Because I was otherwise engaged I missed a seminar this morning, advertised here:
New project launching today!
With @arunadvaniecon and Emma Chamberlain.Should the UK have a wealth tax?
â“â“â“What’s your view? Let us know what you think. Here’s why we’re asking… https://t.co/J4aADItWAy
— Andy Summers (@Summers_AD) July 2, 2020
The conclusion of that poll was very clear:
https://twitter.com/arunadvaniecon/status/1278575250515660800
So it looks like Arun and Andy are into something.
But, I have my concerns. They're based on this tweet from the same thread:
https://twitter.com/Summers_AD/status/1278591789788794880
I know many of those in that thread. Some are pretty good people. And technically strong. But I have a problem. None are noted for their desire for change. There is no campaigner on this issue there, at all. The political case for change is, then, I suggest absent. And that matters. Change will only come if there is a political argument and that has to be rehearsed as part of this process.
But there's something else as well. I hate to say it, but I think the wrong question is being asked by Andy and Arun.
I address this issue here. The point that I made was a simple one. It is that it takes a long time to develop a wealth tax. It will be some years before anything could happen. That's just the way it is now with regard to implementation of major tax change. But what we need is a radical, quick reform to deliver significant tax reform now to reduce inequality of income and wealth to release funds for spending by redistribution (and note that the economics of this are being dealt with by the IFS In the above proposal, and they are not macroeconomics).
In that case as the Tax After Coronavirus (TACs) project has argued, what we really need now is not a wealth tax but is instead radical reform to the way in which income derived from wealth is taxed. This could deliver the quick reform that we need. And that is why I am not at all sure that the right question is being asked by this research.
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It is not either/or, is it? There is a strong case for heavier taxation of the income of the wealthy *and* of wealth too. Changing tax rates and reliefs and allowances on income and gains would be quicker to achieve right now than introducing a new wealth tax, but that does not eliminate the need to look at the latter too for the longer term.
Andy and Arun have recently ( http://www.lse.ac.uk/Events/2020/06/202006151600/how-much-tax ) looked at the effective tax rates paid (in 2016) by those with high taxable income and gains (including employee/self employed NICs but not employer NICs) and the answer is mixed. A significant fraction, about 10%, are paying close to 47%, because most of their income comes from employment. About a quarter are paying around 40% or more (presumably because many have large dividends, or earnings plus gains). The mean and median rates are around 30%. And about a quarter are down at 10%, which presumably means gains with entrepreneur’s relief, plus the effect of other reliefs.
Arun, Andy and I have now spoken this morning and have agreed cooperation
Good stuff!
We are on the brink of deflation and in the midst of recession, why the hell raise any taxes. We should be going the other way cutting taxes to encourage consumption and investment.
We can redistribute tax but overall we need tax cuts if anything
But taxes relating to wealth can rise because the wealthy do not spend
“ But taxes relating to wealth can rise because the wealthy do not spend”
I run a building company (currently doing admin due to injury), I would say 80% of our work historically and I hope going forward as it is picking up again, is from extensions, new kitchens, roof repairs etc, knock down and rebuild, from homes probably valued at £2m and above with many much higher. We are based in Surrey and work on many high end properties. They do spend and our profit margin is considerably higher in this area especially as it is repeat business and word of mouth. Before lockdown we employed 11 full time and used many contractors where day rates for good tradesman were £250/350. I doubt very much we could make the same money with your GND refurbs ( not withstanding it being a good idea).
I assure you the wealthy do not spend as much of their incomes as those on lower incomes
That’s how they become wealthy
You do miss a rather basic point
I agree with you, Richard.
Realistically, how long would we be arguing about a wealth tax before it arrived? 10 years, if ever?
Better to use the machinery and taxes we already have to make the system more progressive.
You have already identified where progress should be made… so let’s get those ideas adopted before (or alongside) more ambitious ideas.
Not just income. You’ve touched on this before, we need a bonfire of the “free lunches”, all the tax exemptions like ISA’s, gains on main home, VCT’s, etc, differential rates such as Pension relief for higher rate taxpayers, capital gains, dividend income and on and on and other clever schemes I probably don’t even know about – welfare for the wealthy, while the poorest don’t earn enough to qualify for any of these reliefs.
Agreed
While there is clearly inequity in taxation between those with wealth and those living on salary incomes, taxing wealth as such seems to me fraught with challenges.
In familiar terms (declaring an interest here) for me like I suspect most below the top 10% or so my major asset is my home. It wasn’t bought as an investment — at the time its predecessor was a loan-funded purchase worth making to avoid the frustrations of landlords and gain some autonomy — and variations in its paper value are irrelevant to its constant functional value of a place to live. If I were to be taxed on its value, there are obvious problems in accommodating fluctuating estimates quite apart from its actual true worth only being tested at whatever point I (or my heirs) sell it, and its paper value being unrelated to my cash assets which are my only source of tax payment.
But I see no problem in aligning current taxes to ensure equitable treatment of money realised from wealth assets with other forms of income. It really doesn’t matter whether someone’s source of spendable cash is salary, or dividends/interest from “income investments”, or drawdown from “growth investments”, or downsizing of property, or inheritance. They should be taxed similarly, and preferably on a straightforward simple basis.
Above there are comments on the need to eliminate tax exemptions as part of the process. Yes if they are unnecessarily complex and capable of exploitation — but at the same time you point out in your blog repeatedly that it is reasonable to use taxation for social aims. If the elected government of the day decides it is important socially to use the tax system to incentivise people saving for their own pensions (SIPPs and occupational schemes) or for a rainy day (ISAs) that shouldn’t be a problem as long is it is fairly applied and proportional to the social good aimed for (I do think the fairness and proportionality need looking at)
You will note that my focus is on equal treatment of income from work and wealth
We are a very long way from that now
Most UK voters don’t even realise that it’s the redemption or cancellation effect of taxation that allows the UK to be both sovereign in its own currency and this effect prevents hyper-inflation. Tell them the UK can never go bankrupt with its own currency and they immediately start ranting on about Weimar or Venezuelan hyper-inflation. So arguments about who should be taxed and how much are non-starters in their heads. Indeed the vast majority still cling to the nonsense that taxation and borrowing supply government with its spending money. As for the so-called National Debt fat chance of most voters understanding the net financial assets the non-government has as black ink on its balance sheet is a consequence of less than a 100% tax redemption. The UK is largely drowning in its own ignorance and no sign of any major political party making a determined effort to stop this nonsense!
If your intent is to destroy the wealth, a wealth tax is the way to go. If you take 10% of it this year, then next year there’s only 90% left. If you take another 10%, then the following year there’s only 81% left. If you then keep going, after 20 years it’s all but gone, and there’s no longer any tax revenue. Crank it up to 50% a la death duties, and in half a decade you’ve destroyed the aristocracy and stately homes across the country are being pulled down to sell for parts.
If your intent is to have a source of income for the state, an income tax regardless of source of income it the way to go. Syphon off 10% of this year’s income, next year there will still be an income that you can take 10% from, and the year after, and the year after.
No one, anywhere, would be talking of recurring wealth taxes of 10%
So shall we stop the hype?
And stately homes would nit be lulled down – they are listed and would move to the NT anyway
You rather miss the point us you think the aristocracy remains the biggest issue
So, candidly, your claim is nonsense
I assume from your response that you are not aware that the National Trust normally expects to be given the house and to receive a multi-million pound endowment on top to cover immediate repairs and ongoing maintenance costs?
I am
I am equally aware that no one get5s permission to knock down listed buildings so this problem is solved