Thursday, June 07, 2007

Wedge Head

I'm not sure why I'm bothering to blog this, but I'm going to anyway.

As the contest for the Labour Deputy Leadership lurches left, the Perma-Tan One has said he'd help those hard pressed first time house buyers by transferring the cost of Stamp Duty onto sellers rather than buyers.

Apart form the obvious point that it was his SODDINGSTEALTHTAXINGTHIEVINGSOCIALIST-INEVERVOTEDFORTHEMBUTSOMEBODYMUSTHAVE government that imposed the punitive rates in the first place, he seems to have misunderstood his Idiot's Guide to Economics for Ministers of the Crown.

Because when governments impose taxes on market transactions like house sales, they drive a wedge- the so-called tax wedge- between what the buyer pays and what the seller receives. The purchase price must always exceed the sales price by the amount of the tax. And the government takes the difference. See?

Because of that it makes ABSOLUTELY NO DIFFERENCE who physically writes the cheque to the government. The price the purchaser pays will always need to exceed what the seller receives by the amount of the tax. So the purchaser always pays more than he would have done if the tax hadn't existed*.

Ah yes, says Hain, but the Stamp Duty is something that is extra to the price- not included in the deal between buyer and seller. So it doesn't affect the price.

To which I say you may not consider transactions costs when you're buying and selling stuff, but normal non-orange people... doh... get yourself Economics Made Simple. I really can't be bothered to explain.

What makes this pompous twok think he's qualified to rule over us again?

*Footnote- yes, I'm sure you A Level Economics types could dream up some backward sloping supply curve or similar where that doesn't happen, but we're talking the UK housing market here.

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