was in London then one in Liverpool then one in Birmingham). This reduces liquidity in the housing market and reduces locational efficiency and the efficiency of job-matching. Historically, stamp duty has also created weird discontinuities in house prices with concentrations in prices at just below the thresholds.
On the other hand, if there’s one kind of tax political philosophers hate more than any other it is wealth taxes. The three classical foundations of society are regarded as being family, contract and property. Imposing special taxes on any of these – e.g. specific taxes for getting married or for establishing a contract or for owning things – are seen as undermining the entire rationale for centralised government. The point of a state is to protect property, not to confiscate it. States facilitate and enhance the value of trading – e.g. buying things or working for money – so it is legitimate for the state to claim a share of the added value from such trade, in forms such as income tax or VAT. But wealth that merely exists being eroded by the state is seen as unjust in principle.
Is the answer here that there’s a good reason to hate every tax and the only real question is which taxes create the most problems and who will holler loudest, or perhaps holler louder if other potential sources are not taxed too – as the French statesman Jean-Baptiste Colbert famously put it: “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing”? So perhaps we ought to have both stamp duty and wealth taxes? Or is there some way we could achieve our objectives in this area without either of them?
I think there is. The answer, in my opinion, is to resurrect the concept of “socage”. The idea here is that we should see the true ownership of land as something that only a sovereign can ultimately possess. Ordinary private citizens can only ever own the right to possess and use the sovereign’s land in certain ways. There are still elements of that in our legal system today. But in the mediaeval period that concept was applied via an elaborate system whereby every parcel of land was associated with an obligation to those higher up in the feudal hierarchy that had a superior claim to that land. Such obligations might be military service, portions of harvest, and so on. One form of obligation was called “socage” and in that case there was simply a monetary payment made at specified intervals to feudal overlords.
Eventually the other forms of obligation were converted into socage. And later still socage was converted into modern leasehold and freehold. But we could bring socage back. That would mean that every parcel of land was associated with a charge to be paid to the sovereign for its use.
Note that this is not a wealth tax or a tax on private property (where by “property” I meant things like watches, coats or paintings). The very essence of the concept is that private citizens do not own land. The land itself is not their property; it is the sovereign’s. Thus, unlike Laffer’s proposed wealth taxes on property, a socage system would not establish a principle of wealth taxation that could then be extended to other forms of wealth.
Socage could be used in highly flexible ways. The charge might take the form of an amount per acre, but that amount might be different depending on where the land was in the country, whether it was close to a city or deep in the country, what the designated use was of the land (e.g. agriculture or housing – note that this could be used to disincentivise land-banking) and whether the government had any regional or industrial policies in the area in which the land sat.
Laffer is right that stamp duty is a bad kind of property tax. But the right alternative isn’t to breach the seal on wealth taxes, creating many bad follow-on precedents. Instead we could replace stamp duty with socage – a highly flexible new revenue stream for governments useful for many policy areas.
Art Laffer of “Laffer Curve” fame has put Stamp Duty back on the agenda, arguing that the UK would be better off replacing stamp duty with wealth taxes on property akin to those used in the US.
Economists tend to dislike Stamp Duty. It creates many distortions. It increases the cash required to buy a property, because a home-buyer needs not only enough cash for the deposit but also for the stamp duty. Because it is incurred on each purchase, it makes it very expensive to move house multiple times even if moving would be helpful to career progression (e.g. because one job was in London then one in Liverpool then one in Birmingham). This reduces liquidity in the housing market and reduces locational efficiency and the efficiency of job-matching. Historically, stamp duty has also created weird discontinuities in house prices with concentrations in prices at just below the thresholds.
On the other hand, if there’s one kind of tax political philosophers hate more than any other it is wealth taxes. The three classical foundations of society are regarded as being family, contract and property. Imposing special taxes on any of these – e.g. specific taxes for getting married or for establishing a contract or for owning things – are seen as undermining the entire rationale for centralised government. The point of a state is to protect property, not to confiscate it. States facilitate and enhance the value of trading – e.g. buying things or working for money – so it is legitimate for the state to claim a share of the added value from such trade, in forms such as income tax or VAT. But wealth that merely exists being eroded by the state is seen as unjust in principle.
Is the answer here that there’s a good reason to hate every tax and the only real question is which taxes create the most problems and who will holler loudest, or perhaps holler louder if other potential sources are not taxed too – as the French statesman Jean-Baptiste Colbert famously put it: “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing”? So perhaps we ought to have both stamp duty and wealth taxes? Or is there some way we could achieve our objectives in this area without either of them?
I think there is. The answer, in my opinion, is to resurrect the concept of “socage”. The idea here is that we should see the true ownership of land as something that only a sovereign can ultimately possess. Ordinary private citizens can only ever own the right to possess and use the sovereign’s land in certain ways. There are still elements of that in our legal system today. But in the mediaeval period that concept was applied via an elaborate system whereby every parcel of land was associated with an obligation to those higher up in the feudal hierarchy that had a superior claim to that land. Such obligations might be military service, portions of harvest, and so on. One form of obligation was called “socage” and in that case there was simply a monetary payment made at specified intervals to feudal overlords.
Eventually the other forms of obligation were converted into socage. And later still socage was converted into modern leasehold and freehold. But we could bring socage back. That would mean that every parcel of land was associated with a charge to be paid to the sovereign for its use.
Note that this is not a wealth tax or a tax on private property (where by “property” I meant things like watches, coats or paintings). The very essence of the concept is that private citizens do not own land. The land itself is not their property; it is the sovereign’s. Thus, unlike Laffer’s proposed wealth taxes on property, a socage system would not establish a principle of wealth taxation that could then be extended to other forms of wealth.
Socage could be used in highly flexible ways. The charge might take the form of an amount per acre, but that amount might be different depending on where the land was in the country, whether it was close to a city or deep in the country, what the designated use was of the land (e.g. agriculture or housing – note that this could be used to disincentivise land-banking) and whether the government had any regional or industrial policies in the area in which the land sat.
Laffer is right that stamp duty is a bad kind of property tax. But the right alternative isn’t to breach the seal on wealth taxes, creating many bad follow-on precedents. Instead we could replace stamp duty with socage – a highly flexible new revenue stream for governments useful for many policy areas.