A favourite elite mantra is that “taxing the rich brings in little money”. Let’s have a look at that claim. Research by CoreData Research UK (http://www.burning-pants.com/2010/10/im-alright-jack/) published in September 2010 suggest s that a minute 1.1% of UK households have combined wealth of well over a trillion pounds.
The research concludes that there are “284,317 individuals/households in the UK with more than £1 million in net assets (excluding an individual’s/family’s primary place of residence)” and their total wealth, not including main residences, is put at a cool £1.28 trillion. To put that in context , 2010 UK GDP is calculated by HM Treasury at £1,474 trillion. If the value of main residences was included the wealth of the millionaires would probably exceed total UK GDP as it is reasonable to assume an average of £1 million per property.
The official government debt figures as at 2010 are:
“Public sector net debt (excluding financial interventions) was £842.9 billion (equivalent to 57.2 per cent of GDP) at the end of September 2010. This compares to £687.5 billion (49.0 per cent of GDP) as at the end of September 2009.
“The unadjusted measure of public sector net debt (including interventions), expressed as a percentage of gross domestic product (GDP), was 64.6 per cent at the end of September 2010 compared with 58.5 per cent at end of September 2009. Net debt was £952.0 billion at the end of September compared with £821.5 billion a year earlier.” http://www.statistics.gov.uk/cci/nugget.asp?id=206
(Those figures give an idea of the frighteningly rapid increase in British public debt.)
If a ten per cent on their accumulated wealth was levied, it would produce in the region of £130 billion (or £150 billion if the value of main residences was included ). Tax their wealth (excluding primary residences) at 70% and it would clear the official current UK national debt (excluding financial intervention such as bailing out the banks) and if the primary residences were included, such a tax would clear the debt including bailing out the banks and their ilk.
Of course making paper calculations is one thing, collecting the tax quite another. The rich can generally work their way around taxes by using tax avoidance experts or engaging in evasion by moving money abroad. Nonetheless, that is largely due to the nature of the taxes they avoid and evade and the often complicit behaviour of British politicians and Her Majesty’s Customs and Revenue (HMRC).
In a country such as Britain, all personal taxes from income tax to capital gains are so surrounded by exceptions ranging from allowing people to take remuneration as capital gains instead of income to outright surrender by HMRC whereby the truly rich come to an ad hoc agreement with the British tax authorities which essentially comes down to what the rich individual is willing to pay. (The Telegraph – 9 11 2010 – reports that there are more than UK 1,000 tax allowances – http://www.telegraph.co.uk/news/newstopics/politics/conservative/georgeosborne/8118719/George-Osborne-set-to-close-tax-loopholes.html).
What is needed is a tax which has no exceptions and which can be levied on assets which are not easily portable. A wealth tax with no loopholes is the best bet. Easy to understand and as it is targeted at the rich, it has the immense political advantage of avoiding the usual problem associated with increased taxes, namely, significant effects on the lives of large numbers of people . Hence, no large number of disgruntled voters at the next election.
It also has the advantage of being a tax not levied by many governments in the developed world. This would in principle make it much easier to levy on assets outside of Britain. There are many reciprocal arrangements between Britain and other developed economies to prevent double taxation, that is, to prevent tax being taken on the same liability in two different jurisdictions. If the other jurisdictions do not have a wealth tax, then there would be no clash of taxation and Britain could levy a wealth tax without disrupting the present double taxation agreements. A wealth tax being a wholly new tax would also could also be outside the present taxation exemptions for the non-domiciled, that is, those with the right to reside in Britain but who live abroad for most of the year and nominate their domicile as somewhere other than Britain.
There would also be various measures that a British government could take that would at least apply to assets held outside of the EU and to Britons living outside the EU. (The position within the EU is unclear, but I suspect that the European Court of Justice or the European Court of Human Rights would come into play to adjudicate on whether levying tax on assets within EU countries other than the UK was legal. If Britain left the EU, the problem, of course, would dissolve).
If Britain had regained her sovereignty by leaving the EU, it would be possible to do such things as impose criminal sanctions on those who placed assets outside of Britain and failed to pay a wealth tax or make British citizenship dependent on the payment of the wealth tax. The latter would catch those who went abroad with their assets.
At worst , the British government would be able to levy money on assets held in this country , which would include at least a substantial property, something that could not be rapidly converted into cash and even if a property was sold the tax liability would remain. Indeed, the tax liability could be attached to the property so that even if it was sold, the tax would be liable from any purchaser. If foreign property purchases
But there are good reasons for believing that much more could be done. It is no small matter to uproot a family and take them to a foreign country, a particular difficulty if you have children of school-age or dependants such as aged relatives or relatives who are seriously disabled. A spouse or partner may not wish to leave the country; children may play merry hell at the idea of leaving everything they know or the disability of a dependant may be of a nature which precludes moving either because of the demands of the condition or because would-be receiving countries will not allow the disabled person to settle there. These considerations could apply to both Britons and foreigners who have been in the country for a substantial period of time.
More generally, there is the problem for those raised in Britain of having, in effect, to make the choice of a change of nationality for their children. This is a very emotive issue. The Pilgrim Fathers sailed for America because they had left England for Holland because of religious persecution and after several years began to fear their children would become Dutch. That decided them to leave Europe for the New World. Parents generally want their children to be part of the world they have known, to replicate their experience.
Doubtless if a wealth tax was announced in Britain there would be a tendency for the rich to say they would leave the country for friendlier fiscal climes. Many of the uber rich would probably leave the country in many instances. However, that would not be the position of the majority of people, let us say those with capital in the £1-5 million range. It is one thing to say you will go an live in Germany, France, Switzerland or the USA if you are in the billionaire class. It is quite another when you have only a few million to play with, especially if you choose a country where free at the point of use services such as education and healthcare are not available or if available nothing like as comprehensive as those provided by Britain.
The objection would be raised that this would drive the rich abroad and this would mean a great loss to Britain . There are two responses to that. First, as a proportion of their income, the rich pay little direct tax in Britain and their accumulated wealth suffers no regular deduction. Second, their accumulation of capital slows the rate of circulation of money because the rich as a class, contrary to popular myth, do not propel economies forward by lavish spending. Take a million pounds and give £1,000 each to a thousand of the poorest people and they will rapidly put the money back into circulation by spending it on a wide variety of basic goods and services. Give a millionaire a million pounds and most probably most of the money will simply be invested in one or two bulk investments. Of course, the millionaire’s million would l eventually filter through to the general economy where it will be distributed more widely, but the rate at which it reaches the wider economy will be much slower than the million pounds given to the thousand of the poorest. As consumer consumption is, for good or ill, the prime driver of our economy, this is not a small consideration. The rich also inflate asset prices, most damagingly, those of property.
Would a wealth tax cause a great upheaval? Louise XIV’s minister Colbert famously said “The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing.” Suppose the tax was a one off charge of 5 per cent followed by an annual 1 per cent a year . Would that be likely to cause a mass outflow of the rich? There is no reason to believe it would. There are many great advantages to living in an advanced and sophisticated country such as Britain and developed countries which have used a wealth tax have not experienced a mass exodus of the wealthy. What I have proposed is a tax designed not to frighten the millionaire horses and that alone would stop sudden and massive asset depreciation as there would be no need for a fire sale. The rate I suggested for a yearly tax is well within the range of wealth taxes levied by first world countries without catastrophe occuring.
Disagreement with the idea of a wealth tax may be made on ideological grounds, but not on the ground that it would not raise a great deal of revenue.