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Wealth tax academic paper

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JohnB
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Wealth tax academic paper

#364348

Postby JohnB » December 9th, 2020, 9:26 am

The Wealth Tax Commission – a group of leading tax experts and economists brought together by the London School of Economics and Warwick University to examine the case for a levy on assets – said targeting the richest in society would be the fairest and most efficient way to raise taxes in response to the pandemic.
https://www.theguardian.com/business/20 ... wealth-tax

The group's paper at https://www.ukwealth.tax/ discusses a one off wealth tax of 5% on all assets over £1m, collectable over 5 years, or as an ongoing 1% annual wealth tax. They say the former, with no pre-announcement, so valuation day was 'yesterday' would be much more effective, and could start collection within a year. The latter might take into the next parliament to implement, cost more to run and worry people it would never go.

While I don't like paying more tax, the paper is well argued, discusses the consequences of changing thresholds, quotes costs and is keen on avoiding exempt assets, the kind of loopholes politicians love. I suggest people read the paper before commenting.

dspp
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Re: Wealth tax academic paper

#364361

Postby dspp » December 9th, 2020, 10:14 am

Moderator Message:
This was originally posted on the Taxes (Practical) board. I have relocated it to The Economy (inc Budgets) board.
regards,
dspp

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Re: Wealth tax academic paper

#364375

Postby Spet0789 » December 9th, 2020, 10:46 am

The paper makes some good points - in particular with respect to the advantages of a credible 'one-off' wealth tax.

My major challenge would be on the grounds of the fairness of taxing assets which have been earned through (heavily) taxed income.

I think the proposal would need to be modified to give a credit for tax (NI, income tax and CGT) already paid over (say) the past 10 years. That amount should be deducted from one's in-scope asset base. If you've accumulated assets while paying your way, you shouldn't pay twice. ISAs and SIPPs should also be excluded.

I have no issue with the wealthiest paying the highest taxes. But I don't like the wealthiest paying substantially all the taxes!

dealtn
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Re: Wealth tax academic paper

#364378

Postby dealtn » December 9th, 2020, 10:58 am

JohnB wrote:
The Wealth Tax Commission – a group of leading tax experts and economists brought together by the London School of Economics and Warwick University to examine the case for a levy on assets – said targeting the richest in society would be the fairest and most efficient way to raise taxes in response to the pandemic.
https://www.theguardian.com/business/20 ... wealth-tax

The group's paper at https://www.ukwealth.tax/ discusses a one off wealth tax of 5% on all assets over £1m, collectable over 5 years, or as an ongoing 1% annual wealth tax. They say the former, with no pre-announcement, so valuation day was 'yesterday' would be much more effective, and could start collection within a year. The latter might take into the next parliament to implement, cost more to run and worry people it would never go.

While I don't like paying more tax, the paper is well argued, discusses the consequences of changing thresholds, quotes costs and is keen on avoiding exempt assets, the kind of loopholes politicians love. I suggest people read the paper before commenting.


I have just read it - all 125 pages!

You are right, it is quite readable given the academic nature and the somewhat dry topic of taxation.

What the paper doesn't address is the (immediate) necessity for an increase in taxation. Alternatives such as gradual repayment over time through the existing mechanisms, or reduction in spending, for instance, aren't considered (correctly as they are outwith the remit). There is an arguable element of desirability of those approaches too, or partial blending.

Their conclusions are clear, for such a tax to work efficiently, and to mitigate undesirable consequences, it needs to be demonstrably and genuinely a one-off and not a recurring "tax cow" to be milked. Particularly with modern mobile populations, and especially so in populations that have moved before between tax regimes (which they acknowledge the UK - particularly London is one) there is potential harm in erosion of this credibility. A short term gain of an initial "windfall" will be negated and worse from a drop in future taxation should those richest (and most generous to HMRC) have evidence and reason to conclude the "one-off" has become, or will become, a repeatable event.

Whilst the paper stays neutral on many aspects of the desirability of taxes, and their purpose, it is clear from public responses that, at least for some, current (and potential increased) taxes aren't solely to meet spending commitments (past, present and future), and for financial reasons. For some taxation is a means for re-distribution too. Society, whilst a convenient aggregate, also has the problem of ultimately consisting of individuals. It is clear (and acknowledged by the authors) that for some, and indeed many, there is a desirability of (increased) taxation to be borne by others. By the very nature of "the rich" being a minority it isn't difficult to find the free-lunch solution of "the rich" paying, and not "the others". Whilst academics can understand and factor for how the secondary and tertiary effects of such desirability play out in a society, and the economy that underlies it, such subtleties don't feature widely in the primary responses of the (non-academic) population that generally express such.

The authors also go on to point out the serious problems of implementation. In other words the politics not the economics. The proposed solution may well be the most desirable in terms of "fair and efficient", with the caveats of the report, but the fairness, efficiency, and scale of revenue raised, fall away significantly and quickly as any of those caveats are relaxed. Practical implementation of a wealth tax, that might require dilution from a political perspective, soon render the solution to be a much weaker one.

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Re: Wealth tax academic paper

#364390

Postby absolutezero » December 9th, 2020, 11:24 am

JohnB wrote:
The Wealth Tax Commission – a group of leading tax experts and economists brought together by the London School of Economics and Warwick University to examine the case for a levy on assets – said targeting the richest in society would be the fairest and most efficient way to raise taxes in response to the pandemic.
https://www.theguardian.com/business/20 ... wealth-tax

The group's paper at https://www.ukwealth.tax/ discusses a one off wealth tax of 5% on all assets over £1m, collectable over 5 years, or as an ongoing 1% annual wealth tax. They say the former, with no pre-announcement, so valuation day was 'yesterday' would be much more effective, and could start collection within a year. The latter might take into the next parliament to implement, cost more to run and worry people it would never go.

While I don't like paying more tax, the paper is well argued, discusses the consequences of changing thresholds, quotes costs and is keen on avoiding exempt assets, the kind of loopholes politicians love. I suggest people read the paper before commenting.

Wealth Tax Commission writes paper in favour of wealth tax.
Imagine my shock.

Dod101
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Re: Wealth tax academic paper

#364398

Postby Dod101 » December 9th, 2020, 11:46 am

For the seriously wealthy, I cannot imagine that ISAs and SIPPs are much of a concern one way or the other but for the range of so called 'wealth' that the proposals mention, over £500,000, that hits exactly those for whom ISAs and SIPPs are probably a significant part of their assets. Better therefore I would have thought to raise the threshold to say £1 million.

They include pension assets as they should but have had to produce a rather convoluted method for valuation and ultimate payment. Altogether, I imagine that the administration is likely to be expensive and complicated, quite apart from the fact that whether the authors think so or not, I imagine there is serious scope for avoidance.

As dealtn says of course, we could argue whether any action needs to be taken at present anyway, and of course from a fairness point of view, why should the 'wealthy' be the only ones paying for Covid, considering that many falling within the proposed net will have gained nothing from the various costs which have given rise to the massive deficit in the first place.

Dod

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Re: Wealth tax academic paper

#364414

Postby Gengulphus » December 9th, 2020, 12:19 pm

dealtn wrote:The authors also go on to point out the serious problems of implementation. In other words the politics not the economics. The proposed solution may well be the most desirable in terms of "fair and efficient", with the caveats of the report, but the fairness, efficiency, and scale of revenue raised, fall away significantly and quickly as any of those caveats are relaxed. Practical implementation of a wealth tax, that might require dilution from a political perspective, soon render the solution to be a much weaker one.

One particular issue is valuing shares in private companies. They have thought about it, and they summarise their thoughts as "Shares in private companies would require professional valuation. Business valuations would be completed at company level, and the value of specific shareholdings then reported to individual shareholders." in the executive summary. The thoughts being summarised are on pages 59-60 of their report, and include:

Finally, in terms of the practical process for reporting business valuations, in line with the general principles outlined above, we recommend that valuations should be undertaken once at the level of the business (rather than separately by each shareholder, partner etc.). The valuer could then notify each shareholder of the value of their shareholding whilst still applying minority discounts on an individualised basis. We assume that these valuations would be undertaken by a professional valuer appointed by the company, and this could be made a statutory requirement. This provides some economy of scale, avoids the risk of inconsistent valuations across shareholders, and saves individual shareholders the cost and hassle of commissioning their own professional valuation.

I suspect they're probably right about that being the best way of doing it, or rather the least bad - but have they seriously thought about the practical difficulties, especially for the large number of small private companies? Every one of them would have the hassle and expense of getting a professional valuation done, which most certainly won't be at all welcome to their owners - but more important, are there enough professional company valuers in the country to get every private company valued in the same year? I strongly doubt it, because if there were, all of those valuers would be seriously under-employed in normal times...

So if the idea were to go ahead along the lines they suggest, I can see two likely outcomes: either they insist on proper professional qualifications for the people doing the company valuations and lots of private companies find themselves legally required to do things they cannot do in practice, or they relax the requirements on valuers and the whole area becomes an open invitation to fraudsters to make large amounts of money supplying 'professional' valuations - and indeed an open invitation for other types of associated criminal activity, such as 'casing the joint' of businesses to find out which are worth robbing.

And of course, that sort of argument about the impracticality of valuing every private company in the country in the same year might well catalyse the sort of dilution and weakening of the wealth tax that you mention - though I doubt it would be the only such catalyst!

Gengulphus

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Re: Wealth tax academic paper

#364417

Postby mc2fool » December 9th, 2020, 12:24 pm

There's a public open-to-all presentation of it (via Zoom) by the authors at the LSE this afternoon, 4-5.30pm

https://www.lse.ac.uk/Events/2020/12/202012091000/tax

Register here: https://lse.zoom.us/webinar/register/WN_Vtpwmk-hTvuhJ-ESNGWNTQ

If it's like other LSE talks then a good amount of time will be allocated to questions from the audience (viewers).

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Re: Wealth tax academic paper

#364433

Postby johnhemming » December 9th, 2020, 1:08 pm

The problem, however, is that whatever ongoing problem the government has is going to be a revenue problem rather than a one-off capital problem. Hence this solves the wrong problem (if indeed it solves it).

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Re: Wealth tax academic paper

#364442

Postby Bouleversee » December 9th, 2020, 1:52 pm

An article in The Times today on the same subject says: "Britain has never tried a comprehensive wealth tax and the commission concluded that an annual charge was "a non-starter". Instead, it recommended fixing the present system of wealth taxes, including inheritance tax, c.g.t. and council tax. I don't have time to read the 125 pages. Was that not mentioned?

I reckon that savers and investors have already suffered enough this year, with loss of interest, loss of capital value (paper and real) and so many cancelled/reduced dividends, without any of the compensation paid to others whose income has been reduced which doesn't include the incorporated self-employed, of course. Our wealth will be heavily taxed when we die in any case. How many times do they want to tax the same money? Where is the initiative to work hard, save and not be a burden on society?

I think there is likely to be a huge spending spree once we have freedom from Covid, provided the goods are there in the required quantities and quality. Surely that must produce a big boost to the Exchequer in terms of VAT.


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Re: Wealth tax academic paper

#364453

Postby dealtn » December 9th, 2020, 2:47 pm

Bouleversee wrote:An article in The Times today on the same subject says: "Britain has never tried a comprehensive wealth tax and the commission concluded that an annual charge was "a non-starter". Instead, it recommended fixing the present system of wealth taxes, including inheritance tax, c.g.t. and council tax. I don't have time to read the 125 pages. Was that not mentioned?



Yes, comprehensively.

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Re: Wealth tax academic paper

#364457

Postby Bouleversee » December 9th, 2020, 2:55 pm

Interestingly, I see that the Daily Telegraph has an article by Marina Hunt ("Family homes and pension pots up for grabs") which says the suggestion was a 1% one-time tax Quite a difference from 5% spread over 5 yrs.

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Re: Wealth tax academic paper

#364459

Postby Lootman » December 9th, 2020, 3:00 pm

absolutezero wrote:Wealth Tax Commission writes paper in favour of wealth tax. Imagine my shock.

And unless things have changed in recent years, LSE and Warwick were always two of the most left-wing Universities.

Most think tanks and "independent" research groups these days seem to have an ideological agenda, in that they start with the conclusion they want to reach and then cobble together arguments for it and how to achieve it.

dealtn wrote:What the paper doesn't address is the (immediate) necessity for an increase in taxation.

Indeed. they seem to just assume it.

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Re: Wealth tax academic paper

#364470

Postby Bouleversee » December 9th, 2020, 3:21 pm

Why can't one rec. articles on this board?

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Re: Wealth tax academic paper

#364473

Postby dspp » December 9th, 2020, 3:31 pm

Bouleversee wrote:Why can't one rec. articles on this board?


This "The Economy" board is a subset of Polite Debate & Discussion which tend to be fairly entrenched political/moral/etc, and some Fool users do not want to peer into this abyss, and so there is a function somewhere in the User Control Panel that allows them to enable/disable their own access to the depths. Therefore the Rec function is also disabled down in the dungeons here so that they cannot inadvertently become drawn down here by looking for highly recced posts as a trail of breadcrumbs to an interesting topic. Basically some Fools wanted to be protected from the trench warfare down here, to the point of not even knowing that there might be conflict in the depths. Hence no Recs.

regards, dspp
Last edited by dspp on December 9th, 2020, 3:33 pm, edited 1 time in total.

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Re: Wealth tax academic paper

#364474

Postby Bouleversee » December 9th, 2020, 3:33 pm

Thanks, dspp. Groan!

Dod101
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Re: Wealth tax academic paper

#364475

Postby Dod101 » December 9th, 2020, 3:40 pm

I'll add my thanks as well dspp. I did not know any of that.

Dod

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Re: Wealth tax academic paper

#364495

Postby Gan020 » December 9th, 2020, 4:46 pm

I find the principle of a wealth tax to pay for Covid challenging.

Covid does not discriminate on the basis of wealth and government expenditure on Covid has been to the benefit of everyone.

I therefore think everyone should pay something.

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Re: Wealth tax academic paper

#364506

Postby Lootman » December 9th, 2020, 5:00 pm

Gan020 wrote:I find the principle of a wealth tax to pay for Covid challenging.

Covid does not discriminate on the basis of wealth and government expenditure on Covid has been to the benefit of everyone.

I therefore think everyone should pay something.

I agree. I think the authors are guilty of the old trick of never wasting a good crisis. I'd bet the authors were already fans on taxing wealth before Covid reared its head but now see a prime opportunity to leverage their big idea.

There are many on the Left who love the idea of taxing wealth even if there is no obvious revenue need. They see it more as a mechanism for punishing success. In their minds there are some people who have "too much" and that irks them. Call it class warfare or good old-fashioned envy if you prefer. But the idea long pre-dated Covid and this is pure opportunism.

And be extra aware of any tax promoted as being "temporary" or "only affects the super rich". That is how income tax started and look at it now.


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