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.