What’s bad about wealth tax?

That “millionaire does not need all the money” miss the point. Wealth Tax hurts all of us, write the price of callum

Neil Kinnock knows one or two things about the far left. His time as the leader of the Labor Party (1983 – 1992) was overshadowed by frequent clashes with what we now call the Corbynite wing of the movement. Kinnock certainly knows better than maybe other people in the country that a person cannot deal with these people by meeting them halfway.

What made him even more surprising was that it was Kinnock, from everyone, who now responded to the potential for the threat of elections from the new socialist party – led by Jeremy Corbyn and Zarah Sultana – by reviving the zombies of wealth tax politics.

Wealth tax was once a fairly common form of taxation. In the mid-1990s, a dozen OECD countries still had several such tax variants. But they were then not liked, and quietly dropped in the country for the country. At present, the only main economy that still has a wealth tax is Spain, Norway and Switzerland. In Norway, wealth tax only contributes a little more than one percent of the total tax revenue; In Spain, not even half. Switzerland is the only country where wealth tax is the main source of income (slightly more than four percent of the total). But Switzerland also has one of the lowest tax expenses in Europe as a whole, and a very investment -friendly tax system. They get so many other things that are right, they can escape with this one populist trick.

Is it bad about wealth tax?

For starters, they are far more complex and bureaucracy than most other taxes. Let’s compare with income tax and consumption tax. If you want to wear taxes, you should know how many people earn, and if you want to charge consumption tax, you should know how much consumer goods cost. The first is determined in a person’s work contract, and the last is printed on the price label. Wealth, on the other hand, must be specifically assessed and assessed, which is a burdensome process, especially for assets that are not often traded.

Wealth also fluctuates all the time. When you read this, your income, and the price of most of the items you buy, may still be the same as at the time of writing, but the value of your pension or property (if you have it) is almost certainly no longer. One of the consequences of this complexity is that most of the revenue raised by the wealth tax is immediately swallowed by the Tax Bureaucracy.

Wealth Tax Inhibits Capital Formation

Supporters of Wealth Taxes often argue that people who pay them are not true -really “need” the money. This misses the point. Suppose you have assets worth £ 10,001,000, which is £ 10 million plus £ 1,000. The Neil Kinnock wealth tax version has a two percent tax rate, and a tax -free allowance of £ 10 million, so you will pay a two percent wealth tax on an additional £ 1,000 above the allowance. Thus, your wealth tax bill will reach £ 20. Not too heavy, right? You will still be a very rich person. It won’t take you to the Food Bank.

But this is another way to see it. If you produce a return of three percent with £ 1,000 (ie £ 30), the two percent wealth tax on them is equivalent to a 66 percent tax on the return. It won’t impoverish you, of course, and it won’t make you liquidate your £ 10 million asset portfolio. But do you bother trying to grow your asset portfolio exceeding the £ 10 million that you already have? Or do you prefer to consume more now, and save less for the future?

This is one way in which wealth tax hinders capital formation.

So far, we only see household consequences. We have not even touched the subject of capital flights, even though we know that it is historically a side effect of wealth tax, and one of the reasons why they are not liked. Britain has seen an increase in the number of rich people who are emigrated, and wealth tax will only worsen the trend.

If the government is worried about the inequality of wealth, there is a much simpler way to overcome the problem: Building more homes. It will effectively “distribute” property wealth, while growing cakes at the same time. Don’t Tax Wealth – Multiply.

Callum Price is the Director of Communication at the Institute of Economic Affairs (IEA)