I was asked to comment on Brazil's proposal for a global 2% annual wealth tax on billionaires by a journalist, yesterday. This is what I write to them:
Everyone who has never been involved in the practicalities of collecting tax loves the idea of a wealth tax. And in principle, I agree with them. It would be great if we could tax the wealth of billionaires. The inequality between them and everyone else is economically destructive.
I, though, have been involved in the practicalities of collecting tax for decades and that is why I cannot get excited by this idea. The problems of imposing a worldwide wealth tax include:
- Finding the wealth.
- Proving that someone owns it
- Agreeing the value of that wealth: what are private companies, works of art, racehorses, esoteric properties and exceptionally rare wines, and so much more, really worth?
- Collecting the money before the billionaire has disappeared to a place that refuses to cooperate with this tax
- Repeating the process, year in and year out.
Any tax authority that tries to undertake this exercise will need access to vast numbers of valuation experts, an armoury of lawyers, and a bottomless pit of funds to take on the legal disputes with the billionaires who they're trying to tax .
Alternatively, countries could have:
- Seriously progressive income tax rates
- Capital gains tax rates in line with income tax rates
- Progressive inheritance taxes with strictly capped reliefs for business property that only require asset valuations once in a lifetime
- Progressive corporation tax rates, particularly for private companies
- Close company and trust rules that attribute the income of private companies and trusts to beneficiaries annually so that the personal tax rates owing on these sums is not avoided by hiding them in legal entities.
My solution is not perfect. However, it has a lot more chance of success than the 2% wealth tax, and will probably raise considerably more money at a lower cost. If that is the real goal, rather than political posturing being the aim, then pragmatism is to be preferred.
I stick by that.
Which is why I wrote the Taxing Wealth Report, because that is my aim. I am not into posturing. I am into practical solutions. I have suggested what that looks like.
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I think all your suggestions are good alternatives to wealth tax, Richard, but I’m also more positive about the scope for introducing a wealth tax than you are. In the end as long as a proposal is distributionally progressive and raises revenue, I’ll support it. 🙂
Where do you stand on Land Value Tax these days? I think it’s workable and we desperately need to revalue properties anyway – current valuations in England and Scotland are from 1991. A valuation cycle of (say) every 5 years would seem to make sense.
LVT will raise little compared to council tax – which does need reform – undoubtedly – but which will agaiun raise little
LVT in Scotland is, however, a big issue
As for wealth taxes – we will have to disagree. It will bring down most tax authorities because of the massive burdens it will impose and the costs of agreeing claims (which are enormous and profoudnly com,plicated) and that is no benefit to anyone. Right now it can raise vastly less than simple reforms to pension tax relief – as your own work for the TU showed – and be a politcal nightmare. It really is not a good idea. And I don;t really care if I make myself unpopular saying so.
France has famously had a wealth tax for quite a while:
– it raises less revenue than it costs to administer
– in its current form it only applies to people who own property (“unproductive assets” as Macron calls them), since it was reformed to exclude other forms of wealth such as art, yachts etc.
– it’s laughably easy to avoid *if* you’re rich enough
Conclusion: a tax intended to “stick it to the rich” (not my words, but those of its proponents) mainly affects people who have either built up a property portfolio through their own work, or own or inherited a property in places which have seen massive house price increases, like central Paris
French leftists love it for philosophical reasons, but they’ve never been renowned for looking at evidence or understanding numbers
I am not interested in gestures
I am interested in collecting tax
Your arguments are completely persuasive. There is also the problem of the distortions that a wealth tax could unintentionally produce, which would no doubt give rise to an ever increasing list of exceptions. For example, what if your ‘wealth’ is one valuable painting on permanent loan to the National Gallery? If you’re forced to sell it, it will very likely leave the country. Or if you own valuable building land you are currently managing as a nature reserve accessible to the whole community? Should such ‘wealth’ be taxed? Any practical implementation of a wealth tax would have to be so full of loopholes as to make it useless.
Correct….
The problem of identifying and collecting the wealth is, as you say, difficult enough, but it’s compounded by the fact that in trying to get the tax policies in place, you are asking many politicians and media owners to take a few million for the team, so to speak.
If the problem is that the wealthy have been allowed to accumulate too much wealth, rather than try and mop it up after their bath has overflowed, would it not make more sense to look at how that has happened and correct it, ie turn down/off the taps?
The 20th century economies & businesses that still run the show are based on maximium extraction of wealth for the few. An Oxfam report recently pointed out that since 2020, 2/3rd of new global wealth ended up with 1% of the population.
As promoted by Doughnut economics, 21st century economies and business need to be distributive by design with the wealth being shared more equitably as it is generated. This is already happening from the bottom up, around the world as cities, regions and business adopt the Doughnut’s framework.
One example of the problem of taxing ‘wealth’ that I may have mentioned before was a report that Simon Cowell had sold (one of ) his homes in London at significantly below the price it was on the market for.
Also there are currently ‘issues’ over the ownership of several preserved steam locomotives due to records having been lost, people who knew what had happened dying etc. Something that may only get worse over time.
Looking at the ‘Scottish’ situation, Andy Wightman has written about Land Value Tax and Compulsory Sale Orders as a replacement for Compulsory Purchase especially for ‘Commercial’ land. One reason being that unlike the sort of residential property that you and I live in the market for ‘Commercial’ land is nowhere near as liquid and establishing a valuation isnt straightforward.
I might suggest that given the issues Scotland has probably a fixed rate ‘acerage’ tax to hit the large estates is the solution coupled with restrictions on who can own what is the way to go rather that looking at Land Value Tax.
So, yes plenty of examples suggest that your approach is the way to go not a ‘Wealth Tax’
Thanks
The Scottish land situation is peculiar in the proper meaning of that word.
Good to see Larry Elliot in the Guardian referencing you in his discussion of wealth taxes today, plus various correspondents this evening supporting the paper recently mentioning MMT as an alternative to the standard austerity-based economics line.
Maybe the Overton window is slightly shifting.
I will thank him
I had not noticed it
[…] By Richard Murphy, part-time Professor of Accounting Practice at Sheffield University Management School, director of the Corporate Accountability Network, member of Finance for the Future LLP, and director of Tax Research LLP. Originally published at Fund the Future. […]