Even the super-rich themselves want a wealth tax. So why don’t neoliberals?

The campaign group Patriotic Millionaires are the hipsters of the wealth tax movement: they were already campaigning for a wealth tax before it was cool.

As a campaign organisation, though, Patriotic Millionaires are remarkably ineffective. I don’t mean that in the sense that nobody has ever heard of them: I’m sure plenty of people have, and the reason why I’m not starting this article by explaining who they are is that I presume the reader already knows that. What I’m saying is that their public profile is remarkably low given the extremely high salience of their flagship policy.

The wealth tax is currently all the rage: it’s the new Robin Hood Tax. Everyone and their uncle loves wealth taxes now. You can buy T-shirts, baseball caps, stickers and tote bags declaring your support for a wealth tax. Imagine doing this with any other tax. When did you last see someone wearing a T-shirt declaring their support for Air Passenger Duty, Vehicle Excise Tax, Stamp Duty or Insurance Premium Tax?

Not only have Patriotic Millionaires been campaigning for wealth taxes since before the idea went mainstream; they also have the benefit of the novel, and the counterintuitive. The fact that the leader of a left-wing party courting the Corbynista vote, and a disgruntled former city trader with an axe to grind against former colleagues, are in favour of a wealth tax, is a bit dog-bites-man. But there aren’t that many organisations that actively and knowingly campaign against the economic interests of their members.

They also have something else going for them. A cynic (not that I know anyone of that disposition) would argue that Patriotic Millionaires are the perfect outlet for combining old-fashioned with modern forms of status-signalling. In earlier times, people tried to boost their social status by flaunting material wealth; today, people try to boost their social status by flaunting fashionable opinions. Joining a group like Patriotic Millionaires does both, or more precisely, it does the former via the latter, thereby making it socially acceptable. “I’m a millionaire” sounds crass and vulgar. No status-conscious person would say that. But phrase it as “I support a wealth tax despite the fact that I’m a millionaire myself!”, and you suddenly have permission, even though you are, in fact, now doubly showing off, because what you’re really saying is “I’m not just rich, I also have fashionable opinions. I’m just great in every respect.”

So how can Patriotic Millionaire UK only have 12,000 Twitter followers?

My explanation is that, while the demands of Patriotic Millionaires are popular, their vibe is not. They support a fashionable policy in an unfashionable way.

Patriotic Millionaires’ USP is the message that the super-rich like wealth taxes as much as everyone else. That’s the first thing you’ll see on their website (at the time of writing): a sign which says “80% OF MILLIONAIRES SUPPORT A 2% WEALTH TAX OVER £10M”, projected onto the Bank of England.

Now contrast that to the vastly more popular framing of Zack Polanski, in which modern politics is a battle between ordinary people (who have found their voice in Polanski) on one side, and “the billionaires” on the other. Polanski’s framing is adversarial. In his story, the billionaires are a powerful ruling elite, and challenging them is bold and brave. The last thing Polanski wants to hear is that the billionaires, far from being “rattled”, actually want a wealth tax as much as he does. That would completely ruin the fun. What kind of class struggle is that if 80% of the class enemies agree with you?

But I, for one, am as unconvinced by the consensual framing of the case for a wealth tax as I am by the adversarial one. Let’s take the stated preferences of Britain’s millionaires at face value, even though I suspect most readers would deem that absurdly generous. Let’s assume that this is not cheap virtue-signalling. Let’s assume that Britain’s millionaires genuinely want a wealth tax, because they believe that even though they would be financially worse off with such a tax in place, they would be better off in other ways, namely by living in a happier, healthier society. Would that not undermine the argument that a wealth tax would lead to capital flight and other adverse behavioural responses? Why would the wealthy react negatively to a tax that enjoys their consent?

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The answer is that a behavioural response to a tax is not a philosophical statement about the legitimacy or desirability of a tax. For example, I believe that VAT is not a bad tax, as far as taxes go. Its administrative cost is tolerable, and it is less distortionary than most other taxes. So, in my role as an economist, I’m broadly fine with VAT.

But in my role as a consumer, I still react to VAT. If the pre-tax price of a consumer good is £100, if my maximum willingness to pay for it is £110, and if the post-tax price with VAT included is £120, then I’m not going to buy that product. I would have bought it in a world without VAT, but in a world with a VAT rate of 20%, I won’t.

Am I being hypocritical? I defend the existence of VAT in the abstract, but then when faced with it, I’m not prepared to pay it myself. By refusing to buy that product, I am engaging in legal tax avoidance. Perhaps just minutes after having written about the defensibility of VAT!

I do this all the time. Just the other day, I had a half pint of an Imperial Stout. Why just a half pint? Because in the UK, beer duty is tied to a beer’s alcohol content, so for an Imperial Stout with an alcohol content of 15%, it is extremely high. I have, however, previously written that if there has to be an alcohol duty, a proportionate one makes more sense than a flat-rate one. The fact that I have defended this duty structure in principle does not mean that I will not react to it when I encounter its manifestations in the real world.

A wealth tax is no different. If the expected rate of return on an investment is 5%, then for somebody with net wealth above the 10m threshold, a 2% wealth tax will in effect reduce that expected rate of return to 3%. If somebody is only prepared to invest if the expected rate of return is at least 4%, then a wealth tax will prevent that investment from happening.

This is true even if our hypothetical investor is a member of Patriotic Millionaires, a subscriber to Gary’s Economics, and a member of the Green Party who attends every Polanski rally. They may be the most passionate believer in the wealth tax. But when faced with an actual investment decision, they still want their 4% rate of return.

Tax avoidance is not like a consumer boycott, where your intention is to express an ethical disapproval of what a company or organisation is doing. Tax avoidance does not even have to be deliberate. What happens is simply that taxes, even taxes that we strongly approve of, change economic variables such as prices, wages, and rates of return, and economic actors respond to such changes. In the end, the behaviour of a ‘patriotic’ millionaire may not be that different from the behaviour of an ‘unpatriotic’ one.