How to pass an A level and fail the first year of a degree

The wealth tax raises its head again. Just charge the 10% richest 20% of their wealth and pay off the national debt.

As explained by an A level student at a 6 th form college.

So what are the figures? Well the total personal wealth in the UK stands at around £9,000bn (compare that with our national debt and it’s a pitiful £990 billion). Anyway, if you don’t feel you own that much wealth than that’s because you probably don’t. This is because the richest 10% own a very large amount (around £4,000bn). This averages at around £4 million per household. Therefore if we have a ‘one-off’ tax of 20% for the richest 10% (the 6 million households with an average net worth of £4 million) than the UK government would receive around £800 billion.

This would pay off the national debt and avoid the need for deep and harmful cuts in education, welfare and public services.

That gets an A* as part of an A level paper.

Familiarity with the figures, capable of following the argument, correctly distinguishing between stocks and flows. Who wouldn\’t give this top marks?

It will also fail the first year of a university course.

For how is this tax to be collected? Sure, we calculate what each person\’s wealth is: difficult but not impossible. We don\’t actually keep records of the value of wealth by who holds it but we could do the task and work it out. We know total wealth, we know the rough distribution, but we don\’t in fact know to the accuracy necessary for taxation because we don\’t currently tax it. Valuations of private companies, of houses not on the market, of paintings and jewelry not recenty bought or sold. Sure, we can approximate, compare, but that\’s not qute the same as having a solid number we can tax.

But overlook all of that. What actually happens? We\’ve calculated the tax bills, sent them out and then they must, obviously, sell some portion of their wealth in order raise the cash to give to HMRC. For HMRC certainly doesn\’t want to be paid in paintings that go to the National Gallery, that doesn\’t reduce the national debt, does it? Nor houses in Belgravia: we\’re not going to turn them into council houses and even that wouldn\’t reduce the national debt.

Sell them to whom?

We\’ve got the top 10% of the wealth holders all trying to liquidate 20% of their wealth at the same time. So no wealthy person will be a buyer of any of these assets. And we can\’t expect the 90% of the country to buy them as by definition they\’re the people without enough wealth to buy them in the first place.

So prices of top end assets tumble: leading to one of two things. People have to keep liqudating assets to meet that 20% charge on the pre-tumbling asset prices. This will obviously just continue and destroy the value of many of the assets. That wealth that we\’re trying to tax disappears into hte mists as market prices fall. Which doesn\’t really get us anywhere.

The other is that people are indeed able to pay their taxes in kind, can hand over a house or a painting to HMRC to avoid this problem. But then as HMRC tries to liquidate the same thing happens. And if they don\’t liquidate then of course we\’ve not paid off any of the national debt.

A wealth tax of 1%, 2%, avoids all of these problems as it doesn\’t swamp the market for these assets. But a wealth tax of that level doesn\’t pay off the national debt either.

So it simply will not work.

And that\’s without even delving into the economics of taxation: taxes on capital cause hugely greater deadweight losses than repeated taxes on immovable property (ie, rates, or a 1% mansion tax, these sorts of things, or even LVT) or consumption.

So, this sort of essay will get you into university where you\’ll learn why this sort of essay is wrong.

20 thoughts on “How to pass an A level and fail the first year of a degree”

  1. 6 million households with an average wealth of £4 million – that sounds like a highly dubious statistic to me. There aren’t even 6 million higher rate taxpayers.

    And, given that there are only just over 60 million people in the UK, 6 million households is going to be much more than 10% of the total number of households.

  2. working accountant from Bromley

    I have many wealthy clients who, at the moment, are struggling to pay their taxes.

    Their companies own factories, or offices, or expensive plant, they live in expensive houses and they drive expensive cars.

    But right now, in a depression, their businesses are not earning an awful lot of money.

  3. This reminds me of attempts over at Mark Wadsworth during lively discussions about the Land Value Tax, where I’ve tried to explain that a valuation isn’t the same as a value.

    Nobody can get anywhere with economics if they don’t understand what value is. And very few people actually do.

  4. Yes, there is some interesting arithmetic in there. The top 10% owning 45% of the nation’s wealth? Possibly but … And, even assuming the figures are correct, that “average” hides even more nuances than the typical Eoin Clarke post.

  5. Ian B you’re totally ignorant of economics in general and LVT in particular. Please don’t do this to yourself.

  6. Why should anyone, rich or poor, pay a penny to cover debts run up by political scum?.

    Even if paid this time, the debt would begin to rise again about 1 second after the ink dried on the last settlement cheque.

  7. totally ignorant of economics in general and LVT in particular

    I presume this is based on my having some knowledge of economic theory developed later than the mid nineteenth century…

  8. It also ignores the fact that as soon as ‘wealth assessors’ appear over the horizon there would be an enormous rush to hide, export, bury, deface, and generally lose any form of assessable wealth. Just look at France and Italy, money is pouring out, or even going up in smoke to be claimed as insurance.
    Youth is so charmingly green behind the ears.

  9. So we’ve paid off the national debt but even though we’re not paying circa £50B in interest per annum on this, we still have a deficit of around £100B which will eventually build up into a new national debt. It isn’t the debt that is the problem here…

  10. If we were really clever, we could then impose a 100% windfall tax on everyone who benefits from the debt repayment. QUIDS IN!!!11!111

  11. I wonder what the worth of all present and former (and still alive) MPs is. Let’s confiscate that first.

  12. Ian you have missed the point. Mark was just stating the proposed tax as a percentage of the current valuation. Mark’s LVT is just a charge based on the benefit to the owner of the state depriving others the use of his land, which is helpful to express as a percentage of the valuation.

    When house prices fall, the tax remains the same, but would go up as a percentage of the potential selling price.

  13. @John (#12): I don’t think Mark Wadsworth has ever said that his version of LVT is a fixed charge, based on todays values in perpetuity. If prices changed (as they undoubted would if LVT was introduced) the LVT due on any given house would change too.

  14. Let’s assume that a heavily indebted state wants to tax as much as possible.
    Example: France. Here the ISF varies from 0.55% to a maximum of 1.8% with many loopholes. Your main home is exempt, so is any investment in unquoted companies, etc.
    It brings in about £4 billion, i.e. about 1% of the total tax take, or in other words enough to modify two aircraft carriers so that they can use, erm, aircraft.

    No great contribution to paying off the national debt, then. And that’s from an explicitly Colbertist perspective.

  15. Yes.
    Anyway, it isn’t possible for taxes on the rich to pay for the poor, because a reduction in demand for diamond rings won’t increase the amount of food available.
    Hence VAT.

  16. “That gets an A* as part of an A level paper.”

    Anyone else think that the answer “should” not merit an A*? Doesn’t seem to me to be at the level of brilliance that an A* “should” imply? Mind you, I did my own school exams in the 1970s and they were Highers, not A levels.

    “I have many wealthy clients who, at the moment, are struggling to pay their taxes.
    Their companies own factories, or offices, or expensive plant, they live in expensive houses and they drive expensive cars.
    But right now, in a depression, their businesses are not earning an awful lot of money.”

    I am intrigued to know exactly what you mean (I infer the individual owners of the business?) and how this is the case – what taxes are these? Apart from the main exceptions of VAT on consumption (if you can’t pay, don’t consume) or council tax, almost all taxes are levied on cash income received or gains realised (unless they are getting income or gains in a non-cash form) so I’m struggling to see how this could be the case, unless the poor dears have spent the money already received without retaining enough to pay the tax due? (in which case, f*ck em).

  17. so I’m struggling to see how this could be the case, unless the poor dears have spent the money already received without retaining enough to pay the tax due? (in which case, f*ck em).

    HMRC send you an estimate bill on “unearned income” – includes rents and significant dividends, based on last year’s return, to be paid in Jan (iirc.) Which they really insist you aren’t allowed to argue with. So if you having a bad year …

  18. What SE said. Payments on account are based on the previous years profit level. So if profits nosedive suddenly you still have to pay the tax as if you were making profit. You will get the money back eventually, when the tax year is finalised, but by then you may have gone bust, or had to shut up shop.

    Tim adds: No, you’re missing the point. This is a wealth tax, not an income tax. He is saying 20% of all you own, not of what you earn.

  19. Pingback: The Wealth Tax « Chris Attrill's Blog

  20. @Tim: I think SE was talking about the clients of ‘working accountant from Bromley’, who are struggling to pay their taxes now (income taxes one assumes), not the proposed 20% wealth tax.

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