WEALTH TAX AT THE EDGE Consequences Not Being Considered
The UK polity is teetering on the edge of a wealth tax. Taking that course would make the UK an outlier in international taxation regimes:
https://www.pgpf.org/article/what-is-a-wealth-tax-and-should-the-united-states-have-one/
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How Have Wealth Taxes Worked in Other Countries?
A number of countries have implemented versions of a wealth tax with varying degrees of success. In 1994, 12 member nations of the Organisation for Economic Cooperation and Development (OECD) had net wealth taxes. By the end of 2022, just four member countries (Colombia, Norway, Spain, and Switzerland) still imposed an annual net wealth tax. An OECD report explains that net wealth taxes are much less common than they used to be among member countries because of administrative difficulties, noncompliance, and undesired emigration; such issues ultimately led countries like Austria, Finland, Germany, and Sweden to repeal their wealth tax laws.
The specifics of the existing wealth taxes vary between countries. Norway, for example, taxes its wealthiest households at 1.0 percent annually on wealth exceeding $160,000, while Colombia, Spain, and Switzerland have progressive systems. Colombia levies the tax ranging from 0.5 to 1.5 percent on wealth stock exceeding $860,000, though starting in 2027, the rate will be reduced to 1 percent. Spain taxes its wealthiest citizens by between 0.2 and 3.5 percent per year on wealth above $752,783, and Switzerland between 0 and 50 percent per year. Unlike the national wealth taxes in Norway and Spain, Switzerland’s net wealth tax is collected at the local level. Most of the countries that impose a wealth tax also offer exemptions. For example, Spain allows for a $315,000 individual exemption for a primary residence, while Norway exempts 75 percent of the value of an individual’s primary residence.
The revenues raised from wealth taxes in those countries represented relatively modest proportions of their total revenues. Colombia’s wealth tax failed to generate even 0.1 percent of revenues as a percentage of the nation’s GDP. Spain’s wealth tax amounted to 0.2 percent of the nation’s GDP in 2022, while Norway’s wealth tax amounted to 0.5 percent of GDP. Switzerland’s wealth tax made reached 1.4 percent of GDP in 2022; however, that is due to lower exemption thresholds and a comparatively high percentage range depending on the locality. As a comparison, if the United States were able to achieve the same percentage, it would equal roughly $354 billion in 2022, which would have boosted revenues that year by 7 percent.
Will Rachel Reeves introduce a wealth tax? Here are four signs it could become reality
The announcement could come within months
by Bill Curtis
in Politics
0:00 / 0:00
It’s the one question that was taboo among the PLP (Parliamentary Labour Party) just months ago: Should Britain implement a wealth tax?
Now, though, it is a serious option being considered by the Treasury after Labour MPs forced No 10 to water down its welfare cuts, which would have saved £5.5 billion.
Here are four signs it could finally become reality.
Calls from Labour heavyweights
In recent months, more and more Labour figures have been calling for a wealth tax.
Former Labour leader Neil Kinnock has called for the revenue raiser.
He told Sky News: “This is a country which is very substantially fed up with the fact that whatever happens in the world, whatever happens in the UK, the same interests come out on top, unscathed all the time, while everybody else is paying more for gutted services.”
And, Keir Starmer’s former transport secretary Louise Haigh.
Speaking at a conference organised by Compass, a Left-wing Labour pressure group, she said: “We must acknowledge that our tax system is perverse. It punishes earned income but barely touches the real driver of inequality, wealth.
“If we do that, we can finally move beyond a broken model where working people’s wages are topped up by tax credits and benefits, leaving bad employers and landlords to profit. We can move from a system of handouts for the rich to real investment for everyone else.”
Electoral loss
Campaign group Tax Justice UK has claimed Labour needed to implement a wealth tax or “risk losing the next election”.
A spokesperson for the group said: “A relatively small number of people have hoarded unbelievable fortunes while millions are struggling to get by and key services we all rely on are starved for the funding required to deliver what people need.
“As it stands, implementing a small number of changes to the existing tax system today – to tax wealth – would raise tens of billions of pounds.
“They should go further and levy a net wealth tax on the super-rich to boost public finances even more and get on with making Britain a country fit for the 21st century, where everyone’s needs are met or risk losing the next election.”
Comment from the prime minister’s spokesperson
Even the PM’s spokesperson has left the door open to this tax.
They said: “We have repeatedly said that those with the broadest shoulders should carry the greatest burden and the choices we’ve made reflect that.
“The top 1 per cent of taxpayers contribute nearly a third of income tax.
“Revenue from wealth and asset taxes like capital gains tax and inheritance tax go towards funding tens of billions of pounds for the public services.
“The government is committed to ensuring that the wealthiest in our society pay their fair share of tax.”
Huge public support
And, finally… the public overwhelmingly supports a wealth tax on the super rich, including a majority of Tory and Reform voters, a YouGov poll has learnt.
According to the survey of over 4,000 adults, 75 per cent of Brits want to see it introduced.
Just 13 per cent of those surveyed expressed opposition to the policy.
Support for the policy cuts across party lines, according to Left Foot Forward: 88 per cent of Labour voters back the tax, along with 83 per cent of Lib Dems, 61 per cent of Conservative voters and even 55 per cent of Reform UK supporters!
OWNERSHIP
There must be some actual person who tax legislation mandates as liable to pay. There lies the fundamental problem with wealth taxation in the UK.
The modern UK economy was built on inward-invested capital. Home capital resided in manufacturing and related markets. The Thatcher revolution eviscerated that capital base, which was essentially Victorian and had proven unable to support the societal economy.
Who are the ultimate owners of inward-invested capital is unknowable. Wealth tax bills can be delivered to layers of intermediaries. But they cannot be the person ultimately liable to pay.
Unattributable ownership renders wealth taxation inherently unstable.
INFLATION
Any tax is inherently inflationary.
Where tax is imposed on assets of a class, the spontaneous market reaction is to add the value of that tax to the asset price. Or to the price of whatever revenue streams (rents) are derived from the asset.
Example: an asset consists of real property which is rented in the market. The rent functions as an annualised value of the asset capital value. Introducing a new cost to the mere holding of capital value inherently increases the rental price.
That inflation has a cascade effect: the renter demands more money for the goods/services supplied by the renter, so as to be able to pay the increased rental price.
Wealth taxation has cascading inflationary effects.
VALUE REDUCTION
Asset sequestration can be utilised to compel realisation of asset value so as to discharge fiscal liability. That can be done on a micro scale. Beyond that, asset sequestration has effect to destroy the market in that asset class. It is like seizing an asset nominally worth $10 million: the act itself devalues the asset, such that its realisable value is only $1 million.
A wealth tax, so implemented, drives a reduction in the ultimate tax base.