The Annals of Taxation

I’m lecturing at the University of Essex and going from office to office chatting with people about their research. This is hard physical labor — I repeatedly go down one or two flights of stairs in this rabbit warren, walk down a hall, up the stairs in the adjoining building, then back down another hall. What a waste — why?

The answer is that the British government imposes a value-add tax on building extensions, so that if the buildings are joined on each floor, the extension is heavily taxed. To avoid this, the University struck a deal with the taxman to allow one internal door between adjoining buildings, allowing what is merely an extension to be treated as a new edifice and to escape taxation. The only problem is that, as usual, taxes create a dead-weight loss, as my well-exercised, tired knees that feel like dead-weights now illustrate. I doubt the building’s planners considered the cost of this loss when they agreed to this tax-avoiding subterfuge. (HT: SP)

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  1. Matt says:

    Mr. Hamermesh, of course they considered this tax on your knees in the planning stage. The architects are presumably competent, and know a bad layout when they draw one.

    The tradeoff here is funding. They have a fixed building budget. They can make a good layout for a certain sum, paying the VAT. Or they can have more floor area, offices, etc. for an inferior layout. 9 times out of 10, people choose more floor area.

    Just think, it is entirely possible that your position at the University is directly affected by how many offices are available for visiting professors. I challenge you to broaden your thinking on building planning before you assume incompetence.

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  2. jon says:

    @jonathan VAT on building in the UK is worse than that. New building is zero-rated, but anything else, such as repairs or extension is fully rated. So it is cheaper in terms of tax to build a new house than to repair or refurbish an existing property. This applies to the materials too. So if you go to a DIY store and buy timber to repair a floor, you pay VAT. But if you buy timber to lay a new floor in a new building, no VAT.

    @jane w – VAT in the UK is now 20%, courtesy of the joys of the US mortgage crisis. Curiously, it went up under the previous Tory government from 15% to 17.5% for just one year, when the Poll Tax was introduced. Well, they said it was for one year, but strangely, the Tories forgot to put it back down to 15%.

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  3. BSK says:

    Sam-

    Interesting points. However, we can’t ignore the ways in which the federal government subsidizes local governments. One reason (among many) states rarely operate with the type of deficit that the fed does is that pretty much every member of Congress negotiates payments from the Fed to his/her state to keep them in the black.

    Your point comparing successful black women to white guys in trailers is a bit off base. The original point was about rich white guys.

    All-in-all, I understand your point and think there is a lot of legitimate arguments in favor of lowering taxes at every level for all people. I don’t mean to engage in class warfare. But it is frustrating to hear people who have uniquely benefited from our current structure bemoan that structure because they so lack perspective.

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  4. Sam Adams says:

    To BSK:

    Your comment that the federal gov’t subsidizes local gov’t seems an example of the thinking that might be considered problematic. The feds take money from people, run it through their bureaucracy, and then give less of the very same money back to people?

    Why take it in the first place?

    The same principle applies to many other programs. I have a neighbor down the street who needs temporary assistance preparing food. Once upon a time, I’d merely go and help her. Now, the feds take money away from me by force, run it through their bureaucracy, and give her less help with more strings attached than I’d have provided.

    As a society we seem to forget that gov’t is merely one social organ out of many. I lived in a town that had very gew gov’t services yet no one was wanting. The Catholic church ran the food drive, the Protestant church ran the clothing drive, and the LDS provided shelter. Someone knew someone who knew someone so that whomever needed help got it.

    Gov’t is an economic entity just like any other economic entity and its first priority is its own well-being. People have become obsessed with using gov’t as a tool to gain leverage over each other and ignore how this is a negative sum game. Most of the things we ask gov’t to do are done better by using other social institutions rather than gov’t.

    Because people do not trust they insist upon compulsion, and compulsion always engenders resentment and opposition, no matter how ‘worthy’ the motives.

    No political party can possibly deliver the reforms we need because they are too indebted to entrenched economic interests.

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  5. BSK says:

    Sam (if you’re still reading)-

    I don’t disagree with any of that. Not majorly, at least. The government is generally inefficient and many things could be better handled at more local levels. None of that changes the fact that many people who complain about taxes don’t realize they are the primary beneficiary of those taxes (which is not to say that they get more than they put in… only that they benefit more than other people; that is an important distinction I probably should have made at the onset).

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  6. Dr J says:

    To all the tax whiners – compare how efficient government is to any large for-profit orginization and I believe government would compare quite favorably – anyone can list dozens of large corpoarte failures, scandals, fraud, graft and corruption in corporate america (just think of the banking industry, insurance, health care and energy industries) yet for some reason people insist on complaining about government – corporate propoganda is magnificent. The reason why government is more efficient is because people actually have some checks on government while there is nothing on industry – so while you all complain about some two bit waste or pork project by the government (which was part of a deal to get some legislation passed) you forget the billions of bonuses to banking execs, getting screwed by health insurance and credit card companies or Enron screwing the people of california…

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  7. Bob says:

    Justin–

    Look at Wesley Snipes. He’s in jail for protesting the tax code. He’s got plenty of complaints.

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