I got to the point yesterday in my work on wealth taxes where I could feel fairly confident that I had identified all the changes to taxes that impact the wealthy that I am likely to propose. There are thirty of them in all, without going near an actual wealth tax. Of these proposals, most are written. Seven have seen no work as yet (four of them relating to inheritance tax), and three need more work to be done, two of which are quite big.
Still, progress is looking good, and I am now working on the introductory material, which I was reluctant to do until I had got this far and was sure I knew where the whole project was going.
And then along came the video embedded in this Tweet from Robert Reich, who was Clinton's Labour Secretary in the USA:
Today seems like a good day to debunk the 12 biggest myths about taxing the rich. pic.twitter.com/4XYS7BZ0WY
— Robert Reich (@RBReich) August 29, 2023
This reminded me that I will really need to do something similar to support this project, and although I tangentially address a lot of UK myths on wealth in what I have written I might also need a series on the ones most popularly claimed.
Starters might be:
- The wealthy already pay most of our taxes so why should they pay more?
- The wealthy will work less if we tax them more.
- There isn't enough money available for anything extra that the rich might pay to make a difference.
- The wealthy will all leave if we tax them more.
- Inheritance tax is double taxation, so we should not have it.
- Capital gains tax just taxes inflation, so we really should not charge it.
- Spending by the rich keeps the country going, so we really should not tax them more.
- Of course we need to subsidise the savings of the rich more than we need to subsidise the savings of most people.
- Unless we subsidise the savings of the rich then there will be no funds for investment in the UK.
- It's so unfair to tax high-value properties more than low-value ones because old people live in valuable properties and they've got no money to pay the tax.
- It would be totally unfair to tax income from wealth at the same rates as those charged on income from work.
- Why should the rich pay VAT on the things that only they tend to buy?
- The rich really do need to get a tax kickback for making donations to charity when the rest of us do not.
- Of course it's OK for the rich to shelter their income in limited companies.
Are there others that I should be looking at? Suggestions are welcome. And what format should be used?
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Another one: If taxes on the rich are too high, they will just use clever lawyers and accountants to avoid them.
With perhaps a supplementary, which I have seen recently on inheritance tax: The very wealthy will always find ways to avoid taxes, so it is the ordinary well off people who end up paying them.
Thanks
Useful
The issue is certainly a lot more complicated than I had imagined. I recently discovered Thomas Sowell, an American conservative economist. His paper “Trickle Down Theory and Tax Cuts for the Rich” is an interesting read. He writes:
“What actually followed the cuts in tax rates in the 1920s were rising output, rising employment to produce that output, rising incomes as a result and rising tax revenues for the government because of the rising incomes, even though the tax rates had been lowered. Another consequence was that people in higher income brackets not only paid a larger total amount of taxes, but a higher percentage of all taxes, after what have been called “tax cuts for the rich.” ” https://tinyurl.com/mr2u96az
What is not clear to me (because I lack the expertise) is whether this is a genuine benefit, or just good rhetoric. And as with most classical economics, no reference to ethics, apparent fairness, and other factors. So does he have a point, or is he pulling the wool over our eyes?
Almost all these claims are rhetoric
For example, this was claimed of cuts in the corporation tax rate in the 80s, but actually tax yields rose because stock relief and captial allowances were cut – so the headline told nothing like the whole story.
It wouldn’t hurt to put in benefits – to all. Reducing inequality is not only a moral issue – it would improve the well-being of everyone in society, both the wealthy and least wealthy.
Also, it would be useful to avoid a simple left/right culture war – we’ve got enough populism pointing fingers at left lawyers (etc, etc): In reality, concentrating wealth and relying on ‘trickle down’ is criticised by many who’d not typically be considered ‘left wing’ – e.g. Buffet. A redistribution is beneficial overall (as Reich’s shows).
Ho9w would you out beenfits in? What is the myth you’d be tackling?
The myth is that acquiring wealth (in itself) is a useful aspiration – in a more unequal society, not only do the most deprived suffer, but the well-being of the least deprived also reduces — compared to more equal societies.
I will reflect on that one
How about the myths that:
Benefits are more than adequate to live on
Those on benefits are there by choice
Increasing benefits would lead to more lazy people refusing to do available work
People on benefits can be encouraged to find work if their benefits are cut, while senior management can be encouraged to work harder/better by increasing theit income.
These are all relevant issues, but do they relate to myths surrounding the taxation of wealth?
There are popular myths surrounding the cost of benefits, that obscure the obscenity of wealth tax allowances. These myths need tackling too at some point.
So that in the public consciousness, keeping the two child benefit cap is a good things as it saves about £1.3 billion, and is intended to penalise feckless families and stop them breeding. This myth has a great deal of popular appeal still, even though it has been proved to be ineffective.
Dispensing with the VAT exemptions on private schools for example, would raise £1.6 billion, but has nowhere the same basic appeal in the public’s mind.
I will definitely tackle this issue
What I am showing is that tax subsidies for the rich are very expensive and that most of them benefit ma ny times more than do those on supposed benefits
Benefits to the poor vs the wealthy. Tax cuts for the wealthy is moving money upwards and this is usually at the expense of the poor. Now, the messaging around the social safety net and tax cuts to the poor couldn’t be more stark. I believe your objectives on this thread would be assisted with the counter messaging around benefits to the poor. As it stands we are “happy to be punitive” to the less well off who need assistance than we are to the already haves.
Philip Alston, remarked in 2018: “British compassion for those who are suffering has been replaced by a punitive, mean-spirited, and often callous approach.”
I agree with you
Might council tax be considered within this?
E.g., https://fairershare.org.uk/proportional-property-tax/
There are big problems with that – inclduing its obvious lack of progressivity.
The claim that tennants would not pay is naive – of course it would be passed on.
I can think of a response to several points:
1) If you’re wealthy, you will have benefited proportionately more from infrastructure, institutions, and educated, happy and healthy customers, workers and suppliers compared to lower earners and/or the less wealthy;
2) Working less could mean more quality time with family and friends. It could/would mean more retained earnings in the company that are not paid out as wages, bonuses etc, potentially meaning more for lower earners. Same response to point 4, as made by Nick Shaxon years ago on tax havens and ‘what if the wealthy investment bankers flee?’
7) I would prefer a more balanced economy, with collective well being prioritised
Thanks
Richard, if you can write a work that addresses all of those points then I will definitely read it!
Thanks
Don’t forget how the public sector is supposedly inefficient…so if you give govts more to spend, they waste more. This is a bit rich, given what privatisation has done here, innit?
Added…
The big one is, of course, that there is no money left.
And as a starting point.. what IS wealthy?
A £100k salary can look like “being wealthy” but my friends on that salary do not feel it….
That is income
It is high income – undoubtedly – but I am most interested in income from wealth i.e. unearned sources
income from a pension an unearned source.. but people in their 70s/80s don’t have the capacity to earn like when they were younger or maybe can’t earn at all.. that pension reflects a lifetime of savings for later life.. it is wrong for you to call this “wealthy” as it needs to provide for the rest of their life!!!!
I am not treating pensions as an unearned income
You might
I am not
Buit that is not to say that there are not some very wealthy pensioners – so please do not claim otherwise
I would also suggest that this topic also needs looking at from the other side.
For instance:-
1 Above a certain level of wealth it profits the rich to invest in tax avoidance,
2 The easiest way for the rich to become hugely richer is by using their wealth to influence the countries Democratic processes.
You only have to look around us to see the damage that these perverse incentives inflict on societies. We have already reached the point where Democracy and the future survival of our world is seriously under threat.
Taking it a step further I also think that we should be asking old, fundamental questions like why does anybody need to own wealth above a certain level?
Aren’t hugely rich individuals a serious danger to the well being of the country they live in and the rest of the population that live there?
What myth are you challenging?
Good question.
On reflection I am challenging the myth that the presence of very wealthy people in a country is necessary in order for the country to progress economically, socially, scientifically or artistically.
I think we are surrounded by overwhelming evidence that demonstrates in a myriad of ways that the reverse is true,
Thanks. Noted.
On “spending by the rich”, you might look at how much of their spending is on luxury goods – many of which are imported.
Levying a tax on such imports frees up space for non-discretionary imports such as food.
I’m not sure where your threshold for being “rich” is, but on this point it would probably need to be a bit lower.
A Margaret Thatcher style additional rate of VAT on luxury goods?
I will add that to the to do list….
I’d love you to address “Universal Basic Income is unaffordable”.
But it does not fit in this series, so sorry…
One thing is very clear a great deal of re-education of the public is needed. Your current work on tax is clearly part of this. That said it’s hard to see where that mass re-education is going to come from which has coherency. Much though I quote the Guardian it doesn’t really have that mission it’s far too scatter-fire. Wouldn’t it be great though if they allowed you to publish your tax findings to start an on-going conversation!
At best it will get a mention one day…
Maybe
There does seem to be some good suggestions from Thomas Sowell:
[Circa 1921] “Secretary [of the Treasury Andrew] Mellon repeatedly sought to get Congress to end tax-exemptions for municipal bonds and other securities, pointing out the inefficiencies in the economy that such securities created. He also found it “repugnant” in a democracy that there should be “a class in the community which cannot be reached for tax purposes.” — “Trickle Down Theory and Tax Cuts for the Rich”, https://tinyurl.com/mr2u96az
Is there are list of how the wealth can avoid paying taxes, which would enable them to be addressed?
That is what I am working on….
My whole point is to change this
I’ve not read the others as I’m in a rush but I would say that the biggest myth about the rich is that they ARE the economy?
They aren’t. It’s all of us/everyone.
I have made a note of a variation on that….
A subset of the first one (The wealthy already pay most of our taxes) that is sometimes used is that the top X% pay Y% of the total income tax, where X is the top 1, 10, or 20% and Y is a big chunk of all the income tax paid, and so income taxes at the top end shouldn’t be raised or should be cut, which is obviously disingenuous as it ignores all the other taxes paid.
This also relates to something you might want to address somewhere, which is that those advocating against higher taxes on the rich will sometimes make their case by talking about the absolute values paid rather than the percentage of income, which is far more relevant. Of course rich individuals pay more tax than poor individuals, as they have a much higher income, but if someone on £20,000 a year pays £5000 tax then they are making a much bigger tax contribution than the millionaire who pays £5001 in tax.
Strangely those putting forward the “problem” of the rich paying so much of the income tax never suggest the obvious solution, which is that if we doubled the minimum wage then the bottom half would end up paying a lot more income tax and so the proportion paid by the rich would fall. I think this wider point is important – if the rich really are paying too much as claimed then the solution isn’t to tax them less but to raise up the bottom half of the population with all the suggestions you make on your blog, as this would automatically decrease the proportion of taxes paid by the top half.
All noted, thanks.
I think even more stark, but rarely gets a mention, is the percentage of the wealth created in the economy that goes to the wealthy. So, the rewarding of the “labour” of unearned wealth is exponentially higher compared to reward to income.
The idea that we live in a meritocracy and that wealth is a measure of merit, which logically gives us: “I worked hard for this, why should I be forced to pay more just because I worked harder than other people”.
A variant has been noted
I think there is no doubt that some wealthy people worked hard for their money. And some of them still exploited their workforce.
And then there are the nurses, who worked harder than all of them in a high stress job, for the benefit of society including many wealthy people (especially emergency care).
I don’t know how true this is and given the opacity of our financial systems it might not be possible to prove either way but
“The rich invest their surplus wealth in UK productive capacity.”
Thanks. Noted.
As noted so well on the Gary’s Economics YouTube, yes they invest it in growing businesses, but they mostly use it buying your mum’s house and then renting it out!
Indeed…
I was thinking of a similar point. A hypothesis that the surplus incomes and wealth at the top end goes predominantly into existing assets (property, stocks and shares). This inflates the value of those assets but does little or nothing to improve the productive capacity of the real economy. Speculative rather than ‘real’ investment. Rentier capitalism.
Incomes of those at the bottom (or even middle) go predominantly into consumption, arguably supporting the wider, real economy.
This line of argument tackles the claims of todays rentier capitalist and the Tufton Street gang head on. They create little or no new ‘wealth’, as well as funnelling it upwards.
The analysis is appropriate and right
My favourite myth to debunk is that everyone should pay their fair share. There is no ‘fair share’, there’s just what we all decide each individual (and organisation) should contribute based on the needs of the community.
I like what Graham Norton said here
https://m.independent.ie/entertainment/television/tv-news/graham-norton-slams-short-sighted-celebrities-who-avoid-tax/37363187.html
But the point I might make to the rich is that it’s better to be taxed by HMRC than an angry mob which might happen if you collectively refuse to pay
Michael Hudson says ( at least in the USA) 80% of borrowing is for property of various kinds ( I imagine this includes shares)
This leaves less for investment in the real economy of goods and services. It is bought in the hope of capital gains. But it drives up prices of homes and other property and the ‘workers’ and businesses have to pay more of their income in rent/ mortgage. Therefore they can spend less on goods and services.
He writes the old economists -Mill, Marx, Ricardo I think-assumed the excess ‘economic rent’ ( he does not define it) should be taxed away and money spent to provide basic services at cost or low profit-the utilities and transport, social housing perhaps. Thus employers would have lower costs and wage bill and also make profits.
Finance capitalism extracts wealth from the real economy, and in the long run destroys it.
It is thought that 85% of UK lendiong is for property purchasing
Probably a little out of pitch, but the myth I would address is the one of ‘the failed State: it couldn’t happen here!’
The overarching reason to tax unearned wealth is to assert the primacy of the state. People in the west perceive the ‘inequality’ divide along a single axis, with ‘the wealthy’ at the top, and ‘the poor’ at the bottom. Once the state loses primacy, however, it reveals itself as a system: networks of competing wealthy, each with their own resources, their own enforcement, and their own ‘poor’. And then everyone is involved.
Anyone exulting the virtues of unregulated, unearned wealth circulating at the top ‘free from the control of the state’ is obliged, in my book, to examine – in detail – HOW states break down. The maneouvres, the steps, the mechanisms, the gaps that appear in governance, the slow evolution of the networks that fill them. For anyone interested I can recommend David Kilcullen’s ‘Out of the Mountains’. Plus a short stay in a city in which armoured vehicle and flak jacket are required for a trip across town for a coffee – if the power is still on.
Such an outcome is, of course, nothing like inevitable. But it IS a slippery slope; and if you don’t examine the slope you don’t know where and when to apply the brakes. And the biggest brake – the ‘engine brake’, if you like – is the demonstrable power of the state to tax unearned wealth.
It’s a good point
I am not sure how it fits into this series…
This post has obviously struck a chord, it sounds as if your current project is well worth while.
For almost all your “myths” I have no problem anticipating at least the bare bones of how you will debunk them. The one that got my logic in a twist was the argument that CGT is taxing inflation, that is clearly a potential though not significant while inflation has been low – which it isn’t currently and hasn’t always been. I can’t work out whether something maintaining its real terms value is a “benefit” that justifies taxation in the same way as company profits or interest; I look forward to your explanation of that.
I will try!
I need to think about the myth, but council tax needs attention.
The way it is designed (even ignoring the top band being too low) means that people living in deprived areas, where housing is in bands A and B have to pay far more per household than those living in wealthy areas where housing is in the highest bands. It is a fundamental issue with the way council tax is designed (presumably deliberately).
I am making big recommendations on this to address that issue
The myth that taxing capital gains is just taxing inflation should be easily debunked
Since 2001 we have had relatively benign inflation and even short periods of deflation yet an already wealthy individual could have bought £1,000,000 of Apple or NVidia (and probably other similar) stock in 2001 and would be worth over £500,000,000 today
For Apple you could have bought 75,000 shares in 2001, after splits it would be 4,200,000 in 2023 so about £617 million (not including the approximately £2.7 million in dividends received annually since 2013
I can recommend the following books for reasons the introduction makes clear:
“The typical introductory economics textbook teaches that economics is a value-free science; that economists have an agreed-upon methodology; and they know which models are best to apply to any given problem[..]
The Microeconomics Anti-Textbook points out that all this is a myth [..] Our aim is not to debunk mainstream (neoclassical) economics — just the textbook presentation of it. ”
The Microeconomics Anti-Textbook by Rod Hill and Tony Myatt (2nd Ed. 2020) https://tinyurl.com/7de6wupp
See also: The Macroeconomics Anti-Textbook: A Critical Thinker’s Guide by Tony Myatt (2022) https://tinyurl.com/4kw3sn7r
Myth: That promises made a long time ago can be forgotten.
Lloyd George and, 25 years later, Churchill PROMISED …
‘In 1918, Prime Minister David Lloyd George called a General Election with a promise to make Britain A COUNTRY FIT FOR HEROES. “Slums were not intended for the men who have won this great war,” he said. “Housing of the people must be a national concern.” The Housing Act 1919, gave birth to council housing.
However, by 1942 Beverage still wrote of the need to battle against the five giants: idleness (job guarantee), ignorance (education), disease (health service), want (unemployment- pregnancy- etc benefits), squalor (still work to be done on housing) – a ‘cradle to the grave’ social programme.
Winston Churchill committed to establishing the NHS in his ‘From the Cradle to Grave’ broadcast of 21 March 1943 “We must establish on broad and solid foundations a national health service.”
The troops heard or read about the promises.
The following year, my uncle was the first from his troop ship into a landing craft at Normandy. He was ordered to risk his own life and fire his machine-gun at men like himself.
Eighty years later, in 2023, the social services – health, education, benefits and especially housing – are all underfunded and in a mess.
The nation was promised. It is the duty of today’s politicians to fulfill those promises.
Agreed
Robert Reich is well worth following on Substack. Although it is from a US perspective, there is much that is relevant to U.K., though Reich now seems to the left of Labour.
Seems to me that lots of people seem to believe that all income of very wealthy people is taxed at their marginal rate, rather than the income above the threshold. I would also add that IMO most very wealthy people pay very little inheritance tax through the use of trusts.
I agree on the former
The use of trusts is much less attractive than it was
Giving assets away early is a 2ay the rich save, and they also use other reliefs
Richard – love the idea and you have probably considered this already but you did ask about ideas for the publication format. I would suggest producing a number of different versions tailored to the different audiences that you wish to reach (‘Russian Doll approach’). There are many different mindsets that need changing and people that need educating on this and other matters of economics and finance so its important that your message has resonance and sticks with each – what makes you average Daily Mail reader sit up and take notice is very different in style and level of detail from what will peruade a Labour politician.
Doug
I take all that on board
I will be starting with the technical stuff – because that is essential. My work is always solution focussed.
But then I will do the mythbusters and more…
I agree, this needs to be addressed from a number of angles.
Best, and thanks
Richard