He singled out two ideas for new wealth taxes to The Telegraph on Wednesday. The first is a 2 per cent tax on assets of more than £10 million, which is an idea being pushed by the Patriotic Millionaires UK campaign group, and the second is increasing capital gains tax in line with income tax.
“It is the broadest shoulders argument. ‘Distributed to each according to his need.’ That’s not Marx, it’s the Bible,” Mr McDonald said.
“I’ve made the case for the last six months for wealth taxes. I’ll continue to do so in the next six months because it’s right.”
Both such taxes would be above the peak of the Laffer Curve. They’d raise less income, not more…..
The pledges not to increase income tax, VAT or national insurance (and we’ve already seen how easily that can be circumvented) give insufficient leeway so let’s be realistic and insert the words “basic rates of”
CGT (and to a lesser extent IHT) has been conspicuous by its absence. Even though its equalisation with the individuals marginal IT rate* will test Laffer to breaking point it can and will be spun as soaking the rich in the short term. After all tightening up on all those non-doms went swimmingly didn’t it?
* And if anyone still believes that the top rate will be 45% next April I have a bridge etc etc.
It’s notable but not remotely surprising that the telegraph hack is too ignorant or more likely compliant to question whether the proposed 2% wealth tax is a one-off charge, an annual levy or somewhere in between rather like the (up to) 6% ten year charge on many trusts which curiously rarely gets mentioned.
Mind you the steady erosion of capital by stealth is nothing new. I’m sure I have commented on here previously about the cumulative legalised theft when an asset is passed down between generations and on each death the full value is taxed.
Year one asset value – £500k
Year 20 asset value – £2m
Year 40 asset value – £5m
Total IHT – £3m, ignoring exemptions, or 60% of asset value.
A fourth death in 20 or so years would likely increase the overall take to well above 70% of the then asset value – if that’s not a wealth tax I don’t know what is.
@John,
I believe the 45% top rate will still be there in April. It’ll just start at £50k.
The first is a 2 per cent tax on assets of more than £10 million
So what classes of “assets” does this apply to? Do we have to count every spoon in the cutlery draw. How do we calculate the value of illiquid assets as they don’t have a price. What about that old seemingly worthless painting in the corner of the attic that one day is discovered to be valuable. Is it tax evasion not to have previously guessed what it might actually have been worth. And finally how do you stop people doing that Laffer curve thing, also known as sensible tax planning, of moving wealth into classes that are not counted for tax.
@Matt,
The 45% rate may still be there but I won’t be surprised to see a new top rate, say 60% over £100k.
To pay a 2% tax on an asset it will be necessary to find the money. So if the owner doesn’t have spare cash (why would you?) a portion of the asset will have to be liquidated. Since all sellers require a buyer, who will the buyers be when assetholders are selling assets to raise tax money? So look for a sharp fall in asset values & remember that the floor price for any asset is zero.
And as John says, it’s unclear whether this is a one-off, an annual or some other repeating formula. Whatever, they’re all a cost of owning an asset. So one can expect them to have a commensurate downward effect on asset values.
“, it’s unclear whether this is a one-off, an annual or some other repeating formula”
It wouldn’t be set at 2% if they weren’t planning to come back again for the rest. And after the windfall energy taxes we know for sure that if they use it once their promise not to repeat it is highly suspicious.
2% a year, every year, is the claimed idea
What to tax and whether any new taxes will raise any actual money are beside the point surely.
The problem is excessive government spending, which has ballooned in the last few years.
Rachel’s previous tax increases seem only to have produced unexpectedly high government borrowing. Before scrabbling down the back of the national sofa yet again, HMG might ask itself what it wants the money for exactly. And anyway, where did the rest of it go?
@BiND
Ah, there won’t be 60% income tax. That would break their manifesto pledge. There could be 45% income tax and 15% supertax because that wouldn’t.
BiND beat me to it. As we already have an effective 60% rate (more if you include NI) from £100-125k that does rather suggest itself.
Throw in marginal rate CGT and you’ve got a nice little earner until everyone either retires or emigrates.
It wouldn’t be set at 2% if they weren’t planning to come back again for the rest.
Seems likely. Could be interesting what happens to the price of indivisible assets. You’re going to see increasing numbers going on the market. Who are going to be the buyers when all assetholders are trying to raise cash to pay taxes?
Don’t suppose they’ve considered this because few people seem to understand the concept of “value”. It’s a fantasy. It’s historic, based on a previous transaction & one thing we can be certain of is the conditions produced that transaction no longer exists. All sellers require a buyer & both buyer & seller were satisfied in that transaction. And you can’t take “market prices” because by definition, market prices are transactions that haven’t happened. So future “value” will always be indeterminate.
My suspicion is their wealth tax is not going to raise anything like the money they think it will.
@ bis
Most rich people have 2% of assets in easily liquefiable assets as insurance against unpleasant surprises so the rush to sell assets to pay wealth tax will be fairly small in Year 1. Thereafter there will be a steady trickle as all the rich have to prepare themselves to pay the next 2% and the next 2%.
Valuers will make a fortune as there will be a rush to ask for revaluations, perhaps yearly, of illiquid assets (HMRC is unlikely to accept the owner’s view without an “independent” valuation). Labour will be shocked at how much less the second 2% tax raises, the third 2% will be even worse, and there will be demands to raise it to 3% and to include the overseas assets of non-resident non-doms who own some UK assets (e.g. Wrexham) …
Asset prices will not, however, hit zero because there will be people below the threshhold for wealth tax (the threshhold will exempt >90% of the Parliamentary Labour Party) who will snap up bargains.
Anyone trying to justify a specific tax rate or policy from the Bible is on shaky ground. If he’s referring to Acts 2 (the believers held everything in common) that’s not prescriptive for a nation. I could see an argument that it’s how we should run a church (though I don’t think so myself), but definitely not a country.
These folk never quote 2 Thess 3:10
“For even when we were with you, we gave you this rule: “The one who is unwilling to work shall not eat.””
(Written in the context of a church giving charity to it’s members, and again, not prescriptive for a country.)
We sold a nice bit of Victorian furniture at auction last week so now we know what it was worth (£60): terribly out of fashion, dark brown wooden furniture.
Our other item for sale: no offers. Twice. So that means we can value it at nil, eh?
@ john77
That’s roughly what I’m saying, isn’t it?
But there’s another thing. To my mind there’s two sorts of money. There’s the real money that circulates around the economy in commerce. And the fantasy money that is asset values on balance sheets. To sell an asset to use the money to buy goods & services you need to exchange it for the first sort. The buyer has to forego buying goods & services with his money to buy your asset. And those are the goods & services you can now buy with your proceeds. The quantity of goods & services at any one time is fixed. You can’t create goods & services out of nothing.
With a wealth tax, the government wants to distribute the money currently shown as assets to its beneficiaries to spend on goods & services. Where are these G&S supposed to come from? Someone else in the economy has to forego them. It might be nice to think that you create more goods & services by increasing productivity. But since productivity has at least flatlined & is probably falling, that’s unlikely to happen. All I can see a wealth tax doing is increasing inflation. Not having the money to buy G & S is another way of saying rising prices..
Cheers BinAberdeen:
I was wondering if McDonald had misunderstood the parable of the talents and conflated needs with ability
“To one he gave five talents, to another two, to another one, to each according to his ability.”
People who are more able got the most as they might use it to create some wealth.
This proposal today would therefore be a reverse parable.
“Where are these G&S supposed to come from? Someone else in the economy has to forego them.”
I think that’s what they mean by “redistribution”, BiS. “You’re rich and have had too much nice claret, so you can’t have any more. We’re going to give it to that deserving muslim over there.”
@BiA, to say nothing of Mathew 13:12, “For whosoever hath, to him shall be given, and he shall have more abundance: but whosoever hath not, from him shall be taken away even that he hath.” (Or as Billie Holiday put it, https://www.youtube.com/watch?v=bKNtP1zOVHw&pp=0gcJCfwAo7VqN5tD.)
“‘Distributed to each according to his need.’ That’s not Marx, it’s the Bible”
Marx didn’t say that? Bet he did.
Jesus didn’t say anything about taking it at gunpoint. I assume He knew about guns.
Commies never talk about taking stuff, just the giving it out.
Jesus said something about paying tax somewhere in the Bible, this means Labour should rob you to fund Islamic grooming gangs and the National Death Service.
Interesting point, Norman. But the G&S the government’s redistributive beneficiaries will be buying won’t be claret. They’ll be the G&S bought by people similar to them. So the redistribution will be from the struggling not so poor to idle presumed poor. Claret prices will broadly speaking remain unchanged.
“the second is increasing capital gains tax in line with income tax.”
Financially illiterate.
Investments involve risk. If you put £100k in a bank account, you know it is safe, you can control access to it and you can predict the return. If you invest £100k in a start-up business you might make a fortune, you might lose the lot, the money might be tied up for years. You have no idea of if or when you might make a profit. How do we encourage such risk? By taxing any profit at a lower rate.
Gains accrue over time. A £100k profit on the above hypothetical investment might take 10 years but the gain is taxed in the year it arises. You might have made £40k in interest over the same period but that would be taxed in each year it arose. Possibly at lower tax rates.
Part of that gain would be simply the result of inflation. It’s less of a ‘profit’ once inflation is taken into account.
All of the above could be addressed in some way but I don’t see those suggesting equalisation of rates suggesting any mitigation.
It would discourage investment. If the ‘reward’ for taking risks is reduced, why take the risk?
As Tim has repeatedly pointed out, if the patriotic millionaires want to give Rachel 2% of their wealth there is a procedure they can follow. No new laws or taxes needed, they can just write a cheque and put their money where their mouths are.
“To each according to his need”
is nothing to do with taxation. The money that was distributed to those in need was sourced by voluntary donations from other believers, none came from non-believers. If Mr MacDonald is serious he should organise a whip-round from the Parliamentary Party and Labour supporters to hand out to his chosen beneficiaries
terribly out of fashion, dark brown wooden furniture.
Made a packet out of that stuff. Clean it up with a sandblaster & blow it over with primer. Distressed paint & maybe a bit of artwork. Instant antiques. Sold for 3-400 a piece. Problem was getting enough of it.
@ bis 8.56
It is close to what you were saying, just a couple of elucidations and amendments.
Incidentally, any decent accountant will tell you that any asset on a balance sheet (with one very specialist exception) has to be valued at the lowest of (i) cost, (ii) realisable value on sale and (iii) value in use; the company’s FD should want to minimise its liability to tax by choosing the lowest of these values (although some FDs choose to cover up historic bad decisions the Auditor should check this). Most assets on balance sheets *are* goods (where the definition of “goods” includes land, building and machinery as well as packets of crisps) – the only dodgy bits are “Intangible assets” and “Goodwill”
One thing I guarantee when wealth is assessed for a wealth tax: the capitalised value of defined benefit public sector pensions will not be included.
Sounds like accountancybollox to me, John. For the purpose of discussion in the real world, an asset is something can be sold to produce money. Goods produced for consumption are generally consumed not resold.
What I’ve been pointing out is the obvious second order effect of a wealth tax. People will be incentivised to sell assets & disincentivised from buying them. So asset prices will fall. Very simple market effect. And could produce some interesting results. If an asset is indivisible & must be sold to pay tax & a lot of people are selling similar assets, who’s going to buy them? If the valuation for tax is historic, the proportion of the sale proceeds payed as tax will be greater than the tax percentage.
I have a nice old Mamiya 6 medium-format film camera system – body and 3 lenses, just overhauled and recalibrated – for sale, as I no longer use it.
1. It cost me (I think) around £1,500 2nd-hand nearly 20 years ago;
2. these systems sell on eBay and elsewhere for between £2.5K and £3.3K;
3. its value to me in use is nil, because I no longer shoot film, haven’t for years, and it cannot be converted to shoot digital. My clients don’t want film.
What’s it worth?
Anyone trying to justify a specific tax rate or policy from the Bible is on shaky ground.
Well, it’s not a pick n mix. People who voted to kill babies at up to 9 months as well as Nan don’t get to turn around and claim Jesus Christ supports their tax policies.
Jesus would take a whip to them.
Re: Capital Gains Tax:
We hate landlords, let’s do everything possible to punish landlords for being landlords.
Oh, and at the same time let’s do everything possible to punish landlords who chose to have the temerity to cease being landlords.
Fuck it, let’s just shoot them and steal their stuff.
Give Rachel more money, or you’ll make her cry again. Do you want to make a woman cry?
Norman.
*What’s it worth?*
Between £2.5k and £3.3k. What’s the fucking problem?
I have given up on religion.
Most religious bosses were warped people.
Sex abusers, supporting slavery, sacrificing kids on alters. Forgiving deeply evil people just because they worship some 1000 year old pile of horse ****.
I think we need a new Messiah who does not have warped outdated morality.
Maybe there will be a Artificial intelligence God?
An accountant writes: “any decent accountant will tell you that any asset on a balance sheet (with one very specialist exception) has to be valued at the lowest of (i) cost, (ii) realisable value on sale and (iii) value in use; the company’s FD should want to minimise its liability to tax by choosing the lowest of these values.”
The lowest of the values is £0, because not only has its value been written down over the years, £0 is its value in use to me. I don’t use it. I have no use for it. So what’s it worth, Spud? Fancy it? It’s a nice camera, makes pictures that look like old-fashioned proper photographs if you can afford to run it. To you, £4K.
And Steve has no moral highground. She is pretending to be a man to suck up to men. She has spoken of support for bullies and hatred to the bullied.
It is deeply warped, sick and evil to be sexuallay attracted to bad boys and bullies.
Anyone who has a sexual drive to support bad guys is not to be listened to on morality.
My morality is;
1. Help the poor.
2. Grow the economy.
3. Stop crime, sex abuse, stop sexual attraction toward evil people.
4. Human rights.
5. Democracy.
6. Equality.
7. Against racism, against homophobia, against xenophobia
8. Support peace
9. Against bullying.
10. Support the environment.
I await the AI Prophet Jesbudbot the all powerful quantum supercomputer God.
As implied by some posts, these morons don’t understand that if you tax wealth, the wealth has gone.
Eg: Steal 2% of everything if over* £10,000,000
Year 1: Assets of £ 10,100,000
Steal £202,000. £9,898,000 remaining
Year 2: Assets of £9,898,000
Tax due: £0
Waydagoddamminite! Waddaya mean there’s no tax due? RICH PEOPLE AVOIDING TAX!!1111!!!!
If it’s “2% of everything over” not “2% if over” then do the sums approiately
@ bis
I don’t deal in accountancy bollox (“in my youth I was an Actuary” – until I got totally pissed off by a would-be power skirt who told me off for failing to respond to an email she, or her colleagues, had failed to send to me and then told me that I didn’t know what class of member I was, so I wrote a letter to the President telling him that I quit), but I can read accounts in seven languages.
In a UK balance sheet assets used to be divided into fixed assets, “current assets” and cash; the power skirts (some of whom are male and wear trousers) in the ICAEW have created lots of new categories but reality is still: fixed assets (stuff one is going to use for years), current assets – stock and work-in-progress that one is going to sell pretty soon, plus debts due from customers who haven’t paid by the balance sheet date, and monetary items (net cash and fancy variants on cash/borrowings). Your “fantasy assets” exist in your own imagination (and in that of estate agents dealing in residential properties but I wasn’t discussing them). The rules for valuing fixed assets have not changed significantly because ICAEW knew that changing them significantly would panic some bankers into putting viable businesses into administration and destroying them.
Your second paragraph mirrors what I said, pulling back from your over-enthusiastic claim that asset prices could drop to zero. In the late 1940s some stately homes were valued at less than zero thanks to Attlee, Bevan etc and Harold Wilson introduced taxes that exceeded 100% of income for some people but Starmer/Reeves aren’t going that far because they want the money from Dale Vince, Bernie Ecclestone, Sainsbury etc
@ Norman
I do not go round punching people, which is just as well if you want to call me an accountant …
If value in use is zero then the asset should be written down to zero and IFF it is sold for more than zero the “profit” on sale is credited as an extraordinary item in the P&L.
your over-enthusiastic claim that asset prices could drop to zero.
I never claimed any such thing, John. Just an observation than anything offered for sale that attracts no buyers has a transactional price of zero.
In passing one notes that of the 36 OECD countries only 5 have wealth taxes on individuals, down from 12 in 1995. Spain still has them but Madrid & Andalucia where I live, they’ve been abolished. They’ve generally been judged as difficult & costly to administer & produce little net revenue. How very Labour to want to adopt something that’s been a failure. But par for the course.
There’s also a big difference between what you can sell something for, and what it would cost you to buy it.
If I sold my server? Could maybe get a tenner or so. It would take months of work to find somebody who would pay a decent amount for the particular specific system.
If I wanted to *BUY* a duplicate of my server if it somehow vanished – such as via somebody forcing me to sell it for a tenner. It would take months of work to track one down, and hundreds of pounds to pay for it, not including the cost of not having it available, and not doing something else instead of the track-one-down. And it would take an infinite amount of time to replace the *contents* of the server – the only way to do so would be to buy back the original and hope against hope the buyer hadn’t wiped it. Mind reading techniques do not exists, and the entire point of having the stuff on the server is to *avoid* my flawed human brain attempting to store it.
I know somebody who in a financial bind sold his computer for about thirty quid. It took *YEARS* to replace, in which time his programming career prospects were utterly destroyed.
I once had somebody offer to buy my domain name off me. I said any offer would have to start at at least 100 million before I would even consider it, as the complete and utter destruction of my identity and history and the huuuuuuge amount of work trying to rebuild everything with a different name and get all the external links correctly pointing to the new correct destination was essentially an execution warrant. They laughed at me and essentially said: no, be real, hundred quid, maximum offer.
“Against racism, against homophobia, against xenophobia”
Sucka.
“remember that the floor price for any asset is zero”
Which is nearly true, with or without a wealth tax – modern government regulations mean that it can be significantly less than zero, such as the land on which a farmer found last week a massive fly-tip which he estimated would cost him, an innocent victim, £40k to clean up
Norman,
It’s worth £100,000,000. So the tax owed is….
You can of course appeal, and to do so, pay (non claimable) legal fees of £1m in doing so.
But you can only start an appeal once you have paid the tax, owed.
If you try claiming bankruptcy, well the organ transplant market is is in need, welcome to the New NHS…
And as I said John accountancybollox. Meanwhile in the real world we all live in the monetary value of something is what we sold it for. Nothing less, nothing more. And since that transaction is in the past, it’s historic & no longer applies. Today is a different world. Therefore all “valuations” are fantasy.
5. Democracy.
Grossly evil.
Some 30 years ago, Trump bragged that he was worth $2 billion. His wife filed for divorce. Trump despaired he was $300m in debt.
Two problems with wealth taxes:
1. There isn’t enough wealth out there to make a significant contribution to the treasury. It takes general taxes to raise enough money. I.e., wealth tax will not solve their problem. It’s a trick.
2. Punitive taxes on wealth will cause wealth to disappear. Capital evaporates. All the things you would like to happen, like 30 new CCGT generators, don’t happen. No one will bring their money forward. Many will move it offshore.
You don’t fix your problem. You poison your future. But some losers will love you.