Beckingham Palace?
Read more
Contents
Wealth tax etc – Introduction
A new hero of our times.
Rising from the embers of super-inflation and low growth.
Perhaps bitten by a radioactive Kwarteng?
I introduce the Billionaire Patriot.
OK, so maybe its only on Marvel’s ‘maybe’ list.
But what is a Billionaire Patriot?
OK, I admit it. I didn’t even come up with the name.
More than 100 members of the global super-rich called on Wednesday for governments around the world to “tax us now” to help pay for the pandemic response and tackle the gulf between rich and poor.
The Guardian has reported today that a group of 102 millionaires and billionaires have issued a plea for Governments around the world to “tax us now”. This list includes Abigail Disney, heir to the Disney empire and Mark Ruffalo, who already plays Marvel hero, The Hulk.
The letter states that:
“As millionaires, we know that the current tax system is not fair… Most of us can say that, while the world has gone through an immense amount of suffering in the last two years, we have actually seen our wealth rise during the pandemic – yet few if any of us can honestly say that we pay our fair share in taxes.”
More specifically, the loaded signatories, who brand themselves as “patriotic millionaires” [hang on, turns out I can claim Billionaire Patriot as my own], demand an introduction of a:
“permanent wealth taxes on the richest to help reduce extreme inequality and raise revenue for sustained, long-term increases in public services like healthcare”.
A similar letter, 12 months ago, suggested an annual levy subject to the size of fortune, as follows:
- In excess of $5m: 2% of wealth;
- Wealth of $50m – $1bn: 3%; and
- Wealth of $1b or more: 5%
It is stated that this could raise more than $2.52t. However, this year, the estimate seems to be $1.7t.
Either way, no small potatoes.
We are told that applying a similar framework to the UK, which would affect around 119,000 people, would raise an estimated £43.7b per annum
Is this the first time we’ve seen the millionaire turkey’s voting for Christmas?
No, it’s not.
Just over three years ago Interesting I wrote about Simon Pegg – he of Big Train, Hot Fuzz and Mission Impossible fame – had insisted that millionaires, like him, should pay more tax.
He was part of a group that called themselves Millionaires Against Pitchforks. This group stated that:
There are two kinds of wealthy people in the world: those who prefer taxes and those who prefer pitchforks. We, the undersigned, prefer taxes. And we believe that, upon reflection, you will as well.
As with the Patriotic Millionaires, their missive was released to coincide with the Davos Economic Forum.
What is a wealth tax?
Don’t we already tax wealth?
Yes, of course.
We tax:
- transfers of wealth in lifetime and death through Inheritance Tax (“IHT”);
- the capital return from wealth through Capital Gains Tax (“CGT”); and
- income returns from wealth through income tax.
Further, we also commonly tax property purchases through Stamp Duty Land Tax and also we have (less commonly) the Annual Tax on Enveloped Dwellings (“ATED”) where one broadly lives in a property that has been ‘enveloped’ in a Company.
However, we do not have a tax that is simply levied because you have wealth.
Thomas Piketty and wealth tax
Piketty, the French economist was fairly unequivocal when he stated that billionaires are harmful to economic growth.
Piketty’s book, Capital in the 21st Century, became a global bestseller and de-facto instruction manual for the ‘tax the rich-ers’.
Piketty has also called for a wealth tax of 5% where net fortunes exceed €2 million.
However, Piketty’s wealth tax has a spikier end than those proposed above (or under the WTC proposals discussed below.) Indeed, Piketty cranks up his tax to an eye watering 90% on those with a net worth of worth more than €2 billion!
Piketty stated that:
“Entrepreneurs will have millions or tens of millions… But beyond that, those who have hundreds of millions or billions will have to share with shareholders, who could be employees.
So no, there won’t be billionaires anymore.
How can we justify that their existence is necessary for the common good?
Contrary to what is often said, their enrichment was obtained thanks to these collective goods, which are the public knowledge, the infrastructures, the laboratories of research.”
The Wealth Tax Commission report
Introduction
A report by the Wealth Tax Commission (“WTC”) in December 2020 stated that the current suite of wealth taxes is “dysfunctional”.
I think describing the UK tax system as dysfunctional is somewhat polite.
It is an abomination. A recent OTS report – God rest its soul – on CGT highlights some of the problems. That said, I don’t think the solutions it suggested brought much to the party in terms of simplification.
Indeed, today’s newspapers get into the spirit of Rothbard, reporting “raids” on pensions and properties.
Who is the WTC?
The WTC is simply a self-established group of individuals, including academics, professional pollsters and tax barristers (such as Emma Chamberlain OBE).
The WTS has conducted substantial research into the issues around wealth taxes, including how they operate around the world and the public’s attitude to wealth taxes. Indeed, this report is not only weighty in its own right – but is supplemented by a number of other substantial research papers available on its website.
It is, objectively, an impressive body of work.
The proposals
Firstly, it is clear that the WTC prefer a one-off wealth tax as opposed to an annual tax suggested by the Patriotic Millionaire.
It should be noted that the WTC clearly statd that they were NOT suggesting any particular rates or threshold. However, they do set out some illustrations:
- Threshold of £500k of assets per individual over which a wealth tax is payable; and
- Threshold of £2m of assets per individual over which a wealth tax is payable
Based on a rate of 5% (spread over 5 years) the first of these would reportedly raise a stonking £260bn, which is broadly the projected COVID blackhole. In respect of the second of these, then the tax take would be £80bn.
Clearly, this 5% rate kicks in much lower than that of the Patriotic Millionaires proposed tax.
The WTC examples raise a huge amount of money.
This is best illustrated what other changes to the tax system if one wanted to raise an equivalent £250m over 5 years:
- Raise the basic rate of income tax by 9%;
- All income tax rates by 6%
- All VAT rates by 6%; or
- Corporation tax rates to rise by 5% AND VAT to rise by 4p
Someone once said something about making the pips to squeak.
That’s certainly squeaking territory!
What was taxable under the WTC proposals?
The proposal was that ALL wealth above the thresholds would be taxed.
The report is very clear that ‘exceptions’ and ‘exemptions’ should be resisted to keep the tax base as wide as possible.
This is a bold (and potentially politically incendiary) proposal. The proposal is that wealth in pensions, main residences and businesses would be up for grabs.
Yikes!
The obvious problem of ‘asset rich, cash poor’ suffering sizeable tax bills which they cannot pay is identified in the report. Rather than having to pay 5% in one hit, a ‘standard’ five-year deferral would be allowed. Further, the wealth tax on a pension may be payable only when benefits are drawn (eg, could be paid out of the tax-free lump sum).
It should be stated that it was envisaged that a wealth tax would only apply to net wealth. As such, it would take into account debt.
Wealth taxes around the world
General
Unsurprisingly, Piketty’s proposals have well and truly hit the mark with left leaning commentators.
However, have we seen any such plans around the world?
US
In 2020, US Senator Elizabeth Warren, a hopeful for the 2020 presidential race, raised the prospect of a wealth tax.
Warren dubbed this the “Ultra-Millionaire Tax”.
Under her tax, there would be a 2% federal tax on everything exceeding $50m. Further, there would be an additional 1% over where fortunes exceed $1b.
It was estimated that almost $2.8t would be raised from the 75,000 richest households in the US.
France
France has had two stabs at a wealth tax, applying to the worldwide assets of French residents, as follows:
- from 1982 – 1986; and
- from 1988 – 2017.
Under the most recent incarnation, the highest rate being about 1.5% on net worth exceeding €10 million.
However, at its highest, it raised only a few billion euros. Further, it is asserted that at least 10,000 of its wealthy residents left the country.
It is estimated by French economists that the tax cost twice as much revenue as it raised.
Norway and others
About half a million people in Norway are liable to a 0.85% tax where the value exceeds 1.48 million Krona – or about £126,000.
This is certainly not a recent foray as it was introduced in 1892.
Most families in Norway pay at least some amount under the wealth tax but it raises a mere 1% of Norwegian tax revenues.
Spain and Switzerland both also levy a wealth tax.
Conclusion
A wealth tax could do an awful lot of heavy lifting. Whether one looks at the suggestion of the Political Millionaires or the WTC proposals, they raise a fair chunk of change.
Certainly, and bearing in mind manifesto promises by the current Government, the alternative heavy lifters – Income tax, NIC and VAT – seem unlikely to have any more scope for levering.
However, it is perhaps easy to consign a wealth tax to the politically too hard pile.
Indeed, we have seen both Boris Johnson and Rishi Sunak dismiss the prospect of a wealth tax.
Indeed, where a tax is applied to main residences and pensions, any such proposal might be politically incendiary – unless the thresholds look more like the levels of the Patriotic Millionaire’s proposal and not those set out in the WTC report.
However, perhaps unsurprisingly, the Labour party has been more positive to the idea. It has previously requested that the Government considers introducing a wealth tax.
Indeed, Sir Keir Starmer KC, has stated that:
“We are saying to the government, look at the idea of a wealth tax, we certainly support the principle that those with the broadest shoulders should bear the greatest burden.”
Finally, where wealth taxes have been introduced around the world, they have had mixed results and appear to be in decline.
As such, it might be like many tax proposals, there needs to be a unified approach to any such measures.
Could we yet see Billionaire Patriot win the fight against his nemesis, the super-villain Greed Induced Poverty?
This stuff writes itself.
If you have any comments, queries or observations then please get in touch
