Why was wealth tax abandoned in Britain?

Wealth taxes have become an increasingly popular policy in recent years, although there is some confusion among their advocates.

On the one hand are economists like Thomas Piketty who propose a wealth tax aimed at eliminating the concentration of wealth. He argues for a graduated wealth tax of 5% on values ​​of 2 million euros or more and up to 90% on values ​​above 2 billion euros so that “there will be no more billionaires.” To Piketty, a wealth tax is successful if no one is rich enough to be liable to pay it and the revenue is $0.

On the other hand are those like Senator Elizabeth Warren who believe that wealth taxes can greatly increase government spending. His proposed ‘ultra-millionaires tax’ would impose:

… An annual 2% tax on every dollar of net worth over $50 million and a 6% tax on every dollar of net worth over $1 billion … This small tax on roughly 75,000 households would bring in $3.75 trillion in revenue over a ten-year period.

Yet despite this increased prominence, wealth taxes have become less common. In 1996, twelve members of the OECD collected revenue from net wealth taxes: by 2020, only five did. Even Piketty’s native France rejected his wealth tax in 2017. Britain’s failed attempt to impose a wealth tax suggests why.

In February 1974, the Labor Party was elected on a promise to “radically redistribute income and wealth”. They proposed increased pensions, a new child benefit and reduced public housing rents. Their manifesto promises “an annual wealth tax on the rich” to help pay for it.

Internal Revenue was initially positive, reporting that:

“…while certainly many problems will be solved, we see no reason why a wealth tax should not be introduced reasonably quickly”

But they didn’t believe it would raise much revenue. This was the experience of Britain’s inheritance tax, which rose to 75% in 1949 but generated revenue of only 0.6% of total personal wealth in the mid-1960s because people legally avoided paying it, mostly by paying it. While this may reduce wealth inequality – Piketty’s goal – it will not raise the revenue Labor needs to fund its new spending plan – Warren’s goal.

The select committee that examined the proposal were more skeptical about practicality than internal revenue. Countries with wealth taxes imposed them at low rates when most wealth was held in the form of land; Neither was Labour’s proposal for Britain in the mid-1970s. As Howard Glennstar notes:

“The need for several thousand civil servants, depending on the assessment level at which taxation began, the need for numerous regional offices, and the routine assessment process that would fall on individuals was staggering to politicians and, indeed, to the Treasury when it came to thinking about the question properly. “

But if Labour’s wealth tax had not achieved the Warren revenue target, it would have helped achieve the PKT target of equal wealth.

The Treasury concluded that the wealth tax:

“1. will lead people to seek non-resident status, resulting in substantial outflow of funds in the form of dividends and interest.

  1. As it applies worldwide, foreign employees in foreign companies are subject to resident tax. This will result in a large movement of banking, insurance and shipping businesses out of the UK.
  2. Assets held here will be affected. It will reduce the level of business in the UK.”

They had good reason to think so. Britain imposes a top income tax rate of 83% and 98% on investment income. This was the era of tax exile, which the Rolling Stones acknowledged with their LP Deported to the main street, partly recorded in the south of France in 1971–1972. As their guitarist Keith Richards explained:

“The whole business thing is predicated a lot on tax law…that’s why we rehearse in Canada and not in the U.S. A lot of our smart moves are basically tax law, where to go, where not to. whether to sit on it or not. We left England because we wanted to pay 98 cents on the dollar. We left, and they lost. There is no tax.”

Britain’s punitive tax rates helped reduce wealth inequality, just as Piketty had hoped, but they did so by pushing the rich – and their wealth – out of the country.

In November 1976, Labor abandoned its plans for a wealth tax. Denis Healy, then Chancellor of the Exchequer, wrote:

“We had promised ourselves a wealth tax: but in five years I found it impossible to draft one which would provide sufficient revenue for administrative expenses and political disturbances.”

So has everyone else.

Richard Fulmer has worked as a mechanical engineer and systems analyst in industry. He is now retired and writes freelance. He has published about fifty articles and book reviews in Muktbazar magazines and blogs. Robert L. Along with Bradley Jr., Richard wrote the book, Energy: The Master Resource.

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