The Guardian has reported this morning that:
A group calling themselves the Patriotic Millionaires have gathered outside the homes Jeff Bezos, the world's richest man, to call for wealthy people to pay more tax. The demonstrations in New York and Washington state targeted the Amazon founder because his company only paid a 9.4% federal income tax rate last year, less than half the statutory 21%.
I clearly have sympathy with the motives of these protestors. We do need to tax the wealthy more, around the globe. The economic impact of excess wealth in the hands of a very few is deeply destabilising for society as a whole.
It is also straightforwardly economically undesirable: the accumulation of wealth in the hands of a few does reduce the capacity of billions of people to affordable spend to meet their needs. The gross wealth inequality the world is witnessing is a profound cause of injustice.
Bezos is also a rare case of a US multi-billionaire who has not made commitments to divest himself of wealth e.g. to charitable foundations.
There are also, rightly, concerns about Amazon's tax paying record more than a decade after the issue was first raised, with my involvement at the time.
What is also beyond dispute is that tax can have an impact on this issue. I remain to be convinced by the merits of wealth tax at present. That's not because they are wrong, but because designing and implementing one would take too long. There are better options. Simply genuinely equalise income and capital gains tax rates. Cut the tax reliefs the wealthiest enjoy, e.g. by the tax exemption of their super expensive houses as if these are homes like any other. Increase their council tax obligations. Introduce an investment income surcharge on all investment income over £5,000 a year (higher for pensioners) to be the equivalent of national insurance on pay from work. Increase the corporation tax rate. Do all those and many issues could be addressed very quickly. In other words, reform is easy, and possible now.
So why draw attention to this particular protest? Because I am still not convinced where the patriotism comes in. We know we do not need the taxes paid by billionaires to fund government spending, because that is not what tax does. And so there is nothing especially patriotic about this, unless there is an aim to promote the idea that we are dependent upon the generosity of the wealthy, which we are not.
I like the idea of taxing the wealthy more in that case but doubt it's patriotic for anyone to promote this. The wealthy would gain from the enhanced economic activity it would give rise to, for a start. It's self-interested to promote this. We need to tax millionaires because it makes sense to do so, and not because it's patriotic. And most certainly not to create a culture of gratitude for the tax that they pay. That is what they simply owe.
But whatever the reason, we need to tax millionaires more, and to start doing so now.
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Agreed – if only to stop their cash infecting politics and universities.
Bezos is the ultimate “American Dream”. Sadly.
I’m sure you’re aware of this, but there isn’t one single equivalent of NI on pay from work: it’s considerably higher for employees (not least because of employer NI) than for the self-employed.
I am
So I am suggesting an approximation
Almost all of life is about approximating
I have spent much time pondering why we need to tax the rich. What would be a good framing of the reason.
‘We need the Rich’s money to spend on public services’ is bad, since it is divisive, puts out the idea we need the rich to remain rich, and above all its untrue.
“We need the Rich’s money because they are too rich”, is also bad…since, though true, is still divisive… Just because someone has lots of money, doesn’t necessarily mean they should be taxed more. This is envy taxation. You have more money than me, so you should get taxed more. People don’t like this idea, it seems unfair.
So, how about this:
“We need people who use more of the limited and scarce resources that this country can provide, to pay fairly for what they consume”.
So, if Amazon’s operations is causing highways and infrastructure to wear out, then they should be charged highly for using that infrastructure. No, we don’t need the money, but we do need them to pay an amount that is representative of the amount of damage they cause. Same goes for taxing highly CO2 polluters.. Same goes for those who hoard land, or property which forces up prices of housing so people are forced to rent.
Make it very clear that these taxes are to pay for the things that the millionaires themselves are using. It’s not because the government needs their money, or that they are too rich. But, simply, because these things they use have a very real resource cost, which the rest of us has to endure by being excluded from using.
So how to work out how much tax? – Well, one blunt tool would be to say that (in general), because the higher the GDP of a country, the more of the resources of that country is being utilised.
so, work out how what percentage of Amazons turnover contributes to the countries GDP, and use that figure in a sliding scale of ‘Resource Tax’, with the very highest amounts in the 90%+ mark. Yes, a ‘Resource Tax’… not a wealth tax!
It’s about public perception. And, in this neoliberal, capitalist society we have now, people have the mindset that it’s only right and fair that you pay for the resources you consume. So, this will be accepted by far more people than the idea of a wealth tax.
At the end of the day, yes, we need to tax millionaires, we need to reduce their wealth. The question is how to frame that high taxation in such a way that the public will feel is fair, in order to get support for political policy and hopefully get a progressive party into power.
Some of the Patriotic Millionaires were interviewed in The Guardian recently.
I liked the comment made by Walt Disneys grand daughter who described visiting Disneyland with her Grandfather who clearly knew and acknowledged the staff, she said that while he was extremely wealthy she felt that he just could not imagine paying himself the sort of income that the current Chief Exec of Disney is getting.
There seems to be some sort of ‘blind spot’ for want of a better term that many of todays super rich have in terms of how much they pay themselves compared with their workforce – I might not begrudge Bezos his billions if being an Amazon Employee meant excellent pay and conditions.
More importantly while far from being progressive, I keep on getting the feeling that Churchill had a clear idea of what the wealthy could ‘get away’ with and the consequences if they overstepped the mark. I feel that if they do not rein themselves in the possibility of unrest cannot be ruled out.
I take these people at face value – as those who are concerned about fairness etc. Plus if it draws attention to the issue, then it is all to the good.
It is also about money circulating. It tends to stop doing that once it ends up concentrated in the hands of the very wealthy. In Ancient Rome by around 400 AD the small class of Senators owned pretty much everything, which caused a financial crisis due to a lack of money in circulation, an employment crisis due to a lack of paid jobs (the Senators used mostly slaves, which will be robots in our case), and a rent crisis as the Senators demanded farmers pay rent on the farms and families pay rent on their houses / flats (Rome itself was mostly 4 storey blocks of flats as it is still today). As the Emperors got weaker it became more and more difficult to extract any tax from the Senators. Since this led to the collapse of the state and being overrun by the barbarians then this was in reality very bad for the Senators and everyone else.
Why do we do things and what motivates us? Does a Bezos do it because they want to sit at night counting the zeros on the bank statement, or because they get a buzz from ‘the deal’, being guest speaker at conferences, et al? I suspect mostly the latter in which case the actual quantity of money in their own pocket makes little difference. I am sure Bezos would do exactly the same as he does now if he ended up with $10 billion rather than $100 billion. Back in the 1970s the 90% top income tax rate seemed to have little effect on what business people did or where they lived. Philip Green is more the exception than the rule. Becoming a tax exile is all very well but in many ways it is self-imprisonment for the benefit of your money, even if the cage is heavily gilded.
“Back in the 1970s the 90% top income tax rate seemed to have little effect on what business people did or where they lived.”
“In the 1960s one of the great debates in the press and at the workplace was the ‘brain drain’. This was the exodus of British talent, particularly from the academic, scientific and technical sectors, usually to the United States. The fear was that the country was being drained of its most skilled people which threatened its status as a major innovative, industrial power. The brain drain was real, and it was fuelled by high taxation and lack of opportunity in the UK.” The Guardian 18 Jan 2010.
“The British government was so worried about the loss of scientists and engineers to the United States in the late 1960s that it considered banning foreign recruitment advertising, according to documents released last week by the Public Record Office….Cabinet Office officials considered the matter so important that they raised the possibility with the government’s chief scientific adviser, zoologist Sir Solly Zuckerman, of treating scientists as “a preferred class of citizens”. This could have involved preferential grants, reduced taxation and improved arrangements for professional mobility and pensions.” Nature Magazine, 13th January 2000
I am not in favour of the tax rates used then
That is apparent from what I am suggesting
But the reality is that most in the top 5% of taxpayers in the Uk pay no more in tax overall than anyone else in society and that is utterly inappropriate
Your response to that is?
From the same Guardian article:
“The 60s brain drain came to an end for complex reasons. Taxation did not really reduce, it just got more sophisticated. What did change was that Britain became a better place to live…. Far from suffering a brain drain, we started to attract talent; immigration rose.”
From the same Nature article:
“But reports from Germany, suffering a similar ‘brain drain’, showed that advertising bans had had little effect… Zuckerman thought that improved university administration would help, and advised vice-chancellors and principals to encourage moves towards a system like that of the United States. There, staff members were encouraged to accept external consulting work and had flexibility in salary systems and in making research grant applications.”
This is not about taxation; it’s about “opportunity” & culture. For the same reasons, graduates migrate from smaller cities to larger cities.
Thanks
“But the reality is that most in the top 5% of taxpayers in the Uk pay no more in tax overall than anyone else in society and that is utterly inappropriate
Your response to that is?”
Quite what that has to do with the 1960’s brain drain – which the government was concerned enough about to consider creating special tax breaks to counter – I have no idea but since you ask, my response is that what you have said is just not true.
The claim is usually made after the annual “effects of taxes and benefits on household income” information is released but is a misunderstanding of the data. The data, for example, suggests that the very poorest 1% pay 265% of their gross income in tax – clearly impossible – and is explained that what is being looked at is ‘income’ and many in that very lowest income category can be living on savings – many temporarily, some longer term – and this distorts the picture. If I won the lottery, I might have no income but I’d be paying a lot of VAT . There’s an interesting article on this by Adam Corlett of the Resolution Foundation which goes into more detail- hardly a ‘neoliberal’ organisation. It also doesn’t take into account that much of the income of the poorer is in the form of benefits and tax credits – rightly so. The effective tax rate of the poorest fifth of households is around -46% that is they get in benefits and tax credits around 50% more than they pay in tax. The effective tax rate of the highest fifth of incomes is +33%.
Sure if you don’t understand the numbers or deliberately miss-use them you can paint a pretty awful picture but the reality isn’t what you claim.
I have linked to a paper I co-authored
It does not make those claims
We suggested the lowest decile pay around 40% in tax
So your claims do not stack
And are wrong
This was an era of high top income tax rates. eg https://www.taxpolicycenter.org/briefing-book/how-do-federal-income-tax-rates-work
The top rate of US federal income tax reached 94% during the Second World War, was 91% until 1960, and then remained at 70% until 1981, when it was cut to 50% and then cut again to 28% in 1988. That was not sustained. It is only since the 1980s and 1990s that there has been a consensus that around 40% is enough. Before 1980. the top rate was typically was 70% or more.
I see n o reason for a top rate of less than 50% and maybe an exceptional 60% on income over £1 million
It would be a good start if millionaires were taxed as heavily as other, less wealthy people. And not at lower effective rates.
The absolute amounts are large, but then £1,000,000 (30 to 40 times median earnings) or £1,000,000,000 (30 to 40 *thousand* times median earnings) is a large number.
This is what for me as an amateur makes MMT difficult to embrace fully despite your convincing advocacy. If taxation isn’t funding national spending it takes away the easiest justification for imposing taxes and with it much of the economic discussion about whether and what or who to tax.
I appreciate and like, given my personal point of view, your argument that taxation can instead be used as a tool of social justice. The only thing is that this takes away the economic justification and substitutes it with a political one — and an opinion on whether Jeff Bezos (other very rich people are available) should pay more tax becomes a debatable matter of politics.
The only possible way out I can see is in the justification of taxation to control inflation. All the standard indices of inflation which the government and Bank of England use as a benchmark estimate changes in household costs. Over the last few years these indices have sent no signal of a need to change taxation. However it is clear that at the same time there has been significant inflation in asset prices (shares, property, etc). In fact there are reports that those who have most wealth in assets (including Jeff Bezos) have seen huge increases in their wealth when ordinary citizens have not.
If the MMT narrative also looked at the connection between asset prices and the wider economy, I wonder whether your explanation of taxation could be widened to justify controlling asset inflation as another imperative of governments in charge of their own currency? It would need there to be a serious academic justification of such a connection (has that been made?) that is generally accepted by economists, plus a well thought through objective way of calculating a meaningful index of asset values that takes account of those that have short term volatility in either direction (e.g. shares) or are illiquid so imperfectly valued (e.g. property).
I get your point Jonathan
You are far from alone by thinking it
But the reality is that tax is always political and MMT makes not an iota of difference to that
The MMT asset value link has not yet been properly made – indeed, I fear MMT is in denial on it
The result is we have inappropriate inflation paranoia
Thanks RIchard, I am glad I wasn’t completely off the wall. I do wonder whether the monetary implications of asset inflation (and whether/how it needs controlling) awaits good research.
The tragedy is that at a time when the Patriotic Millionaires are not alone, there is a reasonable consensus that more tax on the wealthy would be appropriate, we in the UK have a government which is unlikely to use the opportunity.
How about a top tax rate of 95% on everything over twenty times the salary of the lowest paid employee?
One has to be realistic
That would just encourage evasion by income shifting
And actually a great deal could be achieved with lower rat6es but aggressive attacks on allowances
What I find fascinating in the discussion on the blog is the Old Testament idea of ‘Jubilee’ to limit the amount of wealth any one person can accumulate, also what Dr Tim Rideout has posted here about what happened when individuals were able to accumulate to much wealth.
Of course there have been different ways of behaving in business such as the Quaker Chocolate makers and of course the US Hershey. My Grandfather worked for Joseph Nathan Ltd & in the depression the owners main concern was to keep his staff in work, leading to them getting into all sorts of business’s. In WW2 many men who joined up – such as my father who worked for The Midland Bank and railwaymen continued to be paid by their employers while in the forces.
Sadly there seems to be little if any concern for the workforce these days, just the Chief Executives salary
Agreed
Thinking about it, its actually easy to put the Patriotic Millionaires demand into MMT terms, as we did with the ‘Green Bonds’ whose primary function was to take the money created by QE out of circulation.
So something like
‘We need to tax millionaires in order that we can create more money to fund essential services without causing inflation’
Either that or
‘We need to tax the wealthy in order to fund public services because creating the money will run the risk of causing inflation’
Agreed
‘ But the reality is that most in the top 5% of taxpayers in the Uk pay no more in tax overall than anyone else in society and that is utterly inappropriate’
Richard, where is the data to support this?
Given the 5% band starts at around £75k, and given the reduction in allowances and higher marginal rates that apply above this level, I cannot see how such people do not pay a) higher percentages of their income in tax and much higher absolute amounts?
What am I missing?
https://www.bl.uk/britishlibrary/~/media/bl/global/social-welfare/pdfs/non-secure/i/n/p/in-place-of-cuts-tax-reform-to-build-a-fairer-society.pdf
Figu8re 4
I know Howard Reed has updated this more recently
See also household in come surveys
You are simply not thinking about the fact the vast majority of taxes are deeply regressive
A regressive tax is one where the marginal tax rates reduce as the underlying element to be taxed increases.
I would have thought that income tax is the most significant and the marginal rates certainly increase significantly as income rises. Plus of course the impact of the tax free allowance increases this further.
Can you identify which taxes you are thinking about here?
Every tax in the U.K. is regressive bar income tax – and even that 8s dubious when allowances are taken into account
And that is why the whole system is
Income tax gets a lot of attention. It is highly salient for most people because they see it on their payslips, and it is the largest tax in terms of amounts paid, but it only accounts for about a quarter of the UK’s tax revenues. While important, it is a small piece of the whole.
But what about the other three quarters of tax revenues? NICs on earned employment or self-employment income is another 15% or so, but the rates and thresholds are regressive and undo much of the progressivity of income tax, added to which unearned income such as interest or dividends is not subject to NICs. VAT is about 20%, and the impact is mostly regressive if you look at the amounts paid in deciles of income, because the poorer spend a larger fraction of their income on items that bear VAT rather than being exempt or outside the scope. And then you have to look at the distributional impact of the smaller taxes – council tax (with its low cap), and duties on fuel, tobacco, alcohol, vehicles, etc. etc.
I suspect CGT and land transfer taxes (SDLT, LBTT, LTT) may be broadly progressive in their impact if taken in isolation – richer people have larger gains and buy more expensive properties – but they are a tiny piece of the whole – just one or two percent of annual tax revenues each.
How on earth is income tax regressive when allowances are taken into account?
Allowances mean that the less you earn the more tax you ‘pay’ at 0%. It’s the opposite of regressive!
Man y allowances are regressive in their impact
It’s really not hard to work out
But clearly too hard for you to make a simple example in the context of income tax, as you claimed. The reason being of course that it is nonsense, the income tax regime is already progressive (marginal rates increasing over time) and the tax free allowance (removed at the top end) increases the progressive nature.
By no credible definition is it regressive.
Read what I said
I said it can be regressive in some cases
I said overall it was progressive – the only tax we have that is
But you are clearly here to troll and abuse
Let’s try to have the discussion without punching each other, ok?
Even on your narrow definition, Stuart, there are some simple ways in which UK income tax is not always progressive. For example, in the bands above £50,000 when child benefit is withdrawn, or above £100,000 when the personal allowance is withdrawn, the effective marginal rate of income tax jumps to 60% or more before falling back. That is regressive, isn’t it. See this for an illustration. https://www.contractorcalculator.co.uk/marginal_tax_rates_explained.aspx
The allowances for savings and dividends, and exemptions for ISAs, and reliefs for pension and charitable payments, and reliefs for investments such as EIS, often benefit those in high incomes more than those on low incomes. To that extent, their impact is regressive, even if the tax as a whole is broadly progressive.
But as outlined above, there is much more to the UK tax system than income tax.
Precisely
My argument against vast accumulated wealth is very simplistic – so also possibly very flawed. It also connects with your comment: “Bezos is also a rare case of a US multi-billionaire who has not made commitments to divest himself of wealth e.g. to charitable foundations.”
The super-wealthy are able to by-pass the constraints of government policy and, in effect, play God with their philanthropy by deciding who or what is worthy of their charity. I realise that is what most minor charity donors do but at least the scale is more “democratic”.