I’m not sure I buy into this by Greg Philo and in yesterday’s Guardian yet, largely because it is probably too simplistic, but it has to get a mention:
How can the sixth richest nation in the world be contemplating cuts inschool meals services and regressive forms of taxation? In the political and media commentaries on the national crisis and the need for cuts, there has been very little discussion on how much wealth there is and why "we" as a nation are apparently so poor. Actually the economy keeps growing, and we are becoming richer than we were before the financial crisis.
The total personal wealth in the UK is £9,000bn, a sum that dwarfs the national debt. It is mostly concentrated at the top, so the richest 10% own £4,000bn, with an average per household of £4m. The bottom half of our society own just 9%. The wealthiest hold the bulk of their money in property or pensions, and some in financial assets and objects such antiques and paintings.
A one-off tax of just 20% on the wealth of this group would pay the national debt and dramatically reduce the deficit, since interest payments on the debt are a large part of government spending. So that is what should be done. This tax of 20%, graduated so the very richest paid the most, would raise £800bn. A major positive for this scheme is that the tax would not have to be immediately paid. The richest 10% have only to assume liability for their small part of the debt. They can pay a low rate of interest on it and if they wish make it a charge on their property when they die. It would be akin to a student loan for the rich.
Simplistic it may be — but as evidence of the absurdity of claiming we cannot afford public services it is powerful.
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Cameron has obviously been taking lessons from Messrs Le Sueur, Ozouf and company.
(Incidentally: we have many Portuguese in Jersey who snigger when they hear the British PM’s name – it sounds like the Portuguese for “shrimp” 😛 )
Yes, it is simplistic. (and filled with envy) I am surprised the Guardian published the article. Maybe for a follow up, our media specialist would care to enlighten us how exactly his masterplan for the economy would be implemented – I have pondered the likelihood of success and after doing a MyGov poll came to the conclusion that there is a 0% chance.
@JayPee
Oh, go one
Tell us why, you tease
Allow me. For a start, most of the political parties are either run by or funded by the people who would be most affected by such a tax/transfer of liabilities.
Second, in order to accept such an overt transfer of liabilities the rich est 10% would probably demand coompensation in other forms, such as extra voting rights or powers. Given that it is the same richest 10% who effectively run the country, it woiuld probably take a revolution to force this through.
There is a better variation on this idea. Rather than getting the wealthiest 10% of Britains to pay for everyone, why don’t we invade Saudi Arabia, take all their oil wealth and get them to pay for everything? Wouldn’t that be “fair”? After all, it’s not like they worked for it and they should pay for the environmental damage they have caused. They would be happy with a few tents and the desert and we could pay much more in benefits. And we’d get Knightsbridge back at the same time.
After all, if the goal of “fair” taxation is to get “other people” to pay for everything, much better start with the richest in this globalised economy.
@Alex
Nice of you to confirm your distate for democracy
Implementation costs are too high and the outcome is uncertain – other states might get the same idea, but I see where you are coming from. A similar short term gain at the expense of longer term pain could be achieved by cancelling all outstanding gilts.
@mad foetus
Respectfully, that’s fatuous and you can do better than that – I know
I’m not too sure about his numbers , the ONS survey puts the average household wealth for the whole country at 204,500 pounds , so even if all the wealth was with the top 10% they could still only have an average of 2 million ???
Why not do something really imaginative like this:
Allow anyone the right to buy out their lifetime future tax obligation.
For a one off fee of (say) £10m (and that is a figure I have plucked out for the sake of illustration — yes this exercise is aimed at the rich), a person can then relieve himself or herself of all UK tax for the rest of their days.
Or maybe link payments to a fixed period — X for 10 years, Y for 20 years etc. And maybe charge a bit more if you want the balance of the period passed to your family through your will (or automatically) if you die before the period expires.
And they get relieved from all investigations on past tax.
The whole scheme is voluntary — no one has to take it.
But would save a lot of admin on either side, tax would be paid. Simple. And in future they can’t complain their taxes are too high – they won’t have to pay any. And they can use their entrepreneurial energy to boost wealth.
Obviously the hard part would be setting the right level — enough to ensure a fair amount was collected, but low enough to be attractive so there are takers.
And why not let it cover all personal taxes – eg income tax, CGT, stamp duty, council tax, IHT? VAT might be a bit messy.
@Adrian
Another mechanism for opting out of society for the wealthy?
Do they need yet more opportunity to do so?
They won’t have opted out of anything. They will have paid in advance. Definitely ‘opting in’.
@Adrian
Absolutely not
Society is not a discounted cash flow
“Society is not a discounted cash flow’
Says who? The fact someone has paid tax in advance wouldnt change their stake in society one bit. Why should it?
Let the state invest the lump sum and reap the income, or use the lump sum to pay existing debts. Whatever.
But assuming we get the target figure right (and it would take trial and error), who is the loser, other than tax accountants who will no longer have clients to plan for, and HMRC officials who won’t have as many to investigate. What’s not to like?
@Adrian
You just don’t get it do you?
Tax is not a discounted cash flow
It is the price paid for living in a democracy
Abiding by the rule of law is another such price
You can’t buy out of that
Nor tax
Not if you want a democracy
I thought democracy was supposed to be free. Tax is the price paid for government and government services.
No, clearly I don’t get it.
There are lots or people who don’t pay tax because they don’t earn income. They may be supported by another adult (eg spouse, parent). They may be reliant on social security. They might even be in jail!
They are part of society and a democracy just as much as anyone else. Payment of tax is not a pre-condition of membership, and nor should it be.
Under my suggestion, participants would be behaving perfectly legally. And I am not suggesting they won’t have paid their way. If the lump sum is set to the right level, they will have done so.
I understand tax is not currently a DCF concept. But we use the concept everywhere else, including the public sector (DCF thinking is widespread on a range of issues). And the current arrangements aren’t working too well. So why can’t we stretch our imagination and use DCF here?
If my neighbour paid his tax this way, I wouldn’t know, care, or think any differently of him as a person or a member of our community. Why should I?
@Alex
You’re wrong
Tax is the price for living in a democracy
The services are free
@Adrian
If you want to end democracy, go ahead
I suspect most who understand DCF are quite happy with that
But I, and most of those who do not appreciate DCF value society – and that’s built on democracy
You clearly don’t understand
I think it’s a form of autism
So when the authoritarian left take over, there will be no taxes?
@Alex
The only threat to democracy in this country is from the right
And it’s a very real one
@Richard Murphy
Autism eh?
Silly and offensive.
@Pat
No, actually serious and considered
I mean that I think this attitude is probably on the autistic spectrum
It reveals a profound lack of understanding of others, and an inability to read their responses to situations
That places it on that spectrum
“But I, and most of those who do not appreciate DCF value society – and that’s built on democracy”
The state may be built on democracy, but society is built on consensual interaction between people.
Democracy has value, but society should always have primacy over the state.
A one-off 20% wealth tax is silly. Applying it on one date will produce unfair and anomalous results and is a recipe for avoidance.
There is a real argument for a sensible wealth tax, at say 1% of net assets per annum. The moral and political arguments in favour are powerful. The problem is capital flight – it is generally a bad idea to impose a tax on something that can be moved out of the jurisdiction for little or no cost. There’s a reason only two developed nations have retained a wealth tax.
If we believe the rich are under-taxed (and I do) then better to tax something that can’t be moved, e.g. real estate (which we under-tax in the UK). The bonus is that an intelligently structured real estate tax regime could dampen-down house price inflation.
No, I am not autistic, and am not sure which ‘others’ you think I do not understand (other than yourself).
The fact I don’t judge people according to how much tax they pay doesn’t make me autistic.
Remember, tax is a conditional obligation, not an absolute obligation. It is conditional upon whether you earn the income, or buy or sell certain assets or whatever. If you don’t do those things, you don’t have to pay tax. You haven’t done anything illegal, immoral, shameful or anything which detracts from your membership of society. Democracy won’t crumble or even be affected in any way. Suggesting it will is exaggeration.
A question for you.
A friend of mine is American and despite the fact that he has been living in this country and paying taxes for a number of years he is not allowed to vote and therefore he is not part of the Demos.
While he can avail himself of many of the services that are offered by the state he is not given the one most important right in a democracy – the right to vote, which based on your logic is paying for.
Surely if he pays taxes he should be able to vote? If he is not allowed to vote then surely he should not have to pay taxes.
@Marc Daniels
Spot on and very well put.
The tax proposal is hopelessly confused. Phelps on the one hand claims that the 20% tax would pay the national debt and thus dramatically reduce interest payments, improving the deficit. This implies that the tax would be immediately due. However, in the very same paragraph, he claims that the tax would not have to be immediately paid, and instead the rich could make it a charge on their property when they die. So the tax isn’t immediately due. But if it’s not immediately due, then the government is still paying interest on the outstanding debt, so we don’t get the benefits of the tax.
Phelps also, in the Guardian article, claims that money that went into housing is “in effect dead money”. But for someone to buy a house, someone else must have sold it. Money transfers hands, the housebuyer gets an illiquid asset, the house seller gets cash. (Plus the real estate agent, plus anyone else who gets a share of the house sale price, such as the taxman). If the house seller then turned around and buys some other asset then in turn someone else must have sold that to them. The money isn’t dead money. So there are no gains to economic growth from putting the money that went into property into circulation, as it’s already circulating.
The only thing this article is evidence of is a complete lack of critical thinking on the part of the Guardian editors, and Phelps, unless the guy’s original article was hopelessly mauled by said editors.
@Adrian
Time consistency problem. How could future governments be committed to not raising taxes on this group again?
Exactly. “No taxation without representation”. I think that you’ll find a number of American’s who take that view.
Btw, I don’t think that Mr Murphy understands DCF at all… it’s just the current value of future obligations.
@ Marc, which developed nations have a wealth tax?
Tracy, fair point. It is a risk, and a flaw in my idea.
The commitment would effectively be a contract between state and taxpayer. The state mostly stands by contracts regardless of who is in power. Our 25 and 40 year PFI contracts are entered on the understanding and with sufficient trust that the state will stand by its contracts, so it isn’t seen as a dealbreaker in that area.
But I accept there is a risk that an incoming government could one day tear up these contracts with taxpayers at a whim. But if we ever get a government doing that, then tax won’t matter – the place will be mayhem. Think Mad Max.
Anyway, thanks for the feedback.
@Paul Lockett
Without the state there would be no society
Your argument makes no sense at all
They exist in constructive tension with each other
Sometimes the balance is wrong
But your claim has no merit to it at all
@Marc Daniels
I agree with you
I did not put this item up because I agreed with it – but because the unthinkable was thinkable. In other words – at the very last wealth taxes were back on the agenda
I do not think this tax would work – and do not suggest anyone should try it
What I agree with you about is that wealth taxes must be part of any tax agenda – and by highlighting that fact the blog has worked
I think inheritance tax needs to be reinforced
I think CGT needs to be at income tax rates
Taxes on property (and yes, that means homes) have to increase
Taxes on vacant property are high on my list of concerns
Reforming tax residence to collect tax – so tax on assets in the UK cannot be avoided by those outside the UK is vital
My point is I think the time when these can be discussed seriously is coming
And that’s good news
@Dominic Allkins
How terribly odd that your friend is in the same situation as described on Tim Worstall’s blog. Some coincidence, eh?
But to deal with the issue – your idea is absurd – and typically Worstall
Of course taxation without representation is possible – and desirable. Of course temporary residence does create an obligation to pay tax but cannot give rise to the right to vote
And likewise benefits should be due when no tax is paid – very obviously – as is also obvious in response to libertarians who who have commented here
All tax systems have to be pragmatic on these issues
So do all democracies
The art of government is delivering the possible – not always the ideal
So yes your US citizen should pay tax here just as I will when in the US
More important is the fact that I think the citizen of the UK should always pay tax here – irrespective – just as the US citizen does
The vote always carries the obligation to pay in my opinion
Interesting that the land of the free agrees
“The vote always carries the obligation to pay in my opinion”
Are you saying those who don’t pay because they don’t earn income (or make capital gains etc) shouldn’t be allowed to vote?
Or by ‘always’ do you mean ‘sometimes’?
Or do you mean ‘the two concepts – tax and voting – are completely unrelated’? Whether you do either is unrelated to your right (in the case of voting) or obligation (in the case of tax) to do the other?
Please explain.
That’s a bold claim.
Are you genuinely seeking to claim that in, for example, anarchist Catalonia, or in hunter/gatherer groups, the absence of a state means that there was no such thing as society?
I didn’t see Tim’s post until after yours although not so add that we agree since we tend to share many similar views.
With regard to taxation without representation which you describe as desirable (cough, splutter) – taken to its logical conclusion this would suggest that the state has the right to take taxes from those who have earned their money while removing the right of representation, i.e. the vote.
That would move us from a democracy where the ultimate power should always rest with the Demos to an authoritarian state where the power rests with the state. Is that what you are aiming for Richard?
I’ll leave the ad hominem to you (… your idea is absurd) and just ask some questions.
Richard,
The US system of taxing non-resident citizens inevitably causes double taxation due to the differences between the systems (which is the kind of double taxation treaties often fail to relieve).
For example, under the US tax system you get a tax deduction for mortgage interest on your home, and then pay capital gains on a rise in value of your home. In the UK we have no tax deduction, but no capital gains. A US citizen in the UK gets the worst of both – no tax deduction but capital gains tax.
Another example: in the US, people on low and moderate incomes often pay a higher rate of income tax (state plus federal) than in the UK; however there is no VAT (or a limited sales tax at a low rate). A US citizen in the UK keeps paying the higher rate of income tax, but now has to pay VAT on top.
Making UK tax work on a citizenship basis would cause similar anomalies, and people on low and moderate incomes would be the worst affected. There are better ways of targetting the rich, e.g. making residence and domicile more “sticky” and having more sophisticated exit taxes.
(nb I should add that the double taxation that would result from enforcing a citzen-based taxation system within the EU would likely be contrary to EU law)
@Marc Daniels
The passport has to be one of the stickiness tests – when all else fails
EU point accepted – but overcomable
I will publish more on this soon
I accept no one solution works if that is what you’re saying – but the passport has to be a part of it – which is what I am saying
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