Early on in the series on the Taxing Wealth Report 2024, it is quite important to note the criteria that have been used for appraising the benefit of changes that might be made to the tax system as a result of charging high incomes and wealth to more tax in the UK. I have published a note on this issue this morning:
The summary of this note says:
Brief summary
This note suggests that the Taxing Wealth Report 2024 is based on four related conceptual ideas that raise issues that need to be addressed if additional tax revenues are to be raised in the UK in a way that is fair to all taxpayers. These are:
- The creation of horizontal tax equity, which requires that all incomes of similar amount be taxed the same sum irrespective of where that income comes from.
- The creation of vertical tax equity, which requires that as a person's income increases the amount of tax paid on it will always increase irrespective of its source, with a progressive tax system resulting as a consequence.
- The identification and elimination of tax gaps, which are the differences between the tax revenues that a jurisdiction should be able to collect and the tax revenues it actually recovers during the course of a period.
- The identification and elimination of tax spillovers, which are the negative consequences of the interactions between different tax systems or different parts of the same tax system that can often (sometimes unintentionally) reduce tax revenues and the size of a tax base.
Tax spillover assessments identify the causes of tax gaps and so, in turn, the reasons why horizontal and vertical tax equity do not exist within a tax system.
Whilst addressing these issues the note makes clear that the Taxing Wealth Report 2024 uses microeconomic theory to justify:
- The recognition of all sources of increase in the financial well-being of a person as being of equal value to that person and that all such sources should, as a result, be subject to equal rates of taxation. This recognition does, as a result, remove the distinction that is commonplace in tax between earned and unearned income and income, capital gains and capital receipts, all of which are considered as equal for these purposes.
- The idea that progressive taxation is equitable because of the reducing marginal utility of each additional sum received by a person as a contribution to their financial well-being during the course of a period.
Discussion
For those not familiar with the terms used, the links to the glossary associated with this blog will help add detail, especially in the case of tax spillovers and the tax gap, as will reading the note I have published.
At the core of the proposal is microeconomic theory that, in this case, few will be able to argue with. The tax concepts are all familiar to those with experience of tax justice, which has always had as one of its goals the fairer distribution of resources within a society and between societies.
It is, of course, possible to disagree with the noted ideas. But those doing so need to explain why they think the tax system should be used to promote inequality within society because that is, I suggest, what they would be doing.
The note that supports this blog post is available here.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
I found this a particularly helpful underpinning concept:
The idea that progressive taxation is equitable because of the reducing marginal utility of each additional sum received by a person as a contribution to their financial well-being during the course of a period
Succinctly and helpfully expresses an idea I’m seeing a lot on social media.
Thanks
I look forward to reading this series. I doubt I will understand it all, and may pay more attention to the summaries than the body. But I think it is timely and I have no doubt that it will meet your outlined criteria. That it is already being picked up and amplified by eg Guardian newspaper and TUC shows that ideas of increasing tax on wealth are more acceptable now to people than even recently.
My own household (self and spouse) is a goose that needs more plucking in these terms too. I am honest enough to know that although we are not “wealthy”, we have more than average “wellth” in financial, health, family, friends, leisure and work terms. Thus we could – and in reality actually should – contribute more to the common good.
My two greatest hopes from your proposals are firstly (and selfishly) that we are plucked gently and secondly that whatever the colour or stripe of government benefitting from your proposals, they truly use the proceeds for that common good and not for silly vanity projects or yet again enriching their own mates. We all depend on that common good and if we wellthier ones do not stand by it, we are collectively failing.
Thanks.
Thanks
I look forward to the report – it is very much needed!
One point though, regarding the first of the 4 principles: while levelling up tax on unearned income tax up to that on earned income would be a major improvement, the distinction remains relevant to any assessment of both the functionality and the morality of our economy and its tax system, surely, especially given the UK economy’s rentier bias. I accept that “all sources of increase in the financial well-being of a person . . . [are of] . . . of equal value to that person”, but the implications for others (those who pay the economic rents) should also be considered; it matters where income comes from. Unearned income extracted on the basis of ownership and control of assets is both a drain on productive sectors of the economy – hence dysfunctional – and immoral since it is based on power not contribution or need. So ideally, shouldn’t unearned income be taxed more than earned income? Though I agree in the realm of practical politics, horizontal equity may be the most we can hope for at the moment.
Let’s get to equality and then move on.
I am being pragmatic, I admit.
But even so, I am demanding a lot, and rightly so.
The aim to make the tax system more equitable is admirable. But it may be that increasing tax on business owners will discourage money making and therefore reduce economic activity, jobs, and perhaps also innovation. Does high tax lead to low economic activity? If so this needs to be borne in mind when considering changes to the tax system.
Does higher tax achieve this result in Germany, France, the Nordic countries and so on?
It does not.
So is your comment just based in fakes microeconomic mythology?
I think so.
See also comments I am publishing this morning.
A paper on the economics of this will happen when I can complete it.
Just noting that the Online Wiley URL for footnote 6 on page 13 is coming up not available.
I will check it….
I enjoyed the Bogus Numbers edition of The Account as it puts the Blue Book in its correct context. It’s becoming clear that what information that is coming out from HM Treasury may need a pinch of salt or two. I’ll subscribe to it on my podcast app. I also can’t wait to read the Taxing Wealth Report 2024. I hope it hits home far and wide.
[…] What we will, however, need is the willingness to turn that wealth to public advantage and if inflation is to be controlled, that will require significant new taxes on wealth. My publication programme on this issue will begin this week. […]