Taxing Wealth : A Modest Proposal.

Taxing Wealth: A Modest Proposal

The fear of a “tax bombshell” in newspapers before next May inhibits any political party from open discussion. But an innovative reform of taxation might get popular support; even for some tax increases.

Recent support for a radical change, involving a shift from taxing income to taxing wealth, has emerged. The first outing was called a “mansion tax”. This was a tax on large private houses. One objection to this was that it left the council tax bands on property unchanged since 1991. This means that the large recent increases in the value of housing have produced a situation where all houses valued at above £320.000 are taxed at the same rate. So house worth millions of pounds are taxed as if they were valued at £320.000.

A simple solution is to increase tax rates in new bands up to say £5 million. In France a rate of 75% has just been abolished because it raised less tax than expected; and chasing tax avoiders fleeing to other countries increases the cost of tax collection. This punitive rate would also be very unpopular in Britain.

An alternative would be a tax on all capital assets. This is a tax on wealth in all its forms, large holdings of capital in banks, hedge funds, capital transfers gifts and inheritances. This would take much of the responsibility away from income tax, for raising state revenues. Income tax could be reduced overall. But a more complex set of bands could be introduced that did not have equal sizes. So, at the bottom there could be the greatest relief. At the middle there would be less relief than at the bottom. Above the middle relief could be reduced but by smaller amounts the further one rises to say the French maximum of 75%. This 75% would only apply to very few extremely rich people. As the numbers here are so small the cost of chasing non payers of tax would be small compared with France.

On this system the poor would pay much less, the “squeezed middle” would pay a little less, and the very rich much more. This could be popular, even to many voters.

There would be still residual problems chasing the movements of liquid cash. But many forms of investment have time limits, and are less easy to move out of the country.

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