Wealth Tax and Fairness

Evidence gathered from countries who have previously implemented wealth taxes show that they do not deliver the resulting increase in tax take that Nick Clegg (Liberal Democrat Party Leader), who is currently promoting such an idea, says they will. Sweden abolished their wealth tax in 2011 as it raised only an extra SKr 4.5bn (£427m) from the 2.5% of taxpayers it applied to but was estimated to have driven SKr 1,500bn (£142bn) out of the country.  Not a successful outcome for a device intended to collect more tax not less!

For such a tax to be introduced in the UK, every single taxpayer in the UK would be required to have their assets valued. Who would do the valuations, what would be included, how long would it take and how much would it cost? This all represents the fine details of the changes currently being touted during the Lib Dem Party Conference but how would these fine details actually be produced.  If you were to ask them I doubt that they would be able to give a comprehensive response. 

The story of Walter Samaszko in the US is interesting and a good indicator of how difficult it would be to implement such a tax.  Mr Samaszko recently passed away after living and dying in poverty, or so it was thought. Upon closer inspection of his house, $7million worth of gold coins was found which had been purchased over many years.  It produced no income for him and his life was evidently impoverished by his surroundings.  This therefore illustrates that if a wealth tax was to apply, it would require very close inspection of people’s assets and if they didn’t want to declare them they simply wouldn’t harking back to the days of 98% in the UK and a booming black economy!

There are further problems with a proposed wealth tax; by application it would be retrospective, imputing current tax on past decisions. If assets are moveable, the government would face the risk of a significant ‘flight of capital’ as suffered by Sweden, outlined above, by taxpayers who wish to avoid the charge. If however, assets are immovable then people are left with the decision of either being forced to sell the assets in question, or having no choice to pay tax on assets which they may not have bought in the first place had this tax been in place.  

The motto that the Liberal Democrats are promoting is ‘Fairer Tax in Tough Times’. Within that motto, fairer, must be the key word. If this were truly the case, then how could anyone argue, if it was fairer, any arguments put forward would fall on deaf ears because it would be fair. But and it is a big but that will not be the case.

Nick Clegg stated,

“If we want to remain cohesive and prosperous as a society, people of very considerable personal wealth have got to make a bit of an extra contribution”

But the wealthier are already making an extra contribution and so how then can this be fair when they are paying more. They already contribute the most in terms of total tax, the top 1% of income earners in the UK pay approximately 28% of the total UK income tax take. They earn 13% of all UK income, which means they pay just over twice their share of the tax. If this 1% is forced to pay extra, how can that be described as fair especially when they are even denied personal allowances which should be available to all irrespective of how much they earn.

To put some perspective on this whole issue of how much people earn before they are considered wealthy we have prepared a summary based on three of our key business partner countries with whom we have a ‘special relationship’.  They are France, Germany and the US.  The following chart compares how much residents of these countries have to earn before they become liable to pay the top rates of tax in each of these countries.  The figures are interesting and highlight just exactly how heavily the burden of tax falls on residents of the UK who are barely comfortable rather than wealthy and how much more tax they pay than their special relationship counterparts.

Figures based on 2012 Income Tax Rates

Taxes are percentage based, so if you earn more, of course you pay more tax.  But, it should not be the case that if you earn more, you’ll be taxed so heavily that you take home less than half of your salary which is the situation we are close to in the UK. Along with successive governments who do not spend the tax take wisely, this disincentive to earn is stifling the country’s economy.  The current attitude of trying to take more from those earning rather than getting more people in to work, who can then be taxed fairly and who in turn spend, which benefits the economy which benefits us all can only be the way forward.

It’s time the government introduced policies to reward hard work, not punish it.