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Abolish stamp duty – transactions taxes are bad taxes

Summary:
A certain head of steam is building up behind a good idea. The current alleviation of stamp duty on housing transactions should not just be extended, the tax itself should be abolished:Better still would be to scrap the damn thing altogether, for the reasons above.Or Tom Clougherty, formerly of this parish:But there’s a bigger picture here, too. Stamp duty is without question the worst tax on the UK statute books, wreaking havoc on Britain’s already troubled housing market and imposing an unacceptable drag on welfare and productivity. Research suggests that its wider social and economic costs are equivalent to some three-quarters of the revenue raised – making stamp duty many times more damaging than income tax or VAT. Put simply, it’s just a bad way for any government to raise money. Why

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A certain head of steam is building up behind a good idea. The current alleviation of stamp duty on housing transactions should not just be extended, the tax itself should be abolished:

Better still would be to scrap the damn thing altogether, for the reasons above.

Or Tom Clougherty, formerly of this parish:

But there’s a bigger picture here, too. Stamp duty is without question the worst tax on the UK statute books, wreaking havoc on Britain’s already troubled housing market and imposing an unacceptable drag on welfare and productivity. Research suggests that its wider social and economic costs are equivalent to some three-quarters of the revenue raised – making stamp duty many times more damaging than income tax or VAT. Put simply, it’s just a bad way for any government to raise money.

Why is that? Well, by raising transaction costs, stamp duty makes buying or selling a property less appealing.

Or, as Tom quotes, a Nobel Laureate on the point:

There is no sound case for maintaining stamp duty and we believe it should be abolished.

We do actually know that it increases unemployment, just as one example. Making the housing market less liquid makes the labour market so, this being something that does increase unemployment.

Then there is the more general case made by Sir James Mirrlees, that NL mentioned above. Transactions taxes are a bad idea. Taxing land values, of consumption, or incomes, or even in extremis capital, all make more sense than transactions. For the deadweights, the losses from the existence of the tax, are all less with those other forms of taxation.

It’s also possible, obviously, for government to spray less of our money around but even without that a change in the tax system to one without stamp duty would be beneficial.

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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