The Guardian featured an article yesterday that was promoted with this tweet:
It seems like AOC did a good job with that dress, but I was more interested in the message in the underlying paper that supported the claims in the article. Ben Tippet and his colleagues said in that paper that:
This paper analyses the revenue potential of a progressive annual net wealth tax in the UK. A progressive net wealth tax is a tax on the stock of net wealth that is designed to raise revenues primarily from the wealthiest households. We present a baseline progressive net wealth tax that only taxes the top 1% wealthiest households. Households with net wealth above £3.4 million (the top 1%) are taxed at a marginal rate of 1%; above £5.7 million (the top 0.5%) at a marginal rate of 5% and above £18.2 million (the top 0.1%) at a marginal rate of 10%. We estimate that this tax would raise roughly £70-130 billion a year after administration costs and tax avoidance/evasion: £70 billion if 50% of the tax is evaded and £130 billion if 15% of the tax is evaded. This is equivalent to roughly 9-16% of total tax revenues taken by the UK government each year.
Those are some pretty dramatic rates of assumed evasion: I suspect that the rates would be at the low end of this scale, even given that the rich are very good at tax evasion, as research has shown.
It so happens that this estimate is in the range of potential tax revenues that I estimated in 2020 when I suggested that if the tax rates on income and the increases in wealth some have enjoyed in the UK were equalised then £174 billion of additional ta a year could be raised in the UK. As I suggested then, and as this new research finds, there is considerable capacity to tax wealth in the UK.
Let's be clear why we would want to do this. It's not because we need extra revenue to fund government spending: as modern monetary theory shows, in a country like the UK with its own currency and central bank and which only notionally borrows in that currency there is no central government spending that is funded by taxation. In that case the need for this tax is to tackle inequality. It may also have an impact in controlling inflation, most especially within asset prices, which has been out of control when consumer price inflation has not been.
And it is very apparent that tackling inequality is now a priority. Many of the crises that are now being faced within society are the result of economic distortion, including most especially the enforced reduction in wage rates as a part of national income since the 1980s as a part of the relentless neoliberal desire to increase the share of wealth going as profit to a few in society at cost to most who have to work for their entire living. Something like 10% of national income has been redirected as a result (the precise sum can be argued over; I think that figure pretty certain).
That's more than £200 billion a year now that is not going to those who might I once have enjoyed it. I think additional taxation of wealth is part of the rebalancing equation that is now necessary to correct for this. That is why I featured it so heavily in the work I did in 2020 on Tax After Coronavirus (TACs). And such is the priority I have to add that we cannot wait for a wealth tax. We do instead need to start with adjustments to existing taxes. This list would do for starters:
- There is significant room for wealth taxation in the UK
- The UK could tax wealth more
- The relationship between income, wealth and tax
- The TACS approach to wealth taxation
- Reforming taxes on wealth by equalising capital gains and income tax rates
- The need for an investment income surcharge
- Capping total ISA contributions
- Abolishing the personal savings tax allowance
- Restricting pension tax relief
- Abolishing higher rate tax relief on gifts to charity
- Reforming council tax
We cannot afford to wait to address this crisis. People are living with the daily reality of low pay, low benefit and high tax now at a time when they face the most profound crisis of all, which is in their inability to provide for themselves and their families.
Redistribution is not the only solution to this problem: real wage increases are also essential. The rebalancing of the economy has to happen as well. But, redistribution is an essential pathway to achieving this goal now, and can be done.
The time for greater taxation of wealth has arrived.
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It raises a point that is not often mentioned; the ‘inflation’ of asset prices driven by wealth accumulation by those that have the most wealth. Price inflation of goods and services is assumed to be bad but price inflation of ‘assets’ is assumed to be good. Housing is the obvious example of where massive, disproportionate price inflation has had many negative consequences, easy to list.
Much/most asset price inflation is driven by too much money chasing a limited supply of assets – speculation. Little of it goes into what might be seen as legitimate where for example a company really is investing (people, plant, R&D) to grow its business and generate more income. As opposed to just financial engineering to artificially create ‘profits’.
All the more reason to tax high levels of wealth
While “tax the rich” is an attractive slogan, most of your suggestions are a great deal more practical. Despite the media’s love of pulling numbers out of the air to write fauningly about their wealthy idols’ riches, there isn’t an established way that tax authorities can access an objective value of everyone’s assets on an annual basis – without which devising a way to tax wealth appropriately would be meaningless.
However I wonder if your list of suggestions should be expanded to include revision of inheritance tax to ensure it is a properly progressive form of taxation?
I think valuation can be overcome
But as a pragmatist my route is a lot quicker and more effective
A small contribution to the redistribution of wealth would be made by to changing inheritance tax from a tax on the value of the total estate to a real inheritance tax; that is, a tax paid by each heir on the value of of what they inherit. Although such a move might reduce the total tax paid, it would do so only to the extent that it would encourage a wider distribution of bequests, while being fairer to recipients of small bequests from large estates.
One thing you could clarify for me, this wealth tax would be calculated on the total net wealth for a household whether it was all within a company, all held personally or a combination of the two. So would it be paid personally by an individual using after tax income or could it be paid by a company?
I assume the tax would not be offset against Profit for CT purposes?
A 10% tax payable by an individual using after tax income would be huge, effectively doubled!
Ask the authors —-
I would accept payment in shares to be held in a state pension fund with independent directors appointed
I would not accept offset against CT – they are unrelated issues
Our ‘welfare state’ doesn’t appear to be as progressive as some would like us to think.
Here’s a couple of interesting facts
Steve Timms House of commons 20/09/21 Hansard Column 75.
“As a proportion of average earnings, support for unemployed families will be the lowest since the modern welfare state was introduced in 1948. The Library tells me that it will be lower as a proportion of average earnings than it was when unemployment benefit was first introduced in 1911.”
https://hansard.parliament.uk/Commons/2021-09-20/debates/65E253F9-5FC6-46C5-ADC8-124C0B50515C/SocialSecurity(Up-RatingOfBenefits)Bill#contribution-D309519F-5523-417E-8248-A06EFF96AE40
Staggering…..
Since secrecy is the main issue with tax evasion, why not tax that?
Tell me how
Money is power.
From the perspective of the rich, you are assaulting their power.
Notwithstanding that they think they are worth it. They imbue their wealth with their own blood.
Nothing corrupts your perspectives on life more than money from what I have seen – either through a surfeit of it or lack of it.
I think that the emphasis needs to be on how the tax would be spent, given what we know about MMT. To what use would it be put? Other than funding the Tory party of course.
no chance. There will be no way that this country Will ever ever impose a wealth tax until such time as a labour government is in power and even then that will be a longshot.
So why not read what I actually suggested?
All wealth is relative.
It is not necessary to tax the rich if we make the ‘less rich’ better off.
If you have £10,000,000, you’re rich.
If the government gives everyone £5,000,000 then you have £15,000,000!
You’re even richer !!!
Which sounds great but you’ll be driving yourself to work, making your own tea and cleaning your own toilets in an empty factory.
All “Wealth” is relative. How much everyone else has matters.
Our tax code has been used deliberately to maintain this ‘wealth gap’.
A simple, painless solution that even the most rabid Tory could not disagree with is to raise the tax threshold from its current level to say… £50k.
And we should abolish NI. It is simply a tax on labour.
Ok, this won’t help the 50% of the working population who do not earn enough to pay tax but no change to the tax code will help them (except the abolition of VAT).
Maybe implement full employment with a £17ph min wage ?
Within my time constraints I cannot respond to that, but suggest you really need to work through your ideas as I am certain none of these will work
people with that sort of wealth tend to be very mobile so would be interesting to see whether they have factored in some numbers around people simply leaving the country if this sort of tax was introduced.
You know about tax exit charges?
Plenty of ways to avoid those already I’m afraid, particularly with some of the tax incentives on offer from some friendly Eu countries.
You obviously are unaware of them then
I routinely advise clients on them so am all over the detail of them and how they do and don’t work.
Ah, so you sell advice on how to avoid tax
Do you sleep at night?