Wealth taxes: rich pickings
Tapping the rich might be considered less of a vote loser than a return to austerity
Why object to a tax you do not expect to pay? Unsurprisingly, the public mostly back wealth taxes when polled. More strikingly, heavyweight experts supported a one-off levy in a newly-published UK study. Out of fashion for decades, wealth taxes are touted by some academics and pundits as a workable fix for pandemic-hit public finances.
In 1990, 12 industrialised countries — all in Europe — levied wealth taxes. Just three now do so. The last serious proposal for a UK wealth tax goes back to the 1970s. It was scuppered by its unworkability and fears of capital flight.
Some problems have faded. The tax would be easier to enforce, thanks to better data. A transparency drive to prise open tax havens has made it harder for the rich to hide assets overseas.
Taxpayers could relocate though. Argentines keen to avoid new wealth taxes — a one-off tax of at least 2 per cent on those with more than $2.45m of assets — are fleeing to neighbouring Uruguay. A tax could be designed to catch people who had recently moved. But it might look draconian and reduce the country’s appeal to international business people, particularly if it was suspected not to be a one-off.
Intense lobbying for exemptions on assets such as businesses and farmland, to avoid economic disruption, could follow. A perception that loopholes in Sweden’s wealth tax burdened the middle classes disproportionately helped prompt its repeal in 2007.
A broadly-based tax would hit many people — with capital in family homes and pension pots — who would not consider themselves rich. A 5 per cent on net assets above £500,000, raising more than £260bn for the UK exchequer, would hit 16 per cent of adults. The political backlash would be intense. Raising the limit would reduce opposition — wealth taxes with thresholds as high as $50m were mooted in the US Democratic presidential primaries. But if only applied to the richest 1 per cent, with assets over £2m, the tax take would drop by two-thirds.
The UK’s Conservative government is unlikely to tax wealth much more heavily than it does currently. Chancellor Rishi Sunak has made his opposition clear. And big tax rises to pay down debt may be unnecessary, if the UK keeps the confidence of financial markets. But wealth taxes could gain momentum if economic woes deepen. Tapping the rich might then be less of a vote loser than deep austerity or ripping up manifesto tax pledges.