The issue of wealth taxation is, perhaps unsurprisingly, controversial. A simple lack of familiarity with the issue, because wealth taxation is so rare, only exacerbates this issue. And yet discussion of wealth taxes is becoming more commonplace, which the Tax After Coronavirus (TACs) project welcomes.
Amongst those newspapers that have discussed the issue is the Financial Times. As the FT noted this morning:
When the FT recently organised a Q&A for readers on [wealth taxes], I expected it to provoke strong feelings. But the reaction was still surprising: there were more than 300 comments on the question “How would a wealth tax work?” That is the highest number received on any of FT's Live interactive Q&A sessions ever.
And this point was unsurprising:
First, to put it mildly, most FT readers are not in favour of a wealth tax. This is in contrast to a recent poll by YouGov which surveyed 1,682 UK adults and found 61 per cent would approve of a wealth tax for those with assets of more than £750,000.
As they noted:
In one sense this isn't surprising. Most FT readers are significantly wealthier than the average UK adult. Or, as one reader sardonically put it: “Most of those people who said that they support [a wealth tax] wouldn't be those who would be paying it themselves. Always easy to use other people's money.”
Indeed. That's true. But let's be clear that this explanation cuts both ways. The wealthy have been very keen that rates do not impact them to date, and that on the whole other people pay the taxes that they do not like. And they have succeeded. That is why:
- Council tax is regressive
- VAT is regressive
- National insurance is regressive
- Corporation tax is charged at rates lower than income tax
- The top, 50%, rate of income tax introduced in 2010 was so rapidly dispensed with.
The tax system as it stands is unjust. It is biased to the wealthy.
As I have shown, the combined effective overall levels of tax on income alone and income and increases in wealth when combined, organised in successive 10 per cent bands of equal size within the UK taxpaying population is as follows:
I am not, as I have always made clear, suggesting as a result that all increases in wealth should automatically be taxed as they arise. The point is, instead, that wealth is seriously under-taxed in the UK and that the capacity to increase taxes on wealth, is significant and substantial.
This is, of course, what the Tax After Coronavirus (TACs) project is all about. Those with wealth may not like the idea that additional taxes on wealth are now necessary, but they are, for two reasons.
The first is that tax cuts are also necessary. Taxes on consumption and employment must be reduced at present if there is to be any economic stimulus provided through the tax system. That means cuts in VAT and NIC are required. To rebalance the tax equation that does require an increase in taxes on wealth and income derived from it.
Second, this is economically appropriate. As is being widely noted, the savings ratio is rising rapidly as the coronavirus crisis develops. In other words, people are saving higher proportions of their income. That is a natural reaction to economic stress, but only exacerbates the problems that we face because there will be less available to be spent on consumption as a consequence. This, then, means that wealth should be taxed more to encourage the redistribution of income and wealth from those who are saving to those who will spend, and that necessarily means that the wealthy pay more tax so that those on low income, who have the lowest savings ratios, have more income available to them. This will speed economic recovery and alleviate poverty at the same time.
The consequence is that the wealthy might not like the idea of wealth taxes, but that there is nothing new in that: they have ensured that the whole tax system has been rigged in their favour to date. And, changing this is now an economic imperative if we are to see anything like reasonable recovery from the coronavirus crisis.
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I think I would favour incremental changes to taxation – such as increasing council tax bands and some kind of land tax.
On the 50% income tax rate, I have sympathy with e.g. small business owners who may have worked hard for many years at relatively low levels of income, to have finally ‘made it’ only to be hit with what they perceive as an unfair tax. So on the 50% rate, e.g., I would favour a spreading mechanism a bit like farmers averaging. In saying that I am fully aware of the complexity it brings.
On VAT, I would prefer targeted cuts in some areas, e.g., any kind of construction work on houses that made them more energy efficient, where all of that work could be zero-rated/5%. I would exclude PVCu double glazed windows from any reduction, purely on the basis that they are horrible and only allow the reduction on secondary windows (but that’s just me and my foibles). Reducing VAT on domestic construction activities seems to me a bit of a win as it is labour intensive and may use more home produced materials.
I would not reduce VAT on ‘stuff’ that is more likely to be imported from e.g. China as we need to reduce our reliance on what has become an out of balance trading position. As Rich Hall the american comedian puts it: when we have more money we buy more sh#t that we don’t need.
National insurance does seem to be an area that needs reform and I agree that it seems punitive to only charge it on employment/earned income.
All non-bare trusts should be registered with HMRC or otherwise be deemed null and void for tax purposes. Money laundering regs could assist e.g. solicitors to ensure it is done.
Stepping back, I think I prefer land tax – it seems to solve a lot in one go.
A re-balancing of taxes would really boost the economy.
Take £10 from me? I hand it over and carry on; economic impact is zero (I am wealthy)
Give my (poor) daughter £10 and she will spend it; economic impact positive…. for the pub where she spends it, the brewer who brews the beer, the landlady who then goes and gets a hair-cut, the hair-dresser etc…..
In short, anyone who wants to boost growth (and insists on fiscal neutrality) should support wealth taxes.
Precisely
Can somoneone let Rishi know about this?
The tax system has become unfair, directly because of the idea that ‘Tax Funds Public spending’.
Once people were brainwashed (over decades of media reporting) to think this, then rich taxs were gradually be reduced because of these false reasons:
* Is it fair that those who do not contribute to public service funding should get the same service?
* Is it fair that the top 10% pay 70% of income tax?
* and following this, is it right that we should expect the rich to fund even more?
While people believe tax funds spending, we will not ever get a truly fair tax system.
All MythBusters, to come…
Sorry to be semantic Richard but when we talk about “wealth tax” are we talking about a tax on (a) how rich you are or (b) how much richer you got? Your graph focusses on increases in wealth which would suggest you mean (b) but to me that’s not a “wealth tax” but a tax on realised and unrealised income and gains. To me, a “wealth tax” should simply be a tax on your net worth at a particular point in time, i.e. (a).
Sorry if I’m being a bit dim but could you clarify please.
I actually am not proposing either
I wanted to show a capacity to pay
At present I am suggesting increased taxes in income from wealth – the easiest way to clever at present
Thanks for the clarification, Richard.
I agree that it would be logical for all forms of enrichment to be assimilated to income and taxed as such.
In time (from my favourite movie: “maybe not today, maybe not tomorrow but soon and …”), I’d also like to see wealth itself being taxable (i.e. (a) in the above).