On 2 Nov 2011
2% Asset Tax Can Eliminate All Other Taxes,
It's an attractive idea on the surface - but actual implementation would create massive, (let me repeat) MASSIVE change (probably catastrophic).
I am not talking about people "not liking it". That could probably be managed.
No, it is how we value assets that would be radically changed. I think the first effect would be that it would knock probably around 60% off the value of all assets within the first 2 years of the tax starting.
With the 2% flat asset tax their will only be ONE value test for 99% of assets (I am sure there will still be some asset classes or circumstances under which this will not be true, but I am confident of the 99% where it will) - and that is the test
Will it cover the tax and still be worth owning ?
For example - with the flat asset tax, the property bubble would have never ever ever happened.
Typical Scenario : $450,000 Residential House
Rental PA (maybe) : $20,000
Asset Tax : $9000
Leaving $11000 for debt maintenance, insurance, property care and all other costs.
How about traditionally high value assets that are slightly speculative but generate sporadic / little direct income ? (usually the domain of the upper middle, if not the genuinely rich).
A large block of land in a very nice rural area (that is becoming "the cool place") with a luxury lodge-ish building on it.
This is the kind of thing that has great asset value now (say 3-5 Mil) that can be held relatively low cost (if you have a bit of cash and borrowing for it is bundled in other operational borrowing). This is such a discretionary asset, where it is purchased with the thoughts of "well, I reckon the place is getting popular, unlikely I will loose on it, and I like the place, and I can hold it without it hurting".
Now the first thought will be "I need to stump up a hundred grand every year just to have it, before ANYTHING else". Keep it for a decade and I will have dropped a mil into the place before any improvements or maintenance. Watch how quickly that kind of asset stops being worth 5 mil.
I reckon the idea should be given a go just to see what happens :D