I've been reading so much discourse regarding bringing in a Wealth Tax in the UK. It blows my mind how few people understand basic economics.
While it's easy to get behind a movement to tax the rich, it's very hard to actually implement.
Taxes drive behaviour, and like water... the rich find the path of least resistance. That involves:
- Complex schemes involving exempted assets
- Moving assets out of reach of HMRC
- Moving out of the UK entirely
- Divesting in the UK economy
- Less incentive to accumulate wealth
Meanwhile, new taxes involve additional burden on tax agencies.
Wealth tax involves valuing an individual's entire net worth. Including illiquid assets such as :
- Shares in privately traded companies
- Rare artwork / NFTs
- Property
This is a nightmare to administer
Counter argument... reduce this admin burden by raising the threshold to $10m+. But the economics start to break here.
Although these users are exponentially more wealthy than average, there are exponentially less of them. And a tax rate of 1-3% does not make up the shortfall.
We already have a bunch of different types of taxes which could be used to generate additional income for governments. We could change some conditions around capital gains or inheritance to make the revenue and avoid some of the negative consequences.
Part of the problem is that the ultra rich own equities which they never sell and realize gains on, they just borrow against them.
A deemed disposal on assets held for a certain duration (e.g. 10 years) would be easy to administer and would encourage capital gains events
That's not to say that deemed disposal rules aren't without criticism. If not planned for they can lead to tax bills without actual cashflow.
That said, these could be targeted to include only portfolios of a certain size.
Eventually I think AI and robotics will solve state revenue shortfall issues, but for now a wealth tax is quite shortsighted.
Keen to hear other opinions / ideas
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