Welcome to New London | The Economist

Welcome to New London | The Economist



Each has a couple of strengths over the other. New York’s first advantage lies in the amount of money it raises. Overall, homeowners in New York pay 40% more, as a proportion of their residences’ value, than Londoners do. Economists argue that a good tax should focus on revenue streams that cannot avoid payment by moving away, and that a levy should change behaviour as little as possible. Land taxes are particularly attractive for this reason. Property taxes are second-best, because the investment in a plot of land can vary, but unlike land taxes they have the political advantage of already being in place. Here New York beats London because the more revenue that can be raised on an immobile home, the less the government needs to tax other activity, whether that is work, investment or consumption.



The Big Apple’s other edge comes from taxing the stock of property rather than flows as houses or flats change hands. Almost 90% of New York’s property-tax take stems from an annual levy on each home’s estimated current price. The corresponding figure for London is just 55%. In Britain much more revenue comes from a stamp duty applied each time a property is bought and sold. This policy fails the economists’ test of leaving behaviour unaffected: stamp duty is a deterrent to moving house and reduces transactions by anything from 8-20%. That locks some homeowners into properties they would otherwise leave. If people do not move as readily as they might in search of work, economies suffer.