A Wealth Tax
The infamous American bank robber, Willie Sutton, reputedly told a journalist who asked him why he robbed banks that it was "because that's where the money is". The same irrefutable logic would appear to be behind the case for a wealth tax.
If the Treasury is depleted, not enough tax is being brought in and ordinary families are struggling to make ends meet, those sitting on large amounts of wealth must surely be worth tapping for a bit of it?
Of course it's not as simple as this. But before considering the potential difficulties, it's worth assessing the case for a levy on wealth for the UK.
First and foremost there is a ring of natural justice about it. Taking the most from those who have the most to give seems fair. The measure also appears popular, albeit rather more so among the 95% or so of the population who would not be liable to pay it! There is undoubtedly a sense among many people, fuelled by high profile media stories about tax avoidance, that some of the wealthiest are not paying their 'fair share'. This has already contributed to putting proposals on the table for a tax reliefs cap, a general anti-abuse rule and the extension of legislation around Disclosure of Tax Avoidance Schemes. A tax on wealth, whether temporary or permanent, could be seen as a natural next step.
A related point is that most wealth is tied up in property, which has experienced huge increases in value over the last 30 years, which some might classify as unearned windfall gains, deserving of a windfall tax. Those who have bought in the last few years though, might take issue with such an assessment!
Additionally, in the debate about whether we should tax wealth or income, a shift to wealth has one big thing in its favour – significant evidence, from OECD research in particular, that taxes on land and other wealth are less damaging to growth than taxes on either personal income or corporate profits (with VAT and sales taxes coming somewhere inbetween). In our current economic circumstances this argument weighs especially heavily.
In the debate about tax people often talk about the wealthy and those with high incomes as though they are the same people. They are not. Of course there is a substantial overlap but there are significant differences. In particular high earners tend, on average, to be a little younger than those with the largest amount of assets. Our current tax system raises about six times as much from personal income as it does from taxes on property and other forms of capital. At the top end the difference is even more stark – high earners pay nearly half their salaries in tax, but unless a wealthy individual moves to a new mansion every year – or dies – the tax they pay on their wealth will be negligible. There is a case to be made that there is an imbalance here which should be evened out a little.
However the counter-arguments are also strong. These fall broadly under two headings – a challenge to the claim that wealth taxes are fair, and the huge practical difficulties that operating such a tax would present. These difficulties would be especially disproportionate if the tax was introduced for one year only.
On the first of these, while we don't currently have a wealth tax we do have a number of taxes which already tax wealth in various ways, generally at the point at which it is transferred from one owner to another. Inheritance tax is the most obvious example, but there are also capital gains tax and stamp duty on property and share transactions. Additionally we of course have the annual council tax charge, although the amounts involved are pretty small for the very wealthy – and you could also argue that it is a tax on residence rather than ownership, given that tenants rather than landlords tend to pay in rental properties.
Second, those with wealth are not necessarily able to lay their hands on...