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Wealth tax academic paper

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NeilW
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Re: Wealth tax academic paper

#367894

Postby NeilW » December 20th, 2020, 6:50 am

Lootman wrote:There is always a counterparty for the sale of any currency.


(i) How is there if there is no market maker of last resort?
(ii) Since the counterparty is replacing you what do they know that you don't?
(iii) Since you have left and somebody else has turned up, in aggregate nothing has changed. You have moved your wealth out. Somebody else has moved theirs in. That's just a difference of opinion or a "market" as it is known.

No "wealth" has been moved out of the UK. The UK is completely indifferent to your view since you can't do anything that can affect the amount of money in circulation.

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Re: Wealth tax academic paper

#367896

Postby NeilW » December 20th, 2020, 6:59 am

johnhemming wrote:
Given that a lot of the debt is held by the Bank of England and the interest on that goes back to the treasury there is no rush to pay this down, but the government has to have that as an arguable even if long term strategy.


*All* the interest goes back to the Treasury. Either it goes back directly - via the Bank of England dividend (less interest on reserves). Or it goes back indirectly via the spending cycle - since interest is paid to be spent and when it is spent that creates additional taxation flows since tax is a percentage.

They don't use Sterling anywhere else.

Therefore there is no need to be concerned and no need for any change in tax rates. Increases in activity will generate increased tax flows. And the amount of interest the UK pays is entirely a policy variable - there largely to prop up pension funds.

The Bank of England pays interest on reserves to banks from Gilts it holds as assets on its books, and returns the rest to HM Treasury. The Bank of England owning Gilts is no different from the Bank of England owning an overdraft from HM Treasury. The net effect of both is that they are charged at the Bank Rate.

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Re: Wealth tax academic paper

#367914

Postby Gengulphus » December 20th, 2020, 8:22 am

NeilW wrote:
Lootman wrote:There is always a counterparty for the sale of any currency.

(i) How is there if there is no market maker of last resort?

Either the would-be seller finds someone else to sell to, in which case that someone is the counterparty, or they don't, in which case there is no sale. So it cannot happen that there is a sale but no counterparty, and that remains true regardless of whether there is a market maker of last resort.

You may be reading Lootman's statement as "There is always a counterparty for the attempted sale of any currency.", which obviously needn't be true in cases where there is no market maker of last resort. But the alternative reading that "There is always a counterparty for the successful sale of any currency." is equally obviously true. And when faced with two readings of someone else's statement, one obviously false and the other obviously true, assuming the former does not assist useful discussion...

Gengulphus

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Re: Wealth tax academic paper

#367920

Postby dealtn » December 20th, 2020, 8:50 am

NeilW wrote:
dealtn wrote:
Those are your words, not mine.


To reduce the deficit you have to reduce the level of financial saving, since that is what causes it as a matter of accounting. They are two sides of the ledger. You cannot have a deficit without somebody holding money on the other side. For there to be a Gilt liability there has to be a Gilt holder.

My suggestion is that we don't do that and there is no need for wealth taxes or anything like that at all, because the deficit is not something anybody needs to concern themselves with. It's just people holding Gilts - probably in pensions.


Neil you said what "causes it in the first place". Then conceded that cause was the saving, and that was because the Government spent more than it took. Creating a "savings" that sits either in reserves or Gilts. I agreed with you. If you don't want a deficit the Government either doesn't create this in the first place, or the private sector gets rid of the savings. From an accounting perspective that is right. Neither route is particularly likely or practical at least on a meaningfully short time frame.

I am not sure why you are disagreeing with me when I have shown much agreement to how your theory works. All I did was to point out your inconsistency when you say the government should stop what creates it in the first place, said it was the government that was behind this "in the first place", and then place the "cause" on the "saving".

Accounting identities create the problem of "cause". You can't argue it is the "savers" causing it, and not the "Government" I'm afraid. Either both are at fault, an interesting position to take, or the initiator, which as you concede is the Government spending more than it takes. Of course there are ways to reduce or eliminate the debt/deficit - which may not prove popular with either the Government, or the electorate - but if you want it done by stopping what is driving it in the first place then it is the Government spending more than it takes that has to be addressed. Anything else is stopping it by some other means, not stopping the initial creation.

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Re: Wealth tax academic paper

#367928

Postby NeilW » December 20th, 2020, 9:16 am

dealtn wrote:
Accounting identities create the problem of "cause". You can't argue it is the "savers" causing it, and not the "Government" I'm afraid.


I can because the alternative is the economy is collapsed to eliminate the savings - and solid capital is destroyed in the process. For the non-government sector to earn more than it spends, the government sector has to spend more than it earns. Because it all has to sum to zero.

Therefore by saying the government must cut its spending you are still saving the excess savings of the private sector must be eliminated - it's the yang to the ying.

If government stops spending the economy collapses and the savings are forced to be deployed as people end up out of work. Or you can tax the savings to encourage them to be deployed - which is the wealth tax we are discussing. Or you can simply accommodate the savings by running a functionally balanced system (full employment and price stability) rather than getting unnecessarily excited about irrelevant fiscal balances and ratios - and which would be the sensible option.

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Re: Wealth tax academic paper

#368026

Postby Lootman » December 20th, 2020, 2:01 pm

NeilW wrote:
Lootman wrote:There is always a counterparty for the sale of any currency.

(i) How is there if there is no market maker of last resort?
(ii) Since the counterparty is replacing you what do they know that you don't?
(iii) Since you have left and somebody else has turned up, in aggregate nothing has changed. You have moved your wealth out. Somebody else has moved theirs in. That's just a difference of opinion or a "market" as it is known.

No "wealth" has been moved out of the UK. The UK is completely indifferent to your view since you can't do anything that can affect the amount of money in circulation.

(1) The FX market is the most liquid financial market there is. In practice there will always be a counterparty, at least for the major currencies. The price will move to ensure that.

(2) What do I know that my counterparty doesn't know? Depending on their situation and mine, we might both benefit from such a trade. And they might not be liable for a UK wealth tax.

(3) For the purpose of a discussion about a UK wealth tax, wealth is not constant. It can be moved, hidden or destroyed. You are thinking academically, in the aggregate, only about cash and only about sterling. But I can hold wealth in many forms and in many locations. And it absolutely can move out of the UK: in the simplest case suppose I have ten million in diamonds, and I move them and myself to the Cayman Islands. The UK loses the wealth tax it would have levied on that wealth which, from a UK point of view, has vanished. Same with FX, paintings, shares, gold bars, bearer bonds and so on. In fact the only forms of wealth I cannot move are property and pensions, which makes them bad assets to hold purely from a UK tax perspective. They are sitting ducks. The rest is mobile.

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Re: Wealth tax academic paper

#368030

Postby scrumpyjack » December 20th, 2020, 2:10 pm

and of course when that wealth moves out of the UK, it is not just the 5% tax that the UK loses, it is 100% of all future tax revenues from that wealth. That is why very high tax rates are counter productive. President Hollande found this when the likes of Gerard Depardieu left France and there were worries Bernard Arnault might do the same. Don't think I would choose Russia though, as Depardieu did (not that I'm in that league financially!)

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Re: Wealth tax academic paper

#372651

Postby Steveam » January 3rd, 2021, 1:14 pm


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Re: Wealth tax academic paper

#372691

Postby dealtn » January 3rd, 2021, 2:45 pm

Steveam wrote:https://www.theguardian.com/inequality/2021/jan/03/richest-1-have-almost-a-quarter-of-uk-wealth-study-claims


Suggests it's even more important not to introduce anything that will lead to that "quarter" going elsewhere.

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Re: Wealth tax academic paper

#372959

Postby SimonS » January 4th, 2021, 11:34 am

Having read the paper, I find that the solution reads more as an excuse for their findings than a justification.

Firstly the findings are hugely age discriminative, they admit that the biggest source of wealth that is going to be taxed is property and that the people who are going to be taxed are those who have paid off their mortgages. They repeat the old canard about pensioners rattling around in houses that are too big for them. One notes that a previous recommendation by the IFS was that pensioners should be moved into homes of 1500 sq foot to free up bigger houses for 'the young'

Secondly they ignore the true effect of CGT. The true 'profit' of CGT for the Government lies in the fact that it ignores inflation. it quotes the highest rate of CGT as being 28%, but if you have held the asset for a year (at the average 2% for most years up to 2020) then the true rate of Tax is in fact 30%
and if you have held the asset for 10 years then the effective rate of tax is round 45%, the cumulative effect as we are so often told cumulative returns.

Thirdly the cost of adminstering the tax seems absurdly low at £500 million, since the cost of the Brexit referendum is estimated to have cost around £145 million.

Fourthly, the system has not addressed the issue of equity release (except to encourage it as a method to pay off your wealth tax for the asset rich cash poor ; who are assumed to have 'access to commercial forms of capital").

Additionally, the lesson to be learned from this is that "consumerism is good", If you are hugely indebted and taken equity out of your house and consumed it you are less likely to be taxed than if you have made savings.

As for the standard recommendation that you should save 20% of your income for the future and particularly retirement, well once there has been one wealth tax (one off to pay for Covid) then there will obviously need to be another one next to pay off the costs of Brexit if/ when it fails to meet the expectations of a land flowing with milk and honey., and then one meet the costs of the next pandemic, coming within the next 5 years. Why bother to save when you know the Government will take from the 'rich' to pay for profligacy and unpreparedness.

This is all about pandering to the memes of the young, while the report admits that during their surveys many, if not most, of those surveyed did not understand what the survey was about, yet uses that flawed information as a justification for their recommendations. In common with common practice today it relies on 'fake news' to support itself, relying on the apathy, ignorance or populism of its intended audience for apparent credibility. So you can expect the current crew (got your gong "for supporting Brexit" yet?)of politicians to lap it up.

Next the Prime Minister will be employing a lot more Government employees, to manage the unemployment crisis

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Re: Wealth tax academic paper

#372967

Postby dealtn » January 4th, 2021, 11:55 am

SimonS wrote:
Additionally, the lesson to be learned from this is that "consumerism is good", If you are hugely indebted and taken equity out of your house and consumed it you are less likely to be taxed than if you have made savings.



How does "consumerism" and paying VAT at 20% compared against saving and paying a potential 5% wealth tax show the spender is less likely to be taxed?

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Re: Wealth tax academic paper

#372987

Postby NeilW » January 4th, 2021, 12:21 pm

Lootman wrote: The UK loses the wealth tax it would have levied on that wealth


How does it? If the UK wishes to raise X amount in "wealth tax" to eliminate the Gilts it is concerned about, then it just levies that pro-rata on the wealthy. You shuffling stuff around may change the distribution a bit between you and other wealthy people, but it won't alter the total amount raised, since the UK will simply adjust the rate until it gets what it requires.

And which then has to be delivered to the Consolidated Fund in liabilities of the Bank of England - and nothing else. Because that's what they law says you have to deliver - or be jailed and have your assets confiscated. The liabilities of the Bank of England can't go anywhere else. They are the ultimate closed system, and you, or your agents, have to acquire them to discharge the tax you owe.

Once again you are thinking in individual terms, not in aggregate. The UK doesn't care about individuals. It cares about the aggregate.

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Re: Wealth tax academic paper

#373030

Postby Lootman » January 4th, 2021, 3:03 pm

NeilW wrote:
Lootman wrote: The UK loses the wealth tax it would have levied on that wealth

How does it? If the UK wishes to raise X amount in "wealth tax" to eliminate the Gilts it is concerned about, then it just levies that pro-rata on the wealthy. You shuffling stuff around may change the distribution a bit between you and other wealthy people, but it won't alter the total amount raised, since the UK will simply adjust the rate until it gets what it requires.

And which then has to be delivered to the Consolidated Fund in liabilities of the Bank of England - and nothing else. Because that's what they law says you have to deliver - or be jailed and have your assets confiscated. The liabilities of the Bank of England can't go anywhere else. They are the ultimate closed system, and you, or your agents, have to acquire them to discharge the tax you owe.

Once again you are thinking in individual terms, not in aggregate. The UK doesn't care about individuals. It cares about the aggregate.

Yes, the discussion is about the effect of a wealth tax on the behaviour of individuals and, as noted, wealth will flee if it starts being taxed, leading to a reduction in the amount of wealth being available to be taxed in that way.

Could the government respond to that as you suggest by increasing the rate of wealth tax, or increasing other taxes? Of course. But that will have the effect of driving more wealth elsewhere, or otherwise reducing economic activity in general. And the whole thing becomes a vicious vortex of fiscal decline.

Higher taxes is not a free lunch for the government.

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Re: Wealth tax academic paper

#373042

Postby NeilW » January 4th, 2021, 3:32 pm

Lootman wrote:Yes, the discussion is about the effect of a wealth tax on the behaviour of individuals and, as noted, wealth will flee if it starts being taxed, leading to a reduction in the amount of wealth being available to be taxed in that way.


That's the fallacy of composition. There is no reduction. Just a change in the calculation that alters the distribution.

While you remain domiciled here the UK authorities can raise a charge on your world wide ownership.

But that will have the effect of driving more wealth elsewhere, or otherwise reducing economic activity in general.


Very difficult to move those buildings abroad, or anything else physical - since that leaves a record. And that would be evasion. Pretty much anything else requires an exchange, which just means somebody else owning the item.

The notion of exporting 'wealth' is another of those illusions that turns out to be rather more challenging than it seems. A bit like "moving abroad".

And none of it reduces the capacity of the UK to invest in whatever it wishes by one single penny.

Higher taxes is not a free lunch for the government.


Wealth taxes are a waste of time, unnecessary and counter productive. As I have said several times. However that doesn't mean they can't happen.

And as we have seen throughout this crisis government can replace 'economic activity'. It's that replacement that has triggered this insanity of discussing wealth taxes in the first place.

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Re: Wealth tax academic paper

#373047

Postby Lootman » January 4th, 2021, 3:43 pm

NeilW wrote:While you remain domiciled here the UK authorities can raise a charge on your world wide ownership.

I do not see how domicile comes into it. UK taxes are based on residency, except for IHT and even there the tax is often not collected if the deceased lived and died overseas.

NeilW wrote:Very difficult to move those buildings abroad, or anything else physical - since that leaves a record. And that would be evasion.

I already noted that real property and pensions are a problem to relocate. Other forms of wealth can be moved. So another outcome from a wealth tax would be people liquidating some kinds of assets into more mobile assets.

Whether it is evasion or mere avoidance depends on the circumstances. Why incentivise either?

NeilW wrote:Wealth taxes are a waste of time, unnecessary and counter productive.

There we agree.

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Re: Wealth tax academic paper

#373053

Postby dealtn » January 4th, 2021, 3:52 pm

NeilW wrote:
Lootman wrote:Yes, the discussion is about the effect of a wealth tax on the behaviour of individuals and, as noted, wealth will flee if it starts being taxed, leading to a reduction in the amount of wealth being available to be taxed in that way.


That's the fallacy of composition. There is no reduction. Just a change in the calculation that alters the distribution.

While you remain domiciled here the UK authorities can raise a charge on your world wide ownership.

But that will have the effect of driving more wealth elsewhere, or otherwise reducing economic activity in general.


Very difficult to move those buildings abroad, or anything else physical - since that leaves a record. And that would be evasion. Pretty much anything else requires an exchange, which just means somebody else owning the item.

The notion of exporting 'wealth' is another of those illusions that turns out to be rather more challenging than it seems. A bit like "moving abroad".

And none of it reduces the capacity of the UK to invest in whatever it wishes by one single penny.

Higher taxes is not a free lunch for the government.


Wealth taxes are a waste of time, unnecessary and counter productive. As I have said several times. However that doesn't mean they can't happen.

And as we have seen throughout this crisis government can replace 'economic activity'. It's that replacement that has triggered this insanity of discussing wealth taxes in the first place.


What you are missing is there is a difference between "wealth" and the nominal total value of £ in your closed economy. To others they can see that sellers of assets (ultimately £s as you describe) might progressively be swapping those for other assets (in non-£s).

The first transaction might be someone swapping £1 for $2, then $1.99, then $1.98 ..... until £1 for 0.1$. All the time you will have a balanced system, but (relative) wealth will be something else.

Now if all these progressively cheaper buildings and physical assets attract overseas investors they may stay viable, but its possible, if not they will physically become depleted and worth less too.

Your closed £ system, is seen as an open one to others, with respect to real assets, real capital and even real labour.

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Re: Wealth tax academic paper

#373054

Postby NeilW » January 4th, 2021, 3:57 pm

Lootman wrote:I do not see how domicile comes into it.


If you're not domiciled you have the choice of remittance for tax. Probably wouldn't make a difference for most people.

Lootman wrote: Other forms of wealth can be moved. So another outcome from a wealth tax would be people liquidating some kinds of assets into more mobile assets.


You can only liquidate if there is a counterparty - and they then take you place. And it all leaves a record, which would be evasion. Very difficult to move things physically around without a record.

Lootman wrote:Whether it is evasion or mere avoidance depends on the circumstances. Why incentivise either?


No. It just depends on the law - and a general anti-avoidance rule would stop any argument on the matter.

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Re: Wealth tax academic paper

#373061

Postby NeilW » January 4th, 2021, 4:07 pm

dealtn wrote:What you are missing is there is a difference between "wealth" and the nominal total value of £ in your closed economy. To others they can see that sellers of assets (ultimately £s as you describe) might progressively be swapping those for other assets (in non-£s).

The first transaction might be someone swapping £1 for $2, then $1.99, then $1.98 ..... until £1 for 0.1$. All the time you will have a balanced system, but (relative) wealth will be something else.

Now if all these progressively cheaper buildings and physical assets attract overseas investors they may stay viable, but its possible, if not they will physically become depleted and worth less too.

Your closed £ system, is seen as an open one to others, with respect to real assets, real capital and even real labour.


The £ system is closed. You have to deliver BoE liabilities to the Consolidated Fund to clear your tax liabilities. If you are here you have to obtain them to pay your tax. How do currency prices go down, when there is a clear an present demand for it? If I have £s and you are stuck with $s and a tax bill, I'm going to asking an awful lot more than $0.1 for them that you need to avoid going to jail.

To swap with anybody else you have to have somebody coming in the opposite direction, who then takes your place. Why are they doing that? There has to be a reason.

And for one currency to go to zero *all* the other currencies in the world have to go to infinity. Which if you are exporting to that country is a disaster for your economy. So you tell your central bank to hoover up the 'spare' currency. Any central bank in the world can do that and will stabilise it for everybody.

There is only one world. You can't go anywhere else. Planet Earth is closed. If you believe things are open, then that just tells you you haven't analysed the feedback loops fully - particularly with large economies.

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Re: Wealth tax academic paper

#373067

Postby Lootman » January 4th, 2021, 4:20 pm

dealtn wrote:What you are missing is there is a difference between "wealth" and the nominal total value of £ in your closed economy. To others they can see that sellers of assets (ultimately £s as you describe) might progressively be swapping those for other assets (in non-£s).

The first transaction might be someone swapping £1 for $2, then $1.99, then $1.98 ..... until £1 for 0.1$. All the time you will have a balanced system, but (relative) wealth will be something else.

Now if all these progressively cheaper buildings and physical assets attract overseas investors they may stay viable, but its possible, if not they will physically become depleted and worth less too.

Your closed £ system, is seen as an open one to others, with respect to real assets, real capital and even real labour.

Yes, Neil has a very odd way of looking at this. I feel sure he is correct in some abstract, academic way. But in practice jacking up taxes, be it on wealth or anything else, has very distinct outcomes that are generally negative to the country doing it.

We perhaps saw this most clearly in the 1950's, 1960s and 1970s when, with tax rates as high as 98%, we saw a "brain drain", the exile of many of who were successful, exchange controls to try and stem the exodus of capital, and other unfortunate but inevitable side-effects. Thatcher stopped most of that by doing the exact opposite of what is being proposed here.

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Re: Wealth tax academic paper

#373082

Postby dealtn » January 4th, 2021, 4:46 pm

NeilW wrote:
dealtn wrote:What you are missing is there is a difference between "wealth" and the nominal total value of £ in your closed economy. To others they can see that sellers of assets (ultimately £s as you describe) might progressively be swapping those for other assets (in non-£s).

The first transaction might be someone swapping £1 for $2, then $1.99, then $1.98 ..... until £1 for 0.1$. All the time you will have a balanced system, but (relative) wealth will be something else.

Now if all these progressively cheaper buildings and physical assets attract overseas investors they may stay viable, but its possible, if not they will physically become depleted and worth less too.

Your closed £ system, is seen as an open one to others, with respect to real assets, real capital and even real labour.


The £ system is closed. You have to deliver BoE liabilities to the Consolidated Fund to clear your tax liabilities. If you are here you have to obtain them to pay your tax. How do currency prices go down, when there is a clear an present demand for it? If I have £s and you are stuck with $s and a tax bill, I'm going to asking an awful lot more than $0.1 for them that you need to avoid going to jail.

To swap with anybody else you have to have somebody coming in the opposite direction, who then takes your place. Why are they doing that? There has to be a reason.

And for one currency to go to zero *all* the other currencies in the world have to go to infinity. Which if you are exporting to that country is a disaster for your economy. So you tell your central bank to hoover up the 'spare' currency. Any central bank in the world can do that and will stabilise it for everybody.

There is only one world. You can't go anywhere else. Planet Earth is closed. If you believe things are open, then that just tells you you haven't analysed the feedback loops fully - particularly with large economies.


How do currency prices go down?

Sorry yes I must have got it wrong, they are fixed and stable and haven't moved for years as any FX graph will show me. Apologies.


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