I mentioned some particular answers to the problem of taxing wealth yesterday which had something in common. This was that all were transaction based. They were not, as a result, pure wealth taxes as such. This point is important, even if a little technical but is key to wealth (and other) tax design.
To understand this it has to be appreciated that the vast majority of taxes are levied on transactions. This is obviously true in the case of indirect taxes, such as value added tax. There a sale takes place and a tax is charged at that moment. The link is obvious.
But the link is almost as obvious in so called direct taxes. A sale subject to a direct tax takes place. It automatically gives rise to a potential tax liability, subject to whether or not allowable costs have been incurred to offset the income arising. The complication is no more than that: instead of the tax due being decided by a single event it is decided by two or more (or the aggregate of many thousands upon thousands) of events. But in fact those events have something totally in common with the event that gave rise to the indirect tax charge. A boundary was crossed: possession of goods or services changed hands and a potential tax liability was triggered as a result.
And the simple fact is that the vast majority of taxes are charged when title to goods or services changes hands. This is why, in my mind, there is little conceptual difference between direct and indirect taxes: both are in fact transaction based. All that differs is the degree of aggregation of those transactions before a liability is calculated. This, when understood, has profound consequences for tax design in my opinion. It does, for instance, mean that profit is a virtually meaningless concept in taxation, but the discussion of that is for another day. The point for now is that true wealth taxes are exceptions to this general rule of taxation because they are not transaction based.
Compare, for example, a land value tax (LVT)and the current English and Welsh council tax. To some degree (albeit approximately, and poorly at that) the council tax is a transaction tax. It has implicit within it a charge. That is why, for example, it is capped. There can be no other justification for that. LVT on the other hand has no such constraint. It is a tax on wealth. It does, therefore, impose a tax on the rental value of the undeveloped land i.e. the pure wealth element of ownership. And it does so without consideration as to whether or not the value has been realised. In other words, value can be assessed to tax without any transaction having arisen.
This is exceptional. A wealth tax is also exceptional for the same reason. Inheritance tax is charged on a transfer of title. It may be imperfect but it is quite clear why liability exists: the benefit of property has changed hands. But in a pure wealth tax that need not be the case. Possession of title, and not its transfer, is the basis of charge.
Indisputably this gives rise to conceptual difficulty in charging any such tax. One of course is how to atrribute value, although in practice this is rarely insurmountable. Another is how to reconcile the difficulty of having possession of title but incapacity to pay; i.e. how to address the liquidity issues such a tax can gI've rise to. But again, if roll up is permitted until title passes then this is, again, rarely insurmountable. So these are not the reasons for the conceptual difficulty. That lies in the fact that implicit in these charges is something much more philosophically difficult, and challenging, in assessing such changes because what they represent, in my opinion, is a tax on what might best be called economic deviance.
This is not a term widely used. Indeed, deviance is not a term generally used in economics, although quite familiar in sociology and other social sciences. Without wishing to discuss the theoretical derivation of this idea here, let me instead suggest what it means. Assuming any wealth tax is progressive (and I presume even an LVT would have that intention) then what is implicit in the charge is a belief that there is a sufficient, or normal level of wealth that will not just adequately, but quite possibly more than adequately, sustain a person in the society of which they are a member. It is then assumed that increasingly significant deviation from this norm then imposes a number of costs on society that are in need of correction through the tax system.
One such cost arises from the control that significant wealth may create, which control may challenge the norm upon which society is constructed. This is particularly relevant in a democracy where the principle of each person having value in their own right is implicit in the structure of society. When a peson's control of wealth threatens this principle of broadly equivalent (and I stress the latitude that society appears to tolerate within that broad equivalence) personal value a wealth tax addresses the externalities that the deviation from the norm that a person's wealth represents in terms of the restrictions that it might impose on others might create.
The second significant deviation is in cost. This cost arises in a number of ways. One is in terms of cost of capital: it is very clear that the person already in possession of fortune has a lower cost of capital than the one a person without capital will suffer. This is very obviously an externality needing price correction.
Another is in terms of rate of return: in the modern, imperfect, economy rates of return to those with significant wealth have been much higher than those to people of lesser wealth because of tax abuse, market control through exercise of monopoly power and other reasons. A wealth tax corrects for that.
Next, there is an opportunity cost. As Brooke Harrington has explained in her book Capital Without Borders, a characteristic of modern capital accumulation has been it's extreme risk aversion, which is a trait accentuated by the role of professional trustees and risk managers in the management of many modern portfolios. This has reduced the amount of capital exposed to entrepreneurial activity, with implications all too obvious in the world economy where, as I suggested in my book Dirty Secrets, this risk aversion is killing capitalism from within.
And perhaps last for now (although I am very open to persuasion that there are issues I have not listed) is the fact that those with wealth have, come what may, lower marginal propensities to consume meaning that society cannot be indifferent to the distribution of wealth beyond certain limits if it is interested in maximising well-being.
Put these together and personal wealth beyond a certain point does, precisely because of its deviance from the norm as established by the majority of the population, challenge collective well-being. It is this deviance that does, then, justify the tax charge in itself, and on a progressive scale in particular.
That said, the charge is not trying to necessarily elminate the deviance, but to reduce it. And precisely because the deviance is measured as being at a level where the wealth holdings is not necessary for the enjoyment of a high level of well-being then the liquidity issue can be assumed in many cases to be capable of being ignored: capital disposal to fund the tax payment (or, alternatively, to make settlement in kind) is an outcome considered acceptable within the parameters set by society. A progressive charge that is sufficient to maintain an orderly market for capital realisation is obviously desirable in this situation: the possibility of suggesting optimal rates with this in mind is not hard to imagine.
There is, however, an inherent cause of conflict in this suggestion. It would seem that some who own what may be considered by the majority to be deviant levels of wealth are often unaware of that fact (as are most of those on very high earnings also usually apparently unaware of their good fortune). In other words, they do not share the perception of deviance. Alternatively, there are others who appreciate that the deviance exists but who are more than happy to justify it: it is their argument that society is dependent upon their aberrational wealth to provide the capital that it requires and that to destabilise this relationship would be to destroy the value on which society is built. In particular they argue that a majority cannot use democracy to impose their will to tax on a minority who happen to be in possession of a fortune because that imposes a tyranny of taxation to which the consent of the owners of wealth has not been given.
Implicit in this difference of view is a prescription for conflict that is hard to avoid. This brings up the question as to why this has not been an issue of concern to date. Wealth taxation has, to date, been difficult for two reasons. One has been the practical problem of simply seeking to locate wealth that could until now all too readily, and at a moment's notice, be relocated to a secrecy jurisidiction, never to be reliably traced again. That problem has now been tackled: automatic information exchange from tax havens is the beginning of the end for this abuse which will, no doubt, become progressively harder to undertake over the next few years as these systems become a familiar part of the tax landscape. The old conflict, between the tax authority and the owner of wealth to simply locate the assets to be taxed is going to be won by tax authorities.
But with that practical problem solved the conceptual issue of justifying the wealth tax charge becomes more readily apparent. I believe this impossible without a theory of deviance and resulting costs requiring correction by taxation. But that requires a clear ethical justification. This has to be human rights based. But it also has to be readily explicable to those not well versed in philosophy and ethics, and that means that a concept of fairness has to be use to underpin this. But that is not a fairness based on jealousy, because that is not an ethic at all. Instead it has to be based on positive regard. Such a principle is, thankfully readily available, and is that of treating others with the regard one would expect from those dealing with you. This principle, found in all major wisdom traditions as well as Enlighemment thinking, has within it the principle of reciprocity that can underpin the concept of deviance implicit in the basis of taxation of wealth that I suggest. But, and this is most important, that needs clear explanation and a robust defence to the challenge that far-right groups are used to bringing to all such debates.
Wealth taxation is essential if the challenges our world faces are to be addressed. And I think it fair to flag up that the transaction based approaches I suggested yesterday are a necessary first step. But that means that the actual intellectual challenge of developing real wealth taxation has to follow on from them, and that requires new undertsanding that's a long way from being available off the shelf right now.
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Best blog you’ve ever written, Richard. This really gets the grey matter working. I was asked onto a wealth tax steering committee a few years ago, by John Christensen, because they had already decided on promoting LVT. It was eventually disbanded because someone I invited to make a presentation used them to fund his own pet project. But I doubt that they did the real thinking before deciding on LVT and the campaign has moved on into the mainstream now.
I very much like the concept of deviation, or negative externalities of wealth. It gets to the heart of the matter from an economic viewpoint.
I still think it worth looking at a self-declaratory wealth tax, like Greg Philo has proposed. There is a precedent with ATED (Annual Tax on Enveloped Dwellings). I doubt if HMRC do much to police it, but one could always have random checks with severe penalties for non-compliance. I do not understand why you consider it to be unfair.
There is still, of course, a need to consider ways of curbing the accumulation of wealth by taxing away economic rents, not just landownership. I’ve been thinking about how to tackle intellectual property, but this comes up against international barriers.
Thanks Carol
I remember that project: it got nowhere
This blog was the result of going for a long walk with my sixteen year old son last night. Ideas evolved during its course. He asks really good questions.
Thank you …
Wow, Richard. The Koch brothers would have you taken out and shot for daring to question their “income defence” argument (see this article of Paul Mason’s on the likely behaviour of a President Pence – https://amp.theguardian.com/commentisfree/2017/aug/07/trump-out-in-year-usa-problems-just-beginning-paul-mason)
But the other side in Paul Mason’s article – the repressive, Right Wing state concerned with reactionary social norms – would also attack you, as they would say you were deriding “honest” toil and wealth amassed by “hard work”, and encouraging fecklessness and rewarding idleness (despite the validity of Balzac’s observation that in many cases “Behind every great fortune lies a great crime”, calling into question both the degree of honesty, and the extent of hard work involved).
A lot of conceptual blood is going to be spilt, and emotional capital expended, before even “the end of the beginning” is achieved in this particular battle, but thank you for setting out the real battle lines involved, and the concept of “economic deviance”.
I have a tin hat
I think I may need it
‘Economic deviance’
Wow! I totally get what you are saying with this concept.
All I would say though is ‘Are you sure’? Sure – using the term retrospectively in the context of how we used tax to build the commons is completely correct. But at the micro level today in this country, tax (even the notion of tax) is still hated. People still do not get the connect between tax and the greater public good. Wealth accumulation is still an ‘aspirational’ thing. It is seen as ‘good’ in its own right. Human rights to these people is the right to keep what they earn – no matter who is hurt in the process.
Because there is a hell of a lot of such deviance out here Richard. They’re all at it. Avoiding tax. Even lower middle classes are discovering the joys of Trusts – never mind (and quite rightly) – the Joys of Tax. And cash in hand for manual work is always readily and enthusiastically accepted.
So I’m not sure using the word ‘deviance’ is going to win people over. I would advice caution in using this term in public. It could also be seen as judgemental when in fact we should spend more time turning peoples’ heads towards alternatives – a better vision.
I think that it is going to be a long hard road – but a worthy one. The rich are going to fight back – no doubt about it.
A major area of challenge is the increasing hyper-individualisation of everyday life – too many people go about their lives as if they are the only beings here. Leading lives on-line, having needs met on-line etc. Using their income to achieve their dreams. For this bunch tax competes with their spending plans.
Another area of challenge is the inculcated lies about ‘tax payers money’ – we know about this one well here!
We could use the huge amount of evidence accumulated about the ills of wealth accumulation and continue to make these known and portray these as the consequences. Michael Sandel’s book has some excellent observations about how wealth can drive others out of market participation for example, rendering markets less effective.
I think that if wages improved, and debt was lowered tax would be received more kindly (they both have the same effect on available money).
But I think that the key now lies quite rightly as you say in human rights. Basically we should/could be saying that we do not mind wealth being created but if that wealth makes someone else poorer then that cannot be fair. Because that is not creating wealth. It is simply moving wealth about and leaving some with less or none.
If you aim is to create a theory behind taxing wealth can I suggest a book by Professor Paul Spicker : The Welfare State: A General Theory (Sage, 2000, ISBN 0 7619 6705 2) ? I am not suggesting at all that you ‘need’ help as a writer (far from it Professor!) but the collaborative ethos of his theory may I think give you a point of reference or two. I certainly see the taxation of wealth as a composite to an effective welfare state (although the term ‘welfare’ should be replaced by another word – ‘citizen’ perhaps)?
Thank you for another thought provoking blog.
Thanks
I admit I share the cncern on tme term deviance, but it worked in discussion with my son last night and this blog is basically a note of our conversation, and so I used it again. I think it does work if the deviation is seen as significant. I’m not for a minute condemning wealth accumulation. I see no harm in some of that – and I would like many more to have access to caoutal than do. It’s the excess – the deviant part- that’s the problem
The post has already been shared with some colleagues to see if it can be developed
This is the best rationale for wealth taxation I’ve read. Thanks Richard.
The key points for me are the idea of some finite maximum level of wealth above which any wealth is considered unnecessary for personal wellbeing.
Hoarding wealth unproductively or wielding it to enhance personal political power are not in the public interest. Indeed both directly drive the process of increasing inequality, economic underperformance and unaddressed externalities.
1) Wealthy elites use their superfluous wealth to influence politics such that they’re taxed minimally but their “investments” are supported by government while spending in the real economy is minimised and regulation of private economic activity is removed.
2) Resultant insufficient government spending causes unemployment and this forces workers into accepting bad jobs with low renumeration and benefits. Therefore…
3) …returns to capital (profits) take a bigger slice of output than workers’ wages which, in combination with minimal taxes on the wealthy, leads to…
4) …increased inequality with ever more wealth and power sucked up to the top 0.1% which leads back to…
1) Wealthy elites use their superfluous wealth to influence politics…
The cycle is self reinforcing and more difficult to break and more dangerous in the attempt to break with every passing year. It’s the process by which appropriate corrective taxes and government deficit spending increases are introduced that is the key.
Somehow the 0.1% ‘s power has to be circumvented without triggering harsh and destabilising retaliatory action from the 0.1%. In my view that means winning over some of the 0.1% and more broadly a majority of the top 5% to the idea we’d all be better off in a society that; dampened these elite power games, increased spending power of the bottom 95%, and dealt with negative externalities such as climate change and other environmental damage.
Unfortunately that is easier said than done!
But we have to start
Thanks for the comment
Yes, an excellent essay and agree with points made by Carol.
But I’m a pessimist. Scheidel (in “The Great Leveler…”) discusses the programme elaborated by Atkinson and as the latter admits, that would only partially reduce inequality – by about half the increase in the UK Gini from the late 70’s to 2013.
“many of these policy recommendations suffer from a lack of historical awareness. Reforms at the margins are unlikely to have a significant effect on current trends in the distribution of market income and wealth…… More generally, there seems to be surprisingly little interest in how to turn such proposals into reality or even in whether they could ever make a big difference. And yet history teaches us two important things about leveling. One is that radical policy interventions occur in times of crisis. The shocks of the world wars and the Great Depression, to say nothing of assorted communist revolutions, generated equalizing policy measures that owed much to these specific contexts and that may not have been feasible under different circumstances– at the very least, not on the same scale. The second lesson is even more straightforward: policymaking can take us only so far. Time and again the compression of material imbalances within societies was driven by violent forces either that were outside human control or that are now far beyond the scope of any viable political agenda. None of the most effective mechanisms of leveling are operational in the world today: the Four Horsemen have dismounted their steeds. And nobody in his or her right mind would want them to get back on.”
Scheidel, Walter. The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century (p. 436)
Personally, my money’s on climate change, inevitable even without anthropogenic warming. Unfortunately, the dislocation, collapse and conflict and death that is likely to result will be on an altogether different scale from anything that’s gone before, but it’s likely to produce levelling. Of course, we may be able to mitigate climate change, but with the likes of Trump, Lawson and other naysayers the omens don’t look good.
So, historically, if Scheidel is right, there has been no “soft” levelling on any scale, so how is it to be achieved that might return us to the kind of equality that probably existed when humans were hunter gatherers and there wasn’t the degree of surplus that has allowed the oligarchs to capture so much wealth?
I agree – there is a complication in taxing wealth. As you point out we mostly recover government spend (tax) when money flows, but in wealth there is no flow.
But you can tax wealth when it is transferred as you suggest. No special treatment of capital income (including inheritance) relative to income from labour, abolish tax havens, trusts, companies with no names, all the nonsense that is currently allowed.
I do think land is a special case. As Stiglitz showed all money creation inflates the price of land and this creates a crisis which as Piketty tells us is only corrected by violence so we need to address it rather than have more wars. Land is a part of the commons, and private ownership has a negative externality in that it denies others from the opportunity and making more productive use of that land. I would do what Singapore do and let the people (the state) own all the land and lease it to those that want to use it. It is a form of LVT if you like. Lease rate would be higher in the city and could even be negative for farming if that is democratically desired. Changes have to be made gradually. You could start by inheritance taxes could be paid in land transfers to the state.
I don’t think my blog answers all questions. It was just a late night musing to answer questions
I do allow for payment in kind as you note
I do think wealth tax viable, but maybe precisely because payment in kind might be useful in cases of extreme wealth holding
To create a fairer tax system we need greater empathy on ALL sides of the inequality divide:
Michael Sandel talks about “meritocratic hubris” by which he means that the wealthy elite today universally believe they got there by working harder and being smarter than everyone else, rather than by being lucky. Because today’s super-rich think they created this wealth solely through their own efforts, they also believe there is no obligation on them to pay back to society, help others by paying their taxes, or act in any way other than to maximise their own self interest at the expense of others. Despite exceptions like Bill Gates, for the most part Trump is not just an aberration, but as Naomi Klein says “a mirror held up to society”. Yet we must not just despise Trump but understand the neo-liberal narratives that created him. To set this right we need a much greater understanding among the World’s elite that all wealth is socially created, and that without a thriving society their own profits will ultimately stall and dwindle.
Perhaps harder to recognise is the lack of empathy among socialists for the rich. Too often the debate is characterised by thinly disguised hatred and a thirst for revenge against the capitalist elite. This ignores the fact that many (but certainly not all) of the World’s billionaires have actually contributed to major advances for humanity. Furthermore society needs some owners of excess private wealth to allow investment in high risk projects that conventional banks and investment companies just wouldn’t touch. And whilst we may blame the CEO for offshoring jobs or encouraging use of more flexible immigrant labour, we also need empathy for their position they find themselves in, often faced with the need to remain competitive in a Global market place characterised by a race to the bottom in labour costs and standards.
The answers to rising inequality and tax justice are never as simple as they seem. But the proposals we come up with must be based on what makes for a fairer and more productive society for both rich and poor, rather than on self-serving partisan ideology. We also need to find ways to properly fund the UN Global Goals and create a better future in all parts of the World, remembering that even the poorest in the UK have a much better deal than those living in extreme poverty elsewhere. Our greatest need today is to discover the empathy needed to re-connect two Worlds of the poor and the rich, recognising that we both need each other to thrive. To succeed we need to finally recognise that we are all better off, when we are ALL better off.
Trump and his like we’re not created by neoliberalism
They made neoliberalism to justify their existence
And no, we do not need high wealth to permit risk taking. The evidence from Marianna Mazucatto is that innovation happens in small companies with low capital and the wealthy are utterly risk averse
I simply do not buy your arguments that appear to be evidence free
Read my work and that of Brooke Harrington
Excess wealth has no social purpose
Robert P Bruce:
There is a lack of trust for sure and I share your desire for dialogue and understanding. However, the trust is lacking mostly amongst the super-rich and their supporters. They don’t trust each other and they certainly don’t trust the masses.
The neoliberal project was developed to enhance and secure the wealth and power of the top 0.1%. It is sometimes described as an idealogical dogma but it isn’t even that. It is merely propaganda and it’s chief proponents know it.
https://youtu.be/G67ha8iVmQ4
In the link above Paul Samuelson talks about Keynsian Economics and how taking away the myths about government budgetary constraints is likely dangerous because the people and their elected representatives will misuse government power and inevitably wreck the economy.
Think about the neoclassical/ neokeynsian position: their economic model is built on the idea of rational individuals seeking to maximise their utility in a perfect free market using near perfect knowledge. Yet at the same time these economists believe myths are required to restrain these supposedly rational economic actors because of their inherent ignorance, irrationality and stupidity.
They can’t believe two mutually exclusive realities so what do they actually think? The evidence of their constant meddling to stymie democracy gives us the answer. They believe the public cannot be trusted because the public are mostly ignorant fools. So the neoclassical economists and the rich don’t believe that their model’s rational economic actors exist in any significant quantity. QED the economists and the super-rich they support don’t believe their own neoclassical model.
Essentially the super-rich project their own paranoid distrustful attitude onto the rest of us. Then to prevent us ganging up on them they use their surplus wealth to fund propaganda to divide-and-rule by turning us all into selfish, acquisitive ignoramuses locked into tribal identity politics and totally incapable of seeing the bigger picture.
At the same time their propagandistic economic model is taken for an actually useful model by the ignorant and so our really economy declines even while the rich try to extract ever more wealth from it. The ensuing poverty causes the people to get angrier and angrier and the rich to get more and more paranoid.
So more propaganda is applied and more ignorance is created and we spiral into mass ignorance and stupidity till the most powerful nation on the planet sees fit to elect Donald Trump as President.
Because the rich use lies and distortion to get what they want they assume everyone else do too. So concerns about climate change, inequality or environmental collapse are seen as a Trojan horses to take away their wealth.
Viewed from their own propaganda’s perspective the top 0.1%’s fear of some of their wealth being taxed away is absurd. They’re wealth creators. They can create wealth at will through their mad wealth creation skills! A true wealth creator would be immensely relaxed about taxes and risky investments. The fact the rich are not at all relaxed gives lie to their hyperbolic claims of private wealth creation.
Good luck with selling a wealth tax to the rich and powerful on the grounds that they are deviant!
True though it may be…
The neoliberals spoke of trickle down, which is a nonsense of course.
Conversely what about a concept of equitable syphonage. On the grounds that we are all syphoning off world resources – be they natural, financial, human or educational and we are all standing on the shoulders of our predeccessors – and our contemporaries.
To be fair to everyone we need to do this syphonage in as equal a way as possible. There is no reason for anyone to have the right to syphon up many more resources than anyone else.
A wealth tax would be just be one method of ensuring this.
Well introduced concepts. What understanding is needed to address the difference between individual’s and other legal personalities such as companies, trusts and other vehicles that ‘hold’ the wealth for the direct or indirect benefit of individuals?
Those non-legal pesonalitis have to be attributable to individual or be God in their own right
This is one reason why the tax justice movement has worked so hard on beneficial ownership disclosure
Thank you for this insight, much appreciated.
This follows-on from our discussion in the thread in which the Professor Greg Philo wealth tax was raised. Here;
http://www.taxresearch.org.uk/Blog/2017/07/17/wealth-taxation-a-programme-to-tackle-the-crisis-of-inequality-that-we-face/
RM; “…the actual intellectual challenge of developing real wealth taxation has to follow on from them, and that requires new undertsanding that’s a long way from being available off the shelf right now.”
In answer to this closing challenge I’d say you’ve laid-out the ground for it very well by describing the social costs incurred already which require a wealth tax to compensate or adjust for them;
1. “.. significant deviation from this norm [of a level of wealth that will sustain a person in the society of which they are a member] then imposes a number of costs on society that are in need of correction through the tax system”.
2. “..the person already in possession of fortune has a lower cost of capital than the one a person without capital will suffer …”.
3. “ .. rates of return to those with significant wealth have been much higher than those to people of lesser wealth because of tax abuse, market control through exercise of monopoly power and other reasons …”.
4. “ .. the opportunity cost …. [incurred as a result when] … the amount of capital exposed to entrepreneurial activity [has reduced such that] … this risk aversion is killing capitalism from within… “.
5. “ .. those with wealth have, come what may, lower marginal propensities to consume meaning that society cannot be indifferent to the distribution of wealth beyond certain limits if it is interested in maximising well-being ..”.
Your conclusion is particularly clear; I like it a lot;
” Put these together and personal wealth beyond a certain point does, precisely because of its deviance from the norm as established by the majority of the population, challenge collective well-being. It is this deviance that does, then, justify the tax charge in itself, and on a progressive scale in particular.”
I suggest you hand this list to Haldane and ask his analysis unit to get to work incorporating these effects into their models and working-out the levels of wealth tax that are needed to steer our economy into more fruitful waters.
In fact it reminds me of what I said in that earlier thread;
“…a survey OF THE TARGETS OF THIS TAX was performed and resulted in 74% of them agreeing with the scale and nature of the charge. It’s not difficult to understand why; they know that the returns from their assets (whether that be trust fund income, equity value growth, corporate holdings performance or land and property valuation levels) will be improved by returning to a steadier and enhanced macroeconomic growth pattern compared to the last 9 years’ anaemic efforts. They’ll make this tax charge back over the next 10 years, in other words.
And secondly, as all wealthy people are aware, this sort of charge either happens by rule of law in as safe and predictable manner as possible, as I’ve outlined, or it happens at the end of a pitchfork in an entirely unpredictable manner. They’ve all seen the Bezos talk and are hearing the sharpening of blades in their sleep; they KNOW about the inequality and it worries the hell out of most of them. An opportunity to draw a line under the last 30 years, to isolate and neutralise the accusations of inequality would be manna from heaven to most of them.
If they were as smart as they think they are they’d PROPOSE such a scheme and set their PR firms to work ‘selling’ it to the public as a magnanimous and socially-inspired public gift and get massive reputation benefits for the rest of their lives. They’d all rehabilitate their social standing like the Gates’ have done and appear to be social saviours.”
Thanks
Appreciated resting that
Richard, your argument for a wealth tax seems to be based on deviant social impact resulting from such things as monopoly market control, capital investment risk aversion, and reduced level of potential consumption spend. The first two issues could be addressed through appropriate market regulation (as you previously alluded to in reference to pension contributions) and/or industry sector nationalizations (e.g., utilities and transport). But I don’t understand the point relating to consumption spend? A wealth tax would hit savings not consumption, true? Surely it would be wiser to make the macroeconomic argument for an expanded and well targeted fiscal deficit to address the public need and the public good? Engineering the economy toward productive full employment would go a long way toward redressing the income imbalance and turning the neoliberal tide? Redressing wealth inequality through taxation could be done slowly an incrementally without distracting from the main goal of breaking the shackles of austerity to achieve a robust economy that provides good jobs for all that want them.
Fiscal policy has to be in place for any economy to thrive
Tax reclaims the spend
But tax has to also tackle other issues (se th six reasons for tax in The joy of Tax)
Tackling inequality is one
Tackling externalities another
And supporting democracy a third
We definitely need wealth taxation for all these reasons
Tax does not fund fiscal policy but it shapes societies. In that role it is essential and that is what this tax is about
Thanks Richard
It seems to me that for many reasons AGR (aka LVT), with which you made a direct comparison, has special advantages for states to use effectively. Land cannot hide. It cannot move. It cannot cross borders. It should be the starting point; and in the end most rent seeking, one way or another, ends in land.
But it is simply not true that all value ends in land
And it is transactions that provide the opprtunity to tax
I favour LVT, so one of maybe 14 taxes
I hope this is a reply to your reply.
Without wishing to be pedantic I wrote “most rent seeking”, not “all rent seeking”. A great deal of surplus value is created by land. I think this is illustrated by Crossrail1 being followed by Crossrail2.
I do not claim that your 13 other taxes will fail, but I suspect most will be less certain to be very fruitful, will be far more costly to maintain; and AGR will stand out; in terms of security of payment, reliability of tax flow, and scale of tax paid, compared with all the rest.
I gave to disagree
Have you noticed how cheap our tax system is to run, and would be even if run properly?
I realise this is a work in progress. Norm- the average, but that average includes the outliers, aka oligarchs, and skews the norm upwards. A ratio of 4:1 for income seems sufficient to me.
Surely the easy part is to devise the taxes, the difficult, (I would say impossible) part is to devise how they are to be implemented. (see my comment above, esp the quote) No one has tackled this in a convincing way. Never mind the actual taxes, that’s just counting angels on on a pinhead, how are we to bring about revolutionary change?
So what is 1 in your view?
I really wish I knew. I can’t see any politicians implementing these kind of revolutionary changes in the next 100 years. And as others have said those with the money are going to bring all possible means against anyone with the temerity to make the attempt. That leaves a Bolshevik type revolution, but that usually leads to horrific dictatorship.
A new Party?
The practical issues in identifying and collecting this tax were begun to be addressed in the previous discussion on this blog;
http://www.taxresearch.org.uk/Blog/2017/07/17/wealth-taxation-a-programme-to-tackle-the-crisis-of-inequality-that-we-face/
In essence, once you can establish the beneficial ownership of assets and income streams the calculation of tax liability is straightforward. I’ve suggested that a useful ‘political’ stance to take on tax collection would be to extend the timescale for collection to, say, a 5 year rolling basis for wealthy individuals and organisations to enable no-one to claim their financial position is being nuked by the imposition of this tax in any one year; they and their financial and tax advisors could schedule their payment at their convenience in undertaking any liquidation of ownership or holdings that the payment entailed.
You understand, that suggestion is no more than a useful counter argument to the whines that would inevitably follow the legislation establishing this tax regime; it would only reschedule tax payments over a short time period not obviate them.
An alternative methodology for modelling deviance would be to identify and tax hoarding and rent-seeking.
The difficulty is in definitions: is this a productive asset, an investment creating value and circulating cash in the economy – and, usefully for our definitions, generating taxable cashflows?
…Or is this asset a token denoting ownership of a rent – the economically-contractionary practice of extracting value created by others?
Finally, is it just hoarding – a subtraction from the economy? Gold, a land bank, empty property, works of art in a vault?
The first two of these have taxable transactions – and that tax rate can be punitive for contractionary or economically-damaging stores of wealth. Better still, those transactions are the intrinsic value of the wealth, the discounted sum of all future cash flows, which can be taxed to a level which reduces the value of the wealth. In other words: an effective tax already exists on wealth defined by cashflows.
It is only the third type, the ‘dead money’ that needs a non-transactional tax.
This distinction does nothing to further the social goal of eroding dangerous concentrations of wealth; and it would be complex. But I would be skeptical about all claims that it is ‘unworkable’: partly because of who will say that, knowing their agenda; partly, because tax systems are inherently complex and tax administrators are quite good at managing complexity; and, mostly, because the current model of taxation isn’t working, despite vast efforts (or, more realistically, because of vast efforts) by the participants, and ‘not working’ is always a hint that ‘unworkable’ is already here.
That is an nt erecting idea
It certainly suggests variable rates may also be an idea