Why, yes, we are against this wealth tax too

The latest idea:

The report said: “Critics often point to the decline in the number of European wealth taxes since the 1990s as proof that wealth taxes do not work. However, most historical wealth taxes were fundamentally different from the proposal outlined here.

“They typically had relatively low thresholds, covered large sections of the population, and/or contained extensive exemptions for particular assets, in particular private business assets.

“These exemptions created avoidance opportunities, reduced revenues and generated political opposition from taxpayers who felt unfairly treated.

“The lessons from these experiences are clear. Wealth taxes work best when they focus on the very wealthiest households, apply to a broad asset base and are supported by strong administrative enforcement.”

Because we’re doing something no one else ever has done of course it will work. Unconvincing, really.

But we think it’s a bad idea at heart, not just in detail:

Growing global wealth inequality has pushed ideas for higher or extra taxes up the political agenda across the globe.

We do not, in fact, have growing wealth inequality. We have falling inequality of capital income. Which, given that we calculate wealth by the capital income from it, means falling wealth inequality.

We also object to this:

There would also be a rule forcing rich families to pay the tax for at least 10 years after they quit the UK, denying them the ability to move country to avoid it.

In one sense simply because that’s a change in the social contract. At which point people should, justly we think, be allowed to decide whether that version of the social contract is one they wish to accept. Or, they don’t, they leave. Taxing them whether they leave or not is not adhering, we think, to that basic idea.

But rather more than that. Our view is that politics does not work out what must be spent then look around for the tax to finance it. Rather, the aim is to shake as much as possible out of the population then work out how to waste that tax revenue. Few of us really do think matters have got better as the tax burden has risen inexorably this past 15 years after all.

The Laffer Curve is one expression of the limits to how much can be plucked without the hissing becoming counterproductive. In the Diamond and Saez paper (still the best empirical paper on the US peak for taxes upon income - 54% by the way) “allowances” are a critical determinant of the height of the peak of that curve. Being able to leave the country and not be subject to the tax is an allowance in this sense.

Put those two ideas together and we find that being able to tax those cannot flee rich more does not then lead to a reduction in the taxation of us. Rather, it will lead to more taxation of all of us. Politics will find that higher rates do not lead to falling revenues - those rich cannot flee - so they get to impose even more upon all of us with those now revenue productive higher tax rates.

Contrary to general belief we insist that the ability to tax the rich more will lead to higher taxes for all. We do not regard this as a good idea.

Finally, we have actually read Gabs Zucman’s book on this point of taxing the billionaires. The major justification is that if we do not tax the rich then they will merely reinvest their incomes. This, it is claimed, is a bad idea apparently because people investing in making the future richer is A Bad Thing. On the contrary, we insist that a richer future through investment now is A Good Thing, to use that Econ 1066 and all that. Thus having someone around with excess income that gets invested is one of those things we desire, not something to be prevented with punishment level taxation.

Tim Worstall