The Tories apparently think that it's time to tax wealth more effectively. Their fear is that if they do not they will be electoral toast.
That's fine with me. I would welcome the same approach from all political parties. Knowing, however, that a proper wealth tax will take time to introduce I have developed some interim ideas that will ease the transition. They are here.
There is one important point to note. I do, quite appropriately, suggest sums such proposals might raise. This does not, of course have to imply increased spending of similar amount. Firstly that's because tax does not pay for government spending, as I have explained, often. Second that is because wealth taxes are in part about redistribution. Others should see taxes fall.
This second point is especially important, and too often missed. The key issue is that such cuts need not be income tax - which many on the lowest incomes already do not pay. The cuts to match the rises need to be in more regressive taxes. National insurance at lower levels may be one. Council tax reform is essential. Some obvious injustices in what are effectively poll taxes also need to be addressed. So, for example, the BBC licence fee should be reduced (but not necessarily eliminated) for all pensioners and maybe those on lower income, and not just the most elderly. And there should be benefit changes, starting with the bedroom tax and benefit cap, both of which are clearly intended to be vindictive.
This is a debate whose time has come. Let's have it.
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Let’s hope that we do have a debate and it leads to the right taxes on the right people.
However – I would not look to this administration for some good ideas.
I mean we have a so-called ‘children’s commissioner’ warning parents about bingeing on social media with apparently no powers at all to underpin the role or the warning.
I’m worried that such ‘window dressing’ will also be found in answering this particular problem as well.
Richard, great idea to direct 20% of new pension contributions to productive investment but why not advocate for more?
Also good that you reinforce the fact that govt spending is not dependent on tax receipts but then you close your essay with -,”This is vital if we are to beat the tax gap that denies the government the funds it needs.” – which seems to suggest the opposite is true?
The funds it needs are to prevent resulting inflation
Decreasing regressive taxes such as VAT and NI increase disposal income which is likely to be spent-in-full into the economy – true? Great as that provides much needed stimulus that we currently need and increases the well being of the many! But increasing taxes on the wealthy will not have a corresponding dampening effect on demand as it would likely be a hit on their savings rather than consumption spend. True? We need only worry about inflationary pressure when the economy begins to approach full productive capacity? Or am I being a bit too simplistic?
You are spot on
As per usual I may be wrong but I rather suspect this is just more lies to make people they have learned from their mistakes. Or if not It will just more ordinary wealthy that get clobbered but the super rich will still get off scott free. If Mrs May was sincere when she waffles on about the privileged few she would have commenses an investigation into the Duke Of Westminsters affairs, but no she did not. In fact the least she could have done was compel the royal family to pay for the upkeep of their palaces rather than getting the tax payer to do so.
As for a ‘wealth tax’ idea would this be campany wealth and personal or just personal. As if its just going to be personal the very rich could just have a lot of their wealth tied up in some LTD company?
You are right that pension wealth is a big issue and that despite changes over the last decade or so, the tax system still subsidises the already well-off too much in this area. An often ignored imbalance arises on employers’ pension contributions. A pension scheme is just deferred wages and this is recognised by deferring the taxation od those wages until the enjoyment thereof. This is not so for National Insurance Contributions (NIC). An employee suffers NIC on the wages he/she pays into his/her pension scheme when those wages are earned rather than when they are enjoyed. Conversely, an employer’s contribution to his/her pension scheme escapes NIC altogether.
This imbalance has already lead to the “cunning plans” industry coming up with arrangements to use salary sacrifices to pretend that what is in economic substance an employee’s pension contribution is treated as an employer’s. Restricting income tax relief on individual pension contributions will only encourage this industry further.
The solution (or at least a partial solution) is simple and will raise a lot of revenue: Impose employers’ NIC (i.e. secondary class 1 contributions) on all employer pension contributions.
Remove all tax relief on non-state pension schemes, which rely on churning unearned income, and fund a decent state pension with no need for leakage to the FIRE sector. Take the tory-ruined SERPS as a model.
Taxing wealth on a national basis is increasingly like trying to nail jelly to a wall. The moment the French government of Francois Hollande discussed raising taxes in France, Brenard Arnault (France’s wealthiest citizen) immediately applied for Belgian citizenship, and with endemic use of shell companies and offshore tax havens many assets can be hidden even without leaving the country. This makes very clear that comprehensive taxation of wealth in the long term will only be achieved once we have international cooperation to establish a Global wealth register, comprehensive agreements on exchange of tax information, and agreed minimum Global tax rates. Such progress will take years, if not decades to acheive.
In the meantime the best options for taxation of wealth are likely to be land value tax (because it is the hardest to avoid) and inheritance tax. However, if the conservatives were serious about progressive tax reform the first priority should be to introduce a carbon tax and dividend, which has more multiple benefits than any other policy :
1) It is the fastest way to reach deep decarbonisation before we do irreversible damage to our climate
2) It should be moderately progressive, so a net benefit to most low income households
3) It establishes the principle of equal state payments to all citizens, which could later be expanded into a basic income
4) It should attract bipartisan support as it is both environmentally justified, and revenue neutral to government spending
5) It is one of the few taxes that would actually increase private investment by incentivising energy efficiency and renewables
The really smart thing about a carbon tax is that it can achieve an outsized stimulus effect on the economy for an initially small tax take. It should start at modest level around £30 per ton of CO2 but also set in legislation that it will increase by 10% per annum for at least the next 10 years. This allows households and businesses to forward calculate guaranteed savings on energy costs which they will accrue in future years by investing in energy efficiency and renewable generation now. Since most business investments are quite risky the safest returns by far are on future energy spend which will have reliable returns whatever happens, so long as the company remains in business. The net effect would be a significant rise in green investment to help stimulate the economy now and accrue huge savings for the nation for decades to come. Understood in this way it is hard to see why governments of any colour have failed to adopt this yet as a win-win policy.
This is history
Until recently wealth was not traceable
Now it is
And residence can be made ‘sticky’ for a long time after leaving
I have nothing against LVT and carbon taxes but wealth has to be in any mix that is progressive
ideally, public pensions – State retirement pension and SERPS or something like it – would apply to all and be adequate to live on. The government running this is more efficient (cheaper) than private schemes,where there is a rake-off charged by managers and actuaries. It would ease the worries of millions of people. Payers-in do need some reassurance and unbroken promises as to when they can draw their pension! (Take note of the plight of the WASPI women.)
I fear that the time to have this discussion was decade ago, and it is now too late to speak of action against media oligarchs and a political class which, with few exceptions, exists solely to serve the concentration of wealth.
I do not believe that the Conservative Party are sincere in their desire to implement a tax on wealth; and I do not believe the Labour have the ability to so so.
If believed you were right I would pack up now
But I will be back in the morning
It is going to happen.
But not by the efforts of the Conservative Party.
Labour have a very long way to go before they do this: if, indeed, they ever do.
I agree that Labour have a long way to go
I too am a pessimist and believe you are right. Why do the rich “donate” to the Tories? Because they expect to have their wealth and power protected, and it has been largely so. The Crash is a prime example, whereby they have gotten even richer thanks to government policies.
The strategy of successive chancellors has (on occasion) talk tough – “until the pips squeak” – and then wallop them with a feather duster – a few headline hikes, then the usual stealth taxes and fiscal drag, and lots of freebies for the wealthy who have an army of amoral smart-arses fresh from “helping” HMRC plan and then running rings round them.
Some wealth may be more traceable, but can it be taxed, will it be taxed? I doubt it, ask Apple.
Regarding ‘ “until the pips squeak” — and then wallop them with a feather duster ‘I may be wrong here but that that phraise was said, was income tax not in the 80-98% range sounds to me a good deal more than using a feather duster to me. Now if you were talking the queen who until John Major changed it both Tory and Labour chancellors exempted the royal family from the high tax rates, I would agree.
This gets interesting, in a particularly nasty way, when you ask: “Who does the Conservative Party serve?”
If it’s Rupert Murdoch and a narrow class of oligarchs, then wealth taxes will have no effect whatsoever on the billion-dollar Caribbean holidays enjoyed by major corporations.
And, by extension, no effect on any of the offshore trusts that shelter properties inhabited by prominent Conservative politicians and their progeny.
It simply isn’t going to happen to any of the very wealthiest economic actors in the UK.
So who’s next in line?
Multimillionaires, and their holdings in Switzerland? That’s dangerously close to the family trusts that protect the wealth of Coalition cabinet members – Lib-Dem and Conservatives. Also, any attempt to tax wealth in Switzerland is a direct attack on Osborne Little (yes, *that* Osborne) and you can expect the Evening Standard to weigh in rather stridently.
Some parts of the Conservative Party (read: one very prominent Conservative) will be have their own reasons for pursuing Osborne Little and their clients.
Others will be less enthusiastic about that and, as politics is the art of the possible, we must look to the next tier down: mere millionaires and their wealth in Jersey and Gibraltar. A fair number of them are criminals – and in a legal sense they all may be: they are not paying enough for to get the kind of tax ‘advice’ that would place their money (and the vehicles that hold their UK assets in an offshore fiction) above the law and beyond the reach of HMRC; and a determined attempt at pursuit and prosecution could place all (or a substantial majority) of them in the boxes marked ‘money laundering’, ‘fraud’ and ‘criminal tax evasion’.
And then, finally, there are medium-to-small businesses and the upper tier of the middle classes. That’ll need new wealth taxes and new tax bands, rather than pursuing the evasion of existing taxes, but there is an interesting political dynamic in play here…
‘Interesting’, in a very special way that is familiar to those of you who have been exposed to the very worst of my cynicism here.
…As small-ish businesses and whatever’s left of middle-class wealth are going to be wiped out by Brexit anyway, they may as well be screwed over by a cosmetic ‘Wealth Tax’ that will leave all the real wealth untouched.
With the media onside, it’s certain to be popular; and I will relish the spice of reading that the Guardian is all for it, being far too dim and economically-illiterate to understand that this is neither ‘wealth tax’, nor redistribution, nor anything remotely like a serious assault on inequality.
And, identity politics being what it is, the targets of the tax will surely vote for it, and enthusiastically reaffirm their loyalty as ‘Natural Conservatives’ for the very party that is screwing them, right up until their wealth is taken from them in a budget placing the effective tax rate for an oligarch at zero.
“tax does not pay for government spending”
What a curious assertion. Suppose tax receipts exceed spending, which is what you’ve suggested should happen if government increases investment spending and the ultimate return to the Exchequer from all the additional outlays ends up being higher than the initial spending. You can’t say it is all simply reclaimed money, for what you have is an excess over what was spent.
You can’t use the excess to pay down debts, new infrastructure programmes or anything else, because whatever you do with it you’d be spending it. Unless you destroy it.
The return is on the investment
Yes, but it comes back to the government in taxation. The question is what does the government do with the money?
If the government runs a surplus it repays debt
In other words the income coming in from taxes gets spent, on repaying debt in this case.
How does that get squared with the earlier claim that spending and taxation are not coupled.
Easily
The claim was tax does not pay for spending
It doesn’t
It’s always used to destroy debt
What a curious assertion; interesting but curious. Is this a ‘thought experiment’, or would you care to illustrate which states have actually produced this result of taxes exceeding spend, and when?
It does happen
But very, very rarely
And for very good reason: it is, quite literally, economically destructive
I would have thought so. Deadweight losses are produced by taxation, therefore at a very high level of tax productivity I would expect it to undermine the economic growth that produced the taxes quickly and destructively. There may be exceptions for states in special circumstances; commodity rich (such as oil) and a relatively small population. I do not know whether it may be considered a by-product or symptom of such a scenario, but Norway has an £0.5Tn (?) oil fund. This may be a bad example.
I have no idea what you’re trying to say here but replying to yourself is not very often a good sign of willingness to engage in debate here
I am sorry if my observation appeared obscure. I was not replying to myself, I was attempting to reply to your reply (I am not sure what I am supposed to do to achieve that, and clicked on what seemed the appropriate icon). I have not been able to continue the debate today, and will therefore not now attempt to flog a dead horse; but I assure you I was not unwilling to “engage in debate here”. In my defence I would have thought my occasional contributions here counter that (slightly surprising?) proposition.
Sorry – but I was baffled at the time
I perhpas should have added, taxes exceeding spend over the long term; which is presumably what you implied?
[…] mentioned  some particular answers to the problem of taxing wealth yesterday which had something in common. This was that all were […]
“The cuts to match the rises need to be in more regressive taxes. National insurance at lower levels may be one. Council tax reform is essential.”
Council tax – is that a different pot? I thought that councils spent money received from central government plus council tax revenue. How might cuts in council tax match rises in wealth tax, or any other national tax?
They can match through redistribution to councils, in my opinion
If things carry-on as they are going…the national govt will be contributing nothing to local govt.
My town is literally surrounded by large newly-built and newly-being-built, housing estates.
The local press usually has a few letters in it moaning about the environment/traffic/noise etc.
One suspects that not much thought has gone into where the council will get money from post-2020….a.though the same local press also has the odd letter complaining about deteriorating services….
I sometimes think that return to those old join-the-dots-to-make-a-picture lessons would be appropriate!
People, and a lot of them, think that councils still get their money from the govt…..
Another reason to regret the passing of the free press, and regret the arrival of the captured press…captured by billionaire tax evaders..
Richard, you say that tax receipts ‘are always used to destroy debt’. But is this not just an unhelpful conceptualization in that it reinforces the myth that tax receipts are actually necessary to fund govt spending? The process of tax collection is simply to debit the tax payers bank account and extinguish her tax liability. It is a process of destroying private assets and those assets are never stored for later use as the govt can just create new money when it requires it. Isn’t this the true conceptual understanding that is key to breaking the fallacy that links taxation to govt spending?
I can’t see the link between cancelling debt and funding spending
Where is the link between extinguishing the private sector assets and cancelling public debt?
Tax