I have posted this video on YouTube this morning:
The transcript is as follows:
Lots of people are calling for wealth taxation to be introduced, not just in the UK, but around the world. It sounds like a really good idea. There are, after all, billionaires and multi-millionaires who are fueling inequality around the world, and also driving things like monopoly power and the exploitation of workers and so much else that needs to be addressed within our economy.
But, - and this is an enormous but - much as it sounds like a good idea, I really don't think that it is. Let me explain why I don't think wealth taxes work in the first instance and then explain what we should do instead.
Wealth taxes don't work because there are some almost insurmountable problems inherent within them.
First of all, you've got to find out what the wealthy own, and that is not as straightforward as you think. They hide their wealth in companies, which may have disguised ownership. They put their wealth in trusts and will claim this is no longer their asset. And is it, or isn't it? Can you imagine the number of years in court that it'll take to resolve that one?
Once you've discovered what they supposedly own, you've then got another problem to solve. And that is valuing it. Now, people think that valuing wealth is really straightforward. I promise you, it isn't.
How much is a private company worth? Because its shares aren't traded, you've got to work out, therefore, what somebody might pay for it, even though it isn't available for sale.
How much is a racehorse worth? Well, some might only be worth a couple of thousand pounds. Others might be worth tens of millions of pounds.
And a work of art? I can daub a bit of paint on a canvas if you like. How much is it worth? Fifteen quid on a bad day. Twenty quid on a good day. That's about it. But, how much is a Picasso worth? Again, the variation in value is enormous. But it's a lot more than my daubs. Which figure is correct? No one will really know.
The point I'm making is this. By the time you have actually even established what is owned and what it's worth, first of all, you've got to start the process again for the next year because the proposal is that this is an annual tax.
Secondly, you're going to have to do this process for a lot of people who you are never going to tax because it turns out they don't have enough wealth to be charged, but they've still got to prove that point.
And then thirdly, you're going to have to employ an absolute army of tax inspectors to do the negotiations, an enormous number of specialist valuers, and legions of lawyers to take on the wealthy who are going to object to every single thing that is put to them as to that valuation and the tax charge that is being proposed.
I don't think that's a good use of tax authority resources. What do I suggest we do instead? I think it is easier - much easier - if we do, instead of charging wealth to tax, increase the tax on the income from wealth, and on capital gains derived from the sale of that wealth, when the wealthy, inevitably, eventually buy or sell things.
That's because, as I've shown in the Taxing Wealth Report, if we have a truly progressive tax system that does genuinely increase tax rates as people's income rises, and if we overcome some of the stupidities in our tax systems as well, which means that things like income from wealth are not subject to the equivalent of national insurance charges, which they aren't at present, but which people who earn their incomes from work have to pay, and if we equalise the tax rates on capital gains and income, as well as having decent progressive inheritance tax rules that have limited or no allowances for business assets because there is frankly no reason why the billionaires of the world need to have allowances for their business assets which reduce the tax charge on them when they pass them to the next generation, then we could have truly significant increases in the tax charges on those people.
Vastly more additional tax, in fact, could be charged in the way I suggest than we could achieve by having wealth taxes in the UK. The TUC have looked at having a wealth tax and suggested they might be able to raise an additional £10 to £12 billion. Just one of the recommendations I make in the Taxing Wealth Report, which restricts the tax relief on contributions to pension funds by those who are higher rate taxpayers, would raise more than that by itself.
Equalising income tax rates and capital gains tax would do the same thing with almost no additional tax inspectors required at all, and no extra valuation problems.
My point is this: it would be much easier to increase taxes in the way that I am suggesting than to have a wealth tax.
Now, if you're into political posturing, a wealth tax is a great thing. If you're into pragmatic tax collection that will reduce inequality in the world, then what I'm proposing is a better outcome.
I'm not into gesture politics. I'm into pragmatic solutions to the problems that exist in this world. And that's why, attractive as they sound, I don't think wealth taxes are the answer to any problem that we have with inequality.
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I agree. A wealth tax is impractical. Other taxes would be more effective.
More than that, for many people the idea of a wealth tax is based on a false premise. Many people probably think that, if we take money from the wealth or ultra wealthy, this can pay for the public goods and services that clearly need greater spending. Sadly that is not the case.
The more wealthy people are, the less taxing them will reduce demand and free real resources for public use. That’s because taking money from the wealthy will not reduce their spending. They have a low propensity to spend. They have more money than they need. They already spend as much as they like. They will continue to do so even if taxed more. They spend because they can. Taxing will not change that.
Of course tax is highly desirable to address inequality. But a wealth tax won’t fund public services (without inflation). It would be great if this was better understood. Then the focus could be more properly on more effective use of taxation.
Which, to some, will sound very depressing, a council of despair that nothing can be done. I disagree. There is a vast amount that can be done, with financial resources already available, by unwinding the false economies that have been committed during the past decade or so of Tory misrule. Undoing this damage (e.g. by more spending on social care to free up resources in hospitals) releases more money that it costs. It is not only self financing (looking holistically), but can also lead to a virtuous circle of improvement.
There is hope, and much that can be done. The situation is not hopeless. But the answer is not a wealth tax.
My plan overcomes many of these issues with wealth taxes – not all, but many, most especially if used for redistribution
I strongly agree with trying to decrease inequality and, therefore, with redistribution.
But, with respect, I am not convinced that your plan, in your admirable TWR, would actually free up nearly as many real resources (not money) as the “headline” figures suggest.
Let’s take, for example, pension tax relief. I don’t doubt your figures are correct, and that your suggestions for making this more equitable would yield a very significant amount of money. Presumably much of this tax take would not have been spent immediately, because it was going into savings. And presumably your suggestions would result in smaller pension pots for the already wealthy, which is a good thing. This money might then be spent by government for public goods. Or it might be redistributed directly to less wealthy citizens. Either way it would inject more spending, more real demand, into the economy. Of course some of the tax would have been spent by the wealthy, and some would be saved after redistribution, but overall there would be more spending.
Whenever there is more spending, irrespective of the source, there is the risk of inflation. So, in that respect, there is no free lunch in taxing the rich to improve public spend (even though they richly deserve it – sorry, couldn’t resist).
What I’m saying, and have been trying to say in previous replies, is that I think we should try to separate raising money from our ability to spend it. As you emphasised in previous posts, the government does have a magic money tree, but it has to be circumspect in how it spends money to avoid inflation. Just taxing wealth does not resolve this problem.
And, as I have said previously, I am optimistic that large, relatively quick improvements could be made without raising the spectre of increased inflation. After all, George Osborne achieved quick damage though inflicting austerity. We should be able achieve quick improvements by reversing the process.
I accept your point
That is why this is simething no government would do all at once
But, I am not sure I wholly agree with you either. Reducing spending on tax planning would free resources for use in the productive economy and I also think you are ignoring multiplier effects
Are you going to do another one on LVT?
Maybe…
I am disappointed that ‘Wealth Tax Report 2024’ is not getting the widespread support that I think it should. ‘The Joy of Tax’ is an excellent title but ‘Modern Monetary Theory’ isn’t.
Again this week ‘magic money tree’ was used in parliament to confuse and obscure. You express yourself brilliantly but between you and your contributors surely there are some catchier descriptions of your themes.
I am certainly not a wordsmith but ‘tax’ is associated with ‘taking away’ rather than ‘contributions for public benefit’? … ‘high multiplier investments’? … ‘joint endeavours’?
Doctors, dentists, lawyers – and bankers – rely on public investment in schools and universities as well as our institutions of government including the courts, hospitals – and banking – all of which make ‘wealth’ creation possible. Public discourse needs a wider recognition that ‘the wealthy’ should be required to make a much larger ‘refund’ for the benefits they have received.
Between us can we find some succinct ways to inspire the demand of necessary changes?
I wish…
Offer ideas!
Hi Richard, I appreciate the difficulties of taxing wealth however you don’t mention other countries that do implement wealth taxes (such as Norway) and how successful their implementation is (or isn’t).
I suppose you could make it a self-assessment exercise. People sum up their own wealth and pay 1%. Then you only need to investigate a few and have swingeing penalties – for example if you under declare then your tax bill rises to 1000%. Then you hopefully encourage people to pay and don’t need as many inspectors.
I appreciate the difficulties with legal challenge but presumably the law can be changed in such a way to make legal challenge more difficult? Certainly if I want to challenge HMRC I am unable as it has a huge pot to fight with (funded by everyone else) and I have a tiny one. The wealthy shouldn’t really have better access to justice just because they can pay more. Yes, I know, it’s naive!
Enforcing inheritance tax, such as Duke of Westminster paying the circa £4bn he should have paid, would be good! Inheritance tax of 100% above say £2m would be interesting…. That would stop the wealthy families!
The only party who seem to think inequality is important at the moment is the Green Party. Perhaps Labour will change their tune later when they’ve stopped chasing the Tories to take ever more right-wing positions. Or is that just wishful thinking and the Labour party is instead run by a bunch of incompetents (sadly that seems more likely).
I admit I cannot agree with ideas like 100% taxation
Self assessment would be good – but only a bit. You can guarantee that almost every case woul;d require invesigation and the wealthy have many more resources than HMRC
“scot and lot”
A levy, raised on the ability to pay (scot, or tax) and the share receivable (lot), for the upkeep of the community. Respect came from paying the most. When you heard someone “got off scot-free”, it was a term of opprobrium (well, in my class it was).
https://en.m.wikipedia.org/wiki/Scot_and_lot
I’m not suggesting (a return to? continuation of?) days when wealth equates to power, which scot and lot enabled, but “Patriotic [yeuch] Millionaires” make a good statement of aims. I wonder if any of them would be up for being an exemplar, prepared to go public with a worked example of the proposals in “Taxing Wealth 2024”?
Calling it Patriotic would certainly make It difficult for the Party of The Flag (LINO, if one has missed the display on election leaflets this last month) to refute it – wouldn’t it?
https://patrioticmillionaires.uk/
I’ll dream on.
I really don’t think that works here…..
Sorry, Richard, but the Patriotic Millionaires *are* a UK-based organisation.
They are – but a small spin off of a US one – I take their newsletters, and read them. I don’t think it resonates here – but it does in the US. They are also wedded to a tax funds spending model.
The wealthy, generally, consume more than those that are not. Thus I agree (don’t go after their wealth) and propose do go after their consumption. Some examples.
Large powerful cars – they still need to have an MoT – which records mileage. Tax it on the mileage – use geometrical rates. Company cars – generate a list of normal boring cars that can be used as a company car. This will cut the nonesense of a Lambo as a company car. Energy consumption. We know all the percentiles & real time metering has been rolled out. So, one pays normal rates for normal houses (3 or 4 bed semi?) – then things start to take off. Sure, the rich might fit PV etc – good luck with that on a dark winters night. Plenty of ways to make them pay, without the need for tax hunters.
No problem with much of that
If wealth taxes won’t work, what are the measures by which extreme imbalances of wealth, rather than income, can be recalibrated and redistributed.
(I am not going to repeat the arguments about the desirability of wider spreads of wealth across the population and the impacts of the immense concentrations that the top 0.1%, 1% or even 10% hold, as those ought to be familiar to anyone who has read Piketty, The Spirit Level or Oxfam and Rowntree reports for example)
How effective is LVT in this context ?
LVT will never make a major contribution. It might be a suitable replacement for council tax but it is a million miles from being a tax to address major inequality.
Excellent video. I hope you’re discussing this with Gary Stevenson!
We must do something together on this
Richard … Perfect distillation of the best commentaries on this subject. I will definitely post the link for this!!