In this latest video, I argue that Rachel Reeves says she wants growth. If so, she should tax wealth because the wealthy save much of what they earn, meaning that they don't spend it, and so reduce growth. If that same income was redistributed to those on low incomes who would spend it, then growth would follow. It really is almost that easy to increase growth.
The audio version of this video is here.
The transcript is:
Taxing wealth increases our national income. Now, I know that sounds, to some extent, a little counterintuitive, but a great many economic truths are completely counterintuitive, so let's not worry about that. Instead, let me explain what I mean.
The wealthy are wealthy because they save. After all, how else have they accumulated their wealth?
Okay, they may have inherited it, so somebody before them saved, but in essence, those who have wealth have managed to live on less than their income, or they have been given assets that they haven't dissipated in whatever way they might have wished over time, and have maintained them instead. That means they're still savers.
And this matters, because savings are effectively money taken out of circulation inside our economy.
Now, I'm not saying there's anything wrong with saving by saying that. Let's be clear, I think that for people to save and to have some wealth, particularly to be able to cover the proverbial rainy day, is incredibly useful. And one of the great stresses within our society is that far too few people have sufficient savings to be able to manage a crisis.
But, when we look at our society as a whole, we have some people who have staggering amounts of wealth and most of the population who have not very much at all. The ratio of something like 91 percent goes to the top half of the population in terms of savings and 9 percent to the bottom half of the population. You can get a feel for the imbalance from that.
Now, why then does it make sense to tax wealth if you want to increase our GDP - our national income? The answer is quite straightforward.
If you take money away from those with wealth, which is what you would do if you taxed them, and - and that is an important ‘and' - you then redistributed the benefit of that to those who do not have savings and who are therefore quite vulnerable with regard to their incomes and who are probably on, let's be candid, lower incomes, what you do is give money to people who are going to spend virtually everything that they get. They might save a little bit, but the vast majority of what they get will be spent.
So the wealthy, who've already got enough to live on, who therefore save a great deal in many cases of what they actually get by way of income, and who therefore don't contribute to the income of the country as a whole because they put that money out of use in their savings facilities, have less money to spend, and those who spend more money in proportion to their income have more money to spend.
Therefore, this redistribution of income from the wealthy to those who don't have a lot actually gives a significant economic boost to the economy as a whole, because there's more money being spent.
It's very simple, it's very straightforward, and as a matter of fact, it's true.
Now, there is a constraint on the amount to which you can do this, and I will acknowledge this and say it out loud right now, so that no one can accuse me of missing the point.
If you try to redistribute all the wealth of the wealthy to those who have less at any one point in time, quite clearly, the wealthy have so much wealth that you could not achieve this result of improving the national income as a consequence. You'd just create mayhem and chaos. And I'm not being silly about that.
You can't redistribute the £15 trillion of total wealth in the UK from those who own it at present to those who have little wealth and expect, as a consequence, there to be the capacity to spend it all because our national income is only£2.5 trillion or so a year and therefore there's still something like six times our national income saved in the UK.
You clearly can't redistribute six times that national income at any one point in time, and, as a consequence, boost national income by that same amount. It won't work. So, instead, you only redistribute a bit at a time. But the point is that that is what makes sense in any case.
You don't want such a large change that you actually, first of all, disrupt the capital markets for savings, because that wouldn't be a benefit to anybody. You'd need an orderly transition.
And secondly, you don't need to do this to such a large extent that you're going to try and over inflate the economy by having too much money chasing too few goods.
In other words, too much wealth taxation could give rise to inflation. But we are so far away from that point at present, that that is not a constraint on taking reasonable steps to redistribute. And that's why I make this point. Although it's a real constraint, it isn't an operational constraint at present that is preventing us take action right now.
So, if we really wanted to improve the growth of the UK economy, and Rachel Reeves says she does, then one of the best ways to go about it would be to increase the taxation of income derived from wealth, or capital gains because that would undoubtedly generate extra capacity for spending inside the UK economy, which would drive growth.
NB: This is likely to be the only video of the day. I am on antibiotics for an ear infection and am feeling well below par. It happens.....
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That it can be argued that Britain has a Single Transferable Party (Neoliberal) dominating its so-called democracy essentially boils down to what you argue which is there’s a lack of understanding that using money as a national currency means continuously balancing the destruction and saving of money. This is reflected historically in the following historical graph:-
https://en.wikipedia.org/wiki/United_Kingdom_national_debt#/media/File:UK_debt_as_GDP_percent.png
Single Transferable Party politicians like “Blackhole Rachel” of course don’t see this but irrationally see the constant threat of financial disaster even though this balancing has been going on for centuries. These Jeremiahs are so lacking in insight they can’t even manage to ask themselves why the country’s so slow in collapsing as their thinking predicts!
Here it comes “Blackhole Rachel” yet another Single Transferable Party ignoramus doing her best to further undermine the country!
https://www.theguardian.com/politics/article/2024/aug/11/chancellor-rachel-reeves-treasury-budget-tough-spending-decisions
“Labour has pledged to have a balanced budget in terms of day-to-day spending, as well as having debt falling in five years’ time.”
Sounds uncannily like George Gideon Osborne. He was bullshitting too. If that was his aim he was a dismal failure, but he never believed it himself which puts him into the ‘liar’ category.
Pure puff for gullible electorate.
Well Said
Get Well Soon!
Thanks
Savings are deferred spending for later years when one cannot generate the same income. it is absurd to adopt a principle to tax people on the basis they do not spend all they can have at a particular moment in time. You target this who are prudent and want to help themselves. Absolute nonsense.
Nothing I said taxed the savings element of saving i.e. the original capital sum put aside. It simply sought to ensure that income from all sources is taxed equally. What is your objection to that? Please be precise.
Thanks Simon. Your point is so obvious that I am surprised no one else has thought of it. It is very clearly evidenced by the fact that the wealthy leave nothing to their heirs because they have, eventually, spent all they had saved.
Marxist nutjob
Some comments are so stupid they have to be posted. Gary achieved that goal today.
@gary
Why should unearned income of the wealthy be taxed at a lower rate than wages of people who work?
“If you take money away from those with wealth, which is what you would do if you taxed them, and – and that is an important ‘and’ – you then redistributed the benefit of that to those who do not have savings”
Richard clearly wants to redistribute wealth not the returns from wealth. What if the return from wealth is zero then there is no tax right? I’m not Richard is satisfied with that.
Yes I am
I never said otherwise
But then your situation is a fantasy – typical of the argument of trolls and economists
What is the reason for arguing with things I don’t say?
I agree. One outcome of a ++40 year failure to tax can be seen in this article:
https://www.theguardian.com/uk-news/article/2024/aug/10/its-just-a-rich-mans-playground-now-how-st-ives-became-patient-zero-of-british-overtourism
As noted, the problem with holiday homes did not exist in the 1950s,60s,70s – I’d suggest it started to exist/develop as some people had more money to spend on e.g. holiday homes. The failure to ensure equity in society has many impacts. The article outlines one of them (& one could extend it to Wales).
Agreed, entirely
It also extends to most of the East Anglian coast, from which most of the local population have now had to retreat.
I note that that stretch of coast is rather susceptible to erosion, let alone sea-level rise. No doubt the incomers will demand adequate sea defences.
You can be sure of it
Southwold
Destroyed by holiday homes before the sea manages it,…….
I rarely go there now
If I stay in the area I like the Bell in Walberswick
…and the Lake District in spades. And the Yorkshire Dales….and elsewhere I’m sure.
Thank you for this timely blog.
There should be some tax of the type you describe. Personally, in particular, I would like to see unearned income taxed at a higher rate than earned income amongst a mix of measures.
I am very disappointed with the current direction in which this government are headed; from their current actions, they aren’t a Labour government. They seem more intent on pleasing the financial sector, than genuinely helping the poorest in society. They clearly believe in the neoliberal myths. I wonder if it would be possible, in some way to induce doubt in their minds, as a first step to getting a sea-change in their actions? Others closer to power who can exert real influence, perhaps, need to see the light first.
I mustn’t rush to judgement, but I can see discontent growing in the near future amongst MPs and also among party members; (and I didn’t vote tory or Labour). Already, I suspect there are a number of first time MPs who must be wondering if they are only going to be an MP for a single term.
Much to agree with
Rich.
I don’t think you should waste your sympathy on single-term LINO MPs. So long as they are good little boys and girls and do what they’re told by the party whips, there’ll be a comfortable seat saved for them on one of the Establishment’s gravy trains. If all else fails they’ll be “ennobled” in KS’s resignation honours list.
“one of the best ways to go about it would be to increase the taxation of income derived from wealth, or capital gains”
There’s a problem right there. If the wealthy are deriving an income from their wealth then they have not merely saved it but invested it in a way which generates a return. The world is always a little more complicated than you present.
Tell me why the return to capital should be taxed less than that to labour? Precisely, please, considering all dimensions to the issue.
@Fellow Paeantube
It is not about “to tax or not to tax” but the rate of tax.
Why should wages be taxed at a higher rate than “carried interest”?
Please explain.
@BayTampaBay
Your question is a bit off point to what I raised, but if you’re interested in the merits of relative rates of taxation depending on whether your return is derived from income or return on investment then Nobel winner Mirrlees is a good long read.
No, he isn’t
His was an utterly misguided view of tax
I said so at its launch event and remain of that opinion now
Neoliberal to its core and always stacked in favour of capital
@Fellow Paeantube
Again: Why should wages be taxed at a higher rate than “carried interest”?
What is the rationale for this action?
@ Bay Tampa Bay
Quite so.
Income is income and should be taxed as such.
Maybe once when we had a gold standard and investment was the money which enabled industry to develop and thrive there was a case for tax incentives. Those days are long gone.
Are we still waiting for a coherent reply from peanut tube?. I’m not seeing one at the time of writing.
@BayTampaBay I refer you to my earlier reply. There is other literature available on deadweight costs of taxation, that some taxation is necessary, but that different forms of taxation should be at different rates, and as our host has said, some should even be zero.
But you are swerving away from my main point about the nature of what our host wants to tax, he implied savings for the sake of savings was bad, and I pointed out that doesn’t happen, and this is about return from investment.
The deadweight cost? What of, the discrimination in favour of wealth you clearly propose?
Don’t call gain.
Considering that the deficit and debt is mainly savings by the rich, taxing it will reduced the debt. Not that the powers to be will admit this.
Two charts for the US taken together shows an X shaped trend that seems to be a clear correlation. I expect the same would be true for the UK. One chart shows an upward trend of wealth since 1990 for the top 1%, rising from 23% to 30%. The other chart shows a downward trend since 1980 of the velocity of money, falling from 3 to 1. Trickle down in practice?
https://fred.stlouisfed.org/series/WFRBST01134
https://archive.ph/yMHTL
What tax rate should apply to individuals taking ‘dividends’ from limited companies rather than salaries?
Read the Taxing Wealth Report on investment income surcharges, I suggest
@ Helen Groves
Income is income and should be subject to income tax shouldn’t it? Can you explain why that might be unreasonable?
I’m not surprised you have an ear infection. It comes from listening to trolls and government propaganda bollox.
Part of your job. it comes (as they say) with the territory. I hope the antibiotics work. Some still do.
Thanks
In his 1944 book, ‘Full employment and a free society’, in paragraph 123, Beveridge approvingly quotes Keynes as follows:
“Thus our argument leads towards the conclusion that in contemporary conditions the growth of wealth so far from being dependent on the abstinence of the rich as is commonly supposed, is more likely to be impeded by it. One of the chief social justifications of great inequality of wealth is therefore removed.” GT p373
Page 104 here https://archive.org/details/in.ernet.dli.2015.228995/page/n105/mode/2up
Thanks
How many people discussing wealth, and the wealthy, actually have a grasp of the realities? How well do we assess what “wealth” means?
An excellent TED Talk – admittedly 9 years ago, now – by Dan Ariely delivered the findings of the knowledge gap we have (what we think is so versus what really is) and our “Veil of Ignorance” desirability.
Perhaps those who find a problem with discussing “Taxing the Wealthy [fairly]” might usefully watch the 9 minutes of this and (honestly) challenge their own perceptions. As would those who think they understand what “being wealthy” means.
https://youtu.be/2tCcoSRZqVY?si=DknSVI_N2rpTG7dT
My heaven – Ariely *and* Rawls in one video!)
Thanks
Gary’s economics shares your concerns about taxing wealth
https://www.facebook.com/share/r/VMGcqTyAaTVvzbsF/
One quick hit idea?
An immediate cap on isa contributions to £500k tax free. If you’re above that you can no longer contribute & returns are taxed at your marginal rate.
And an annual contribution rate of 12k per annum.
I accept these might appear high, but it’s targeted at the wealthy & if these are fixed for the long term they’d be relatively less with fiscal drag over the years
I have already floated that idea – except I made it £100,000