This is a summary of my slides on wealth tax for a presentation at the World Bank this morning but they may not represent all I actually said: I tend to go off piste, especially when speaking last, as I did.
Tax COOP at the World Bank
Winning the Tax Wars
Wealth Taxation
Prof Richard Murphy
City University, London and Director, Tax Research UK
24 May 2016
Any tax requires at least 5 things:
- Economic justification
- A definition of the tax base
- An ability to find the tax base
- And to prove who owns it
- And then go out and collect the cash
The economic justification for taxing wealth
- There is growing inequality
- It is now accepted inequality imposes a cost
- At the same time every state accepts it has the duty to protect private property
- But not all share in the benefit of doing so equally: some tread very lightly on the world's wealth
- The justification for a wealth tax is then that it's a charge on the rent wealth enjoys from the protection the state provides to it
The tax base must be simple
- It has to be as wide as possible - there is no room for exemptions
- It has to be by self declaration
- It has to be backed by the right of the state to acquire an asset at its declared value — which would be nothing in the case of under-declared wealth
The important thing wealth tax is now possible
- Because of automatic information exchange there is a real prospect of finding wealth now
- And if we get beneficial ownership data then we will know who owns it
- And that means there is a real chance of collecting payment
The world has changed in a remarkably short period of time
- Tax havens are being cracked open
- The world is aware of the danger of inequality
- Piketty's dream does not look so unrealistic after all
- Wealth can no longer run from tax authorities
- It may be mobile, but it can no longer hide
- We can, then, for the first time tax wealth
- It is my suggestion that we should
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Spoken like someone with no wealth to his name. Pathetic.
How much wealth must I have to comment on a wealth tax?
And since when was the right to express an opinion priced rather than a universal right?
Might you show me when the change took place?
Good grief, that really IS a “Marie Antoinette” style comment from a one-dimensional man! “Pass the sick-bag, Alice”.
On the contrary Mr Greaves!
Richard has a wealth of new ideas, a wealth of justice & fairness and wealth in the courage and energy he has to put forward alternatives.
Excellent analysis.
Some thoughts that might help to “ring up the sale” –
1. Realism
Your “has to be self-declared” assertion should help overcome the objection that a wealth tax would be too difficult to collect. If the individual taxpayer doesn’t claim ownership, it’s not theirs – it’s ours (i.e. the tacxpayers collectively).
2.Equity
It is reasonable to offer, in exchange for a “cut and come again” modest annual haircut on wealth, that the top rate of tax levied on income is never too high (30% max. would seem equitable) – we want people to strive and become rich enough to pay wealth tax – lower taxes would bring that day forward.
3. Countering avoidance
If “splurge” money spent on excess and frivolity reduces liabilty to wealth tax, there could be unintended consequences of wilful avoidance. Income data accumulated over years, minus an assumed reasonable spend for someone of that income bracket,minus wealth tax already could create a database of assumed wealth as a minimum wealth tax base. I.e. over the years, especially from about year 10 onwards, there could be a reasonably reliable and hard-to-challenge quantified and provable assumption about the minimum wealth of an individual.
Good luck and fervent thanks to you for fighting this most important battle on behalf of us. I know it stops short of martydom, if only because you’re obviously enjoying yourself, but what you are doing is incredibly important. Keep truckin’, Richard.
Thank you Chris
That a person can have wealth amounting to billions whilst others have nothing is so ludicrous it is difficult to understand why society accepts it. When a person accumulates excessive wealth and retains the income generated by that wealth it represents a far greater loss to the state than any benefits that are paid out. Such a person contributes nothing to society; they simply extract wealth from everyone else. I do not think that collecting the tax would be any more of a problem than the ones we face in trying to tax income.
“It has to be backed by the right of the state to acquire an asset at its declared value”
So the state can “acquire” my house from me, provided they pay market value. Or my company? Or a work of art that has been in the family for generations?
No chance of that power being misused, I guess.
Clearly that would not happen if the value was considered fair
There would be no benefit to doing so
So stop raising silly objections
Perhaps I’ve misunderstood.
If a taxpayer declares the value of an asset to be £1m for the purposes of the wealth tax, would this mean that the State would have the right to compel the owner to sell the asset to the State at that price if the State felt that the asset was actually worth more (say £2m)?
Would the State (in this case) be obliged to return the £1m difference (minus taxes of course), or would the extra £1m be confiscated as a form of civil asset forfeiture?
The £1 million would be confiscated
That would be the price of under declaration
Roger, you may be interested to know that the next Chancellor intends to introduce annual Land Value Taxation. This is the most effective wealth tax since a big portion of personal wealth is actually land value tied to residential property (location, location, location). You cannot hide land in a tax haven. Land values derive from natural attributes and public and private investment in the locality. The owner has nothing whatsoever to do with creating its value. The tax is paid by the owner, not the occupier as with Council Tax. A £100m property is nearly all land value and when fully implemented the owner will have an annual bill of c £3 million. At the moment such an owner would pay less Council Tax than the tenant of a £599 per month flat in Weymouth.
This would be in addition to any wealth tax which was brought in under Richard’s proposal – which I support.
How did feel your contribution went down with the audience Richard?
I hope that the FBI and CIA have not added you to their ‘dangerous persons’ lists!!
There is a tendency for those on last at such events to suffer delegates walking out to catch trains, get an early dinner etc. I hope this was not the case.
I had very strong positive reactions
The heads of tax at the IMF and WB bith turned up to listen quite specifically
I am not declaring total success, but as one very senior official I have known for a long time said, ‘we agree again Richard’
It was a good day
One way of encouraging ataxpayer’s realistic self-valuation and declaration of a non-monetary asset would be a clause/provision that entitled the state – if it wished – to compulsorily purchase the asset at (say) 120% of its declared value.
I believe that if the Labour party were to make a wealth tax the cornerstone of their economic policy they would win the next election by a large majority. In addition to the argument for a fairer distribution, it should be easy to persuade people that a wealth tax would improve, not harm, the economy. Most wealth is not earned and never was, so it would be difficult to argue against it.
David Mentor: where is your evidence that, “most wealth is not earned and never was”?
According to the ONS the largest component of wealth in the UK is private pensions(40%)which must have been funded from past earnings to be in a pension. The next largest component is property (35%) which will mostly be people’s houses (although I accept a 18% of these are rented or otherwise owned by the wealthy). That still leaves the bulk of the millions of houses in the country with ordinary people who have worked to buy them. Your statement doesn’t even come close to being true even if you assume that all financial assets (14%) and physical wealth(10%)were not purchased from money earned (which would be preposterous).
The next biggest component of wealth is residential property. Most of that is land value which is totally unearned.
Thanks Carol but David’s assertion is still totally wrong.
Also some of the land value is clearly earned as the majority of us (many millions) bought our residential properties out of earned income (via paying down a mortgage over a number of years) so it’s only the increase in land values that is effectively unearned. The value of my house has hardly moved in the 10 years since I bought it but that’s in the North.
We should have a wealth tax instead of charging our future generations interest on the loans they have been forced to take out to fund their higher education.
I do not have a problem in principle with university students paying back their loans as a contribution to society providing them with an advanced education where it allows them to prosper financially.
But I do have a problem turning this into yet another rentier extortion game!
http://www.theguardian.com/education/2016/may/25/simon-crowther-loan-grew-by-1800-a-year-says-government-misled-students
In response to Adam Munch:- In the percentages you quoted, why did you omit inherited wealth? The ONS calculated that over a two year period inherited wealth amounted to £75 bn, of which three quarters went to one fifth of the population. Some would argue that inherited wealth has been earned but even a forthright capitalist like Tim Parker has questioned whether your money is yours to give when you die. He also said that it is damaging to the economy. The reward for having wealth is often greater than that for hard work and enterprise. And the great landed estates were never earned, they were seized or give by a monarch in the middle ages. Do you really think the Duke of Westminster has earned his wealth? If we continue as we are, society will become more and more unequal. Is that what you want?
David Mentor: The £79bn you reference is insignificant compared with the £4,460 billion in pensions and the £4,000 billion in property. So, as I say, you are simply incorrect to say most wealth has not been earned. £79bn is 0.0067 of the wealth in the country – so hardly most of the wealth.
£4,000 billion in property has been earned?
Please do not be daft: most of that is pure inflation
Total UK outstanding mortgage debt is currently £1,400 bn. That’s millions of people working to pay down this debt from their earnings. That’s just the current balance and so it’s reasonable to assume that – on average – these are half paid down. So £1.4 trillion has been earned and the remainder will be earned (if people are to pay down their mortgages). That also ignores people who have long paid off their mortgages from earnings and are now mortgage free.
Adam Munch: The statistics for the proportion of wealth that is inherited are not easy to ascertain. I have relied on Inequality Briefing 26 which gives a figure of 28%. Also, many people believe something should be done to curb the excessive pay of people like CEO’s and people in sport and entertainment. A wealth tax is the easiest way to achieve that.
So if the concern is excessive pay of CEOs, people in sport and entertainment why not change the reward model in those industries? There’s no more than 10,000 of those individuals and at least that would be a targeted measure rather than an arbitrary tax that does not discriminate between those that do earn it/deserve it and those (in your opinion) that don’t. That’s the problem with the hard left they seem to think that taxing more solves every perceived evil. Is it really the only tool in the locker?
Adam Munch: Yes, I believe it is the only tool in the locker, all others are avoidable. Even if you believe wealth has been earned, when excesses accumulate the holder of the wealth receives more from that wealth than from hard work or enterprise. That does not make economic sense. Another way of looking at it is to ask the question, “How much wealth should the richest person have?” By the way, you haven’t said whether you want inequality to continue to increase. If you do, I understand your arguments. If you do not, please provide a workable solution.