Is a wealth tax the lifeline our economy needs? – Labour Article
Given the unprecedented 20.4% shrinkage of the economy over the month of April, it is clear that the British government faces a daunting battle to revive the financial situation in our country. Boris Johnson has admitted that the next few months will be “tough”, and long-term prospects are looking dire. Is it time to seriously consider a wealth tax in the United Kingdom?
As opposed to income tax, which taxes the money you make from your job, pension and/or benefits, wealth tax focuses on the assets you already own, such as bank deposits or property. Income tax is the dominant form of tax globally. Whereas wealth tax has never been implemented in the UK or the US, although the idea was floated by left-wing presidential candidates Elizabeth Warren and Bernie Sanders.
Wealth taxes were popular in Europe in the 1980s and 1990s, and are still in place to some degree in Spain, Norway, Switzerland and Belgium. The latter country takes 0.15% from security accounts of those holding over €500,000, and Switzerland generated 3.6% of all tax revenue from wealth tax in 2017.
Many are sceptical of the possibility of Britain adopting such taxation methods. Since the Thatcher era, Britain has become one of the most economically right-leaning states in Europe. Opposition to wealth taxation is bound to be aggressive.
However, an exploration of the figures reveals the huge wealth disparity that our current taxation system seems to only perpetuate. A report from the Guardian discovered that for the wealthiest 20% of the UK, some 5.5 million households, lock-down has been a chance to consolidate their wealth by paying off debts and funnelling money into savings accounts.
The top 20% will have reduced their spending by around £23 billion by the middle of June. Whereas the bottom 20%, including those who live paycheck-to-paycheck, and those forced to sink deep into debt to provide for their families, have reduced their spending by just £3.5 billion over the course of lock-down.
The current system of income taxation seems to only make the rich richer and the poor poorer. When combining both income and wealth, the richest 10% of Britons are effectively taxed at 18%, compared to a ridiculous 42% for the bottom 10%.
Add these shocking statistics to the growing anger felt towards companies like Amazon, who are profiting hugely whilst regular people are bracing themselves for the most gruelling recession in living memory, and the idea of a wealth tax may not seem so infeasible after all.
The idea does seem to be gaining traction in these desperate times. A recent YouGov survey of 1,682 Britons found that 61% would approve of a wealth tax of those with assets of over £750,000. It seems increasingly reasonable, in such a time of crisis, that those who have become richer and more financially secure over the past few months should start paying more to help those whose lives have been destroyed by the coronavirus pandemic.
If the government were to seriously consider a more equitable taxation scheme, they would find that the potential profits are enormous. Economist Richard Murphy calculated that if the UK taxed wealth at the same rate as income, an astonishing £174 billion could be raised to help combat the financial crisis.
Although the idea may seem radical, we are facing unprecedented circumstances. The tax system in the UK has been long overdue an egalitarian reset. If now isn’t the time, when is?
Written by Labour Writer, Max Ingleby
Point of Information
The easiest looking solution is usually the worst. How many times can I say this? – a Liberal response
If used correctly, a wealth tax can work very efficiently. However, what Max is suggesting is not one of these cases. There is a reason why most countries have abandoned it, and even those who do use it use it very differently than what is being suggested. Wealth tax would be fantastic, but what Max is suggesting will lead to ‘double tax’ which could cause chaos.
Max has done a decent job as summarising wealth tax but has got a few things wrong. Firstly, his quote ‘the richest 10% of Britons are effectively taxed at 18%, compared to a ridiculous 42% for the bottom 10%‘ is taken massively out of context.
What Richard Murphy is talking about is effective tax rate (EFT). EFT is tax compared to your total accumulated wealth. So, if person A and person B earn £1 and taxed 20p let’s say, they are taxed at 20%. ETR has a very different conclusion. Person A already has £100 and person B £10, but both earned/taxed the same as before. Person A’s ETR is now 0.2% while Person B is 2%. This is the reason for the vast difference.
It’s actually not surprising. For example, Bill Gates pays a much higher tax rate than us, but his effective tax rate would be extremely low. With this theory, we should tax heavily those who are about to retire compared to a middle-aged businessman, as the former has higher accumulated wealth.
Wealth tax can also hit savings, i.e. spending for tomorrow. In a number of cases in France and Spain, ETR became over 100% – people lost money saving. That is wealth tax’s biggest weakness.
Therefore, for countries that use Wealth tax efficiently, like Norway and Switzerland, they balance it out. In Switzerland, there is no capital gains tax; in Norway, there is no inheritance tax and they have a standard income tax which never changes. This is where wealth tax can work.
Max wants to go the way of Spain and double down on tax; introducing wealth tax without adjusting accordingly. Look at how Spain’s economy has coped.
It also punishes risky investments. If you fail with a project, capital gains tax doesn’t tax you, but wealth tax does. This means only wealthy, experienced businesses will be backed (i.e. already proven businessmen), hurting small businesses.
Raising £174 billion is simply wrong. The wealth tax will cause mass tax evasion. ‘The French government estimated that 10,000 people with €35bn in assets left the country for tax reasons between 2002 and 2017′; this was down to Wealth tax.
It will also drastically increase bankruptcy, with those who may have some valuable assets but low income. Those ‘wealthy hand-to-mouth’, will now see a drastic increase in tax. I.e., property holders who have saved their money to get on the property ladder will be punished.
I’m not saying wealth tax doesn’t work, but its not a quick fix. Serious adjustments need to be made first.
Written by Liberal Writer, Max Anderson
Maybe in the future, but now is not the right time – a Conservative response
Max Ingleby rightly addresses the formidable task the British government has ahead to try and rescue our economy from the economic downturn caused by Covid-19. However, the notion that wealth tax is the right way to do this is a dangerous one.
I am very much in agreement with my liberal colleague’s responses to wealth tax. I agree it would lead to mass bankruptcy across the country.
One point I would like to discuss further is the idea of taxing an individual based on the value of their home.
The value of one’s home is not an accurate representation of their wealth. In London, the price of a detached house has increased by 421% over the last 25 years – from £257,748 in 1995 to £1,343,767 in 2020. A drastic increase in the value of an individual’s property does not correlate any increase in their individual wealth or earnings. A home bought over 25 years ago that is now worth over £1million does not make somebody a millionaire.
It is unethical to increase a person’s taxes on this basis alone. Furthermore, many properties are already subject to council tax, inheritance tax and stamp duty thus a wealth tax would be met with great resistance.
Richard Murphy’s claims that a wealth tax would raise £174bn a year are misleading. Between 2014 and 2016, 13% of new homes bought in the capital were purchased by non-residents. As Max Anderson rightly points out, a wealth tax would trigger a surge in tax evasion. It will most likely see a vast number of overseas investors and property tycoons leave the UK.
Wealth tax is possible to implement as is seen is some European countries. However, it will take time and careful planning to ensure it is fair to all. Introducing it in response to this crisis will see a rushed and flawed system that will do more damage than good.
Written by Conservative Writer, Emer Kelly