I have already posted the introductory research on tax and wealth for the Tax After Coronavirus (TACs) project on this blog this afternoon. One person I tested that research with was Larry Elliott at the Guardian. He has now featured it in an article, saying:
The government has the potential to raise up to £174bn a year to help cope with the Covid-19 crisis if it taxed wealth at the same rate as income, a UK tax expert has said.
Richard Murphy, a professor in political economy at City University in London, said income was being taxed at almost 10 times the rate of wealth — and that the disparity should be central to any debate about who should pay for the pandemic.
He notes me saying
What the data shows is that if we treat all sources of financial gain to a household, whether from income or from increases in the value of assets, as being of equal value then we have a very regressive tax system in the UK. That means that those on the lowest levels of income pay by far the highest tax rates, whilst those with the highest income pay at the lowest rates.
He adds:
The amount of revenue the government would be able to raise from taxing wealth more heavily would depend on how much behaviour changed as a result of the higher levies. Murphy said his study was meant to highlight the flaws in the UK tax system rather than whether it was desirable or even technically feasible to raise £174bn in full.
“This has massive implications for the forthcoming debate on who, if anyone, should pay for the coronavirus crisis. What is clear is that the only fair answer will be that those on the highest incomes, and those with wealth, are the only people who could afford to pick up that bill. If anything, everyone else needs a tax cut just to help them survive. Any politician with any concern for tax justice will have to understand this.”
Murphy said he was not campaigning for a wealth tax as such, but suggested there were a number of ways the government could pick “low-hanging fruit”, including:
- Introducing a capital gains tax charge on former main residences passed on after death, with the exception of cohabiting spouses and civil partners and recognised long-term related carers.
- Equalising the tax rates on income and capital gains.
- Significantly reducing the annual capital gains tax allowance.
- Abolishing higher-rate tax reliefs for pension contributions.
Murphy said even if it were decided that the government and borrowing could pay for the whole coronavirus crisis the issue of the different taxation of income and wealth would not go away.
“What this data shows is that inequality in the UK is being massively fuelled by our tax system, at cost to us all. That has to be wrong. Radical reform of our taxes has to be on the agenda, now.”
My hope is that this helps fuel debate. That's what the Tax After Coronavirus (TACs) project is all about.
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Shame Larry didn’t read the research first. He’d have noticed how shallow it is.
It is full of errors, ommissions and assumptions, and spends no time explaining why there are differences in wealth and income. Nor Which is quite important when you are dealing with taxing wealth.
Larry read and discussed it with me
Wealth and income are different, but flows (I.e. increase) in wealth are absolutely economically equivalent. Try spotting the difference when both end up in the same bank account: you can’t
And if you read the blog you will see there is a whole series to follow. This note simply explains that there is massive capacity to tax wealth more
Sound very sensible and is a good comparison to make. I have seen the similar argument that labour is taxed far higher than assets. So if your major income is from assets then you will inevitably pay less tax pro rata than if you are living off your labour,which naturally that increase inqequality.
You have actually put a figure on that.
Might I suggest a land tax too,where do you stand on that?
That will be in the series….
It’s not going to end soon….
Hi Richard – a new reader of your blog – the introductory analysis is thought provoking. Thanks for driving this. Some questions and thoughts;
(1) the idea of treating “increases/gains” in wealth the same as labour income makes sense –
would it be simplest, most efficient and fair (and this may well be already what you are suggesting so apologies if so) to apply “One” progressive* marginal tax rate to “Total” Household income/gain, irrespective of the source of that income/ YOY gain – both labor income and assets/capital in the broadest sense (property, savings, pensions, shares, other financial assets, patents, art, jewelry etc). e.g. tax all income/wealth gains the same?
* more progressive than today e.g higher and additional rates 50% and 60% to enable reductions at lower end via higher tax free allowance (e.g. c£15,000 and 10% beyond this to c£20,000 “total” income/gain)
* no separate allowances for labor income and capital gains
* would non labor income be in excess of interest rate or inflation adjusted? (to avoid discouraging saving and investment and focus tax on excess returns). And how to treat losses?
(2) is there an argument for a) extending National Insurance Contributions to include ALL taxable income/ YOY wealth gains (ex pension income) b) remove higher rate threshold on NIC’s?
(3) Given Covid will decrease total wealth/asset values in short term (and potentially wipe out much of the wealth gains of the last few years), is your thinking on tax reform less about raising money to fund covid response (which realistically needs to come from govt borrowing and money creation, albeit in medium term as wealth inevitably rises again, the extension to include wealth gains will significantly help in terms of raising tax revenue) and much more about ensuring we have a sustainable and just long term tax system?
(4) do you believe that in addition to equalizing all sources of household financial gain and thus increasing the tax on wealth gains, there should ALSO be an additional one-off or ongoing wealth tax on absolute net wealth? Before I read your blog/research I was of the opinion that a wealth tax (per what France had up to recently and Switzerland and Spain still have) might make sense. However, from a long term tax reform perspective the concept of taxing the gains on wealth seems to me to be more sustainable/ effective, particularly if the marginal rates were more progressive than now, and if coupled per your blog with a capital gains tax charge on former main residences passed on after death. It also has the practical advantage of being changes to taxes that already exist vs. a new tax.
(5) From a wealth tax perspective (whether on wealth gains or wealth stock) how do you manage households who have high stock or YOY financial gains but mostly from assets that do not currently yield any income/not liquid (e.g. deferred pensions that cannot be accessed until retirement or from main residences, albeit arguably you have option to sell the latter and realize income so not really the same as former) and limited other realizable income sources? I can think of several people mostly in their 50’s, who whilst I suspect have a good occupational pension pot, have post redundancy or because of ill health low/no income and living off limited savings until retirement and they can draw pension at 65. And there will be many more of them post Covid!
I recall from when I worked in France that the total tax on income and wealth couldn’t exceed a
% of total taxable income – 75% I think. Spain has similar limitations for their wealth tax at 60%.
6) Separate to all of above, are there opportunities to a) close inheritance tax reliefs for the very wealthy per link https://www.taxjustice.uk/blog/its-time-politicians-read-the-last-rites-for-inheritance-tax-reliefs-for-the-wealthy b) on Corporation Tax, given it is an indirect way of taxing wealth, as share ownership and pension holdings are concentrated amongst the wealthiest, and given that the current system in arguably biased to largest companies who often pay lower effective rate than small sole traders.
Sorry this ended up longer than intended but a really meaty/ important topic!
I will be tackling many of these issues over the next couple of weeks or so – although by no means all in the way you suggest, many of which are far too complex to work, and practicality is key to what I am proposing
Can you comment when issues come up?
I can’t do this twice….
Wealth seems the great unmentionable, so tapping low hanging fruit, by taxing income from wealth as you suggest is a good way to bring it kicking and screaming omto the agenda.
We have ‘capitalism without capital’ for most people, the ‘property owning democracy’ promise of the 1980’s having been progressively trashed. If you could begin to envisage how to get the wider population a share of national wealth under a post corona system , that would be great. Maybe a link to the Piketty argument that only wars (and /or pandemics?) offer the opportunity to redress the balance between asset holders and those who exist on earnings from work…