The Guardian reports this morning that:
A group of 30 UK millionaires have called on the chancellor to tax them and other rich people more because they can afford to pay it and “the cost of recovery cannot fall on the young or on those with lower incomes”.
In an open letter in the run-up to the budget on Wednesday, the millionaires told Rishi Sunak to introduce a wealth tax on the nation's richest people to help pay for the recovery from the coronavirus crisis and tackle the yawning inequality gap.
It is a pity that 30 millionaires can't find out how tax works.
The simple fact is that tax does not pay for government spending. The government always, and without exception, creates the money to pay for government spending on every occasion that it parts with money, which is millions of times a day.
There is no secret as to how this happens. Since 1866 the government has had to the power to instruct the Bank of England to make any payment it likes without the Bank having the right to first check that there is money in its account to cover the cost. The fact is, it will always and without exception extend the required credit without question being asked. It can simple run an overdraft for the government.
Until 2008 this was explicit. This overdraft was called the Ways and Means account, which is rather apt in my opinion. It was actively used until 2008/09 when quantitative easing took its place, albeit to exactly the same effect. QE is simply a giant government overdraft in reality.
In that case it should be glaringly obvious, to the tune of about £875 billion right now, that there is no direct need for the money of the wealthy to pay for the crisis that we are still in.
Don't get me wrong though. I welcome this call. It demands social justice and equal tax treatment, which in turn requires that the wealthy pay considerably more in tax. So the move is undoubtedly appropriate.
It can even be argued that what these millionaires are saying is entirely appropriate to counter the runaway inflation in capital asset prices. Just look at housing and the stock exchange for evidence of that.
But this does not mean that the rich must pay so that least well off do not have to. The fact is that we do not have to balance government books. There is also no evidence that government spending is creating inflation, even if other things are. And deficits are good things: they create the money supply the economy requires.
So, let's tax the wealthy more, but for the right reasons.
The first right reason is that as a proportion of their income the wealthy pay much less tax than those on average incomes do. They can shelter their income in companies. They pay almost no NIC. They have low capital gains rates. And they enjoy significant tax deductions.
The second right reason is because they are wealthy, and that is deeply disruptive of opportunity in our society, to which wealth is a barrier.
We don't need to make up more reasons to tax wealth as much as income than that.
My gentle plea is, please get this right. It would help.
NB: there is more on wealth and taxation here.
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We don’t need to tax the rich MORE, you meant to say? Came here from Twitter and was a bit confused to start with. Agree with all you say.
Oops…and thank you
I wish I found proofreading my own work easier … but I actually find it really hard. You see what you think you wrote
The brain sees what it expects to see when you’re trying to proofread. When I was working in an office I found a way round that was to alter the colours of the font and background when I proofread a letter I’d just written. That way you kid your brain into seeing it afresh and errors which would otherwise have been overlooked leap out.
Interesting…
On documents I already use colour a lot
Unfortunately, on WordPress that’s harder – and this stuff gets turned round very quickly in the morning
Maybe this is just self promotion by the rich – who knows – but it does further what is a well known myth that is recognised as such here.
The need to tax the rich though is a lot more salient than they themselves suggest.
They might want to be really honest and also point out:
1) That their wealth gets used politically to buy politicians and parties so that the rich get low taxes in the first place. They could decide to issue a statement saying that they will not do that in the future, nor fund any dodgy think-tanks to promote that sort of crap in the first place.
2) That their wealth also gets sucked into the the financial system and helps to cause bubbles as they seek to use that system to increase the value of their wealth.
One day perhaps…………………..
They might also want to ask themselves how they got so rich in the first place, while so many others have to use food banks or rely on top-ups from the government, including many in work.
And of course they know this chancellor will do nothing of the kind.
I think that complaining about these millionaires not understanding the government balance sheet is a distraction from the most important point. There is strong evidence that a more equal society is a much better place to live in the long run, for rich as well as poor. It is in everyone’s interest that the wealthier facilitate that by contributing proportionately more to national benefits that everyone shares, like health, education, etc.
It is good that these wealthy individuals who are likely to be net contributors are prepared to speak up, they carry more weight than if the proposal comes from those anticipating a net short term gain.
(And I don’t think there is any dispute that the government does need to tax to recover part of the money they create through spending, the question is how much. The answer obviously isn’t 100%, and I don’t think any UK government has ever covered its entire expenditure by tax. It would be a hugely useful service if academic economists could come up with a way of estimating the proportion required).
Jonathan,
Well said
I wonder if some of them have read this
https://www.politico.com/magazine/story/2014/06/the-pitchforks-are-coming-for-us-plutocrats-108014/
Also available as a TED talk, or have come to that realisation themselves
Good to see you’re returning to your straight-down-the-middle positions, and with good advice, rather than fuelling the nonsense peddled by a large number of posters on your blog. I’m not going to say ‘…is the missus back?’… but I bet she is 🙂
Oh dear oh dear.
Look – I don’t disagree fundamentally with Jonathan or John Boxall but if the rich are going to have an epiphany it needs to be one based on the REALITY of how sovereign money and taxation works – not the lazy naïve consciousness that dominates perceptions on these issues.
Let me use a comparison of sorts. If I fell into the sea, and you threw me a lifebuoy, what good would it be if the lifebuoy you threw me did not float and took me down into the brine instead?
I say this because knowing how things like money and taxation actually work is is important. The lifebuoy has to work. What the rich will give, will be taken away when they feel better and when that happens, what knowledge will that be based on – trickle down perhaps? The tax warblings of Arthur Laffer perhaps? The public choice theories of Charles Buchanan?
So you’re saying none of this should be challenged? That we should base change on fear (as Nick Hanauer suggests)? Well, fear can be a transitory emotion can’t it? And money can be chucked at that particular problem anyway by funding politicians and affecting policy in their favour.
The real key to all this is a more critical consciousness about how things actually work IN ALL SECTORS OF SOCIETY – rich and poor alike. That way you may have something that floats – that is sustainable as a way forward – than relying on short-term emotional reactions like fear or regret or shame from power bases as the best way to change anything . The IMF knew that bankers had been greedy – and the bankers – caught in the public eye initially were scared and contrite – but only momentarily it turns out.
Well it was only momentarily was it not? Not long after 2008, the weapons of mass financial destruction and rich enrichment like credit default swaps were being peddled all over again; real estate activity became car-loan activity and debt is going up again to be traded much as it was before.
This sort of behaviour is what works against the sort of society we could have an as portrayed by the book ‘The Spirit Level’ which is correct in pointing out that a society works when it works for everyone. But it has to work within reality – not the American corporate sponsored Neo-liberal bullshit that has been rammed down our throats from people like von Hayek and Milton Friedman and Charles Buchanan (and too many others) that inculcates daily life.
Fundamentally also, it goes back also to the question ‘Who rules?’. The rich – on a whim based on guilt and fear – if we are lucky (after they’ve earnt enough of course because no one knows how much is enough in their world but them) who just might stop taking a larger slice of everyone else’s wealth when they feel like it? Or based on the power of courageous states to make capitalism work for everyone itself based on the truths about tax, Government money, trade, deficits, debt based on what society NEEDs as a whole?
I know which one I prefer and which one has more legs.
And as for ‘Jamie C’, domestic bliss at chez Murphy or not – rather than insult people here, why not come back and point out where you feel contributors are peddling nonsense.
Hmmm?
I agonised over the Jamie C one
A great deal of what happens here is discussed with Jacqueline – but she does not need to be paromised for that
I’m all for the saying ‘Behind every successful man there is woman (wife, partner, Mother, Grand Mother etc.,)’ as it’s often true but saying that people talk nonsense here is just not on.
So hopefully he’ll come back with something worth looking at.