Are wealth taxes becoming the new 'failed idea that never dies'?
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Scotland’s ever-inventive First Minister Humza Yousaf has raised the prospect of introducing a wealth tax. And Paul Nowak, the Trades Union Congress’ General Secretary, is also urging Keir Starmer to bring one in.
Wealth taxes play well with the public. Wealth is more unequally distributed than income: the Gini coefficient – the statistical measure of inequality – of wealth is about 0.6, as opposed to 0.36 for income. This can be considered grossly unfair until you consider that most people naturally accumulate wealth over their lifetime. Even if we had an absolutely egalitarian income distribution, we would still have an unequal wealth distribution if we allowed people to save.
Wealth tax critics focus on the negative incentives for investment and how it encourages rich people to move assets abroad. This is right.
However, there are also some obvious practical objections around implementation. The United Kingdom has not had a wealth register since the Domesday Book. What we know about wealth distribution in the UK is based on (voluntary) surveys, supplemented by information from probate. Getting a comprehensive wealth record would be a mammoth task, taking far longer than the eighteen months it took William the Conqueror’s officials to tally up England’s wealth in 1085-86.
Wealth in modern terms is not so many heads of cattle, sheep and serfs as it was in the 11th century. It is a very slippery concept, as it is the value placed on future income streams. This changes from day to day. Whereas your income in a year is in principle a known amount, your wealth at the beginning of a tax year can be very different from that at the end of the year as the valuation of your assets changes. Think of Elon Musk: according to Guinness World Records, between November 2021 and January 2023, his wealth fell by $182 billion. Try not to laugh.
Most people’s tangible wealth in the UK is in owner-occupied housing and pension funds. Given the difficulties of measuring all other wealth varieties (from jewellery and artworks to shares in start-ups and human capital), there would inevitably be a temptation for the authorities to focus just on our existing records of pensions and house ownership. Pension funds have already been raided too often by the government, so it might just boil down to the equivalent of a higher council tax. Hardly worth the bother.
Len Shackleton
IEA Editorial and Research Fellow
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