Macroeconomics: UK economy, IB Economics

Another call for a wealth tax - with a leading Blairite advisor suggesting that any incoming Labour government needs to introduce a wealth tax on the super-rich. 

Larry Elliott looks at the proposal to introduce a global wealth tax of 2%, introduced to a G20 Finance Meeting by Brazil.

He argues that, of course, it will be heavily opposed, but given lower average tax rates being paid by the super-rich, it seems to have more traction than other, similar moves. Apparently, wealthy Americans only pay 8% tax on their incomes, whereas the Biden administration thinks that they should be paying closer to 25%. 

However, there's an awful lot of ground to be covered before such a tax becomes reality. 

Phillip Inman's piece in today's Observer looks at how the rising cost of government post-pandemic has meant a search for new ways of financing government spending. He argues that, surprisingly, there's been little mention of wealth taxes, with critics arguing that they don't raise much money and have an adverse effect on productivity. 

Of these reasons, the first strikes me as the most valid; the second, is, in my experience a nonsense, supported by the fact that many of the latest additions to the list of global billionaires have inherited the majority of their wealth. 

It seems that the Labour Party is keen to court the centre ground, with the Shadow Chancellor, Rachel Reeves announcing that the party aren't intending to introduce a wealth tax should they be elected. Instead, they are relying on faster economic growth to generate the tax revenues needed to finance public services. 

Another day, another trade-off: this time Christian Aid make the case that a 0.5% wealth tax would pay for the UK's share of an international loss and damage fund to compensate countries for the worst effects of climate change.

Superficially, this has appeal, but it's far from good economics for many, many reasons - you might have a think about why, reflecting on incentives, and the unintended consequences of such a move. 

If the Chancellor's sincere about wanting to help Britons with their energy bills, this article highlights three ways that he could do this: raising capital gains tax, ensuring that National Insurance is applied across different sources income in the same way and a wealth tax.

I regularly point out that turkeys rarely vote for Christmas; however, all these tax changes would involve the Chancellor increasing the amount of tax that he, and his chums, would be liable for. I'm just saying...

A take on the proposed increase in National Insurance to meet the rising costs of social care. It's difficult to disagree with this.

Another interesting bit of policymaking with the Prime Minister's pledge to enhance social care now meeting the reality of having to pay for it. 

It seems that the current plan is to raise money via an increase in National Insurance, and this has not been well-received, not least because it is being perceived as unfair. It will be interesting to see what emerges - to my mind, a wealth tax would be fairer given the distributional effects of the pandemic. 

The Wealth Tax Commission - ToK prompt: does the name suggest anything? - have argued that given the cost of tackling the coronavirus, the government should shore up public finances with a one-off wealth tax.

Of course, it being Christmas, it's worth remembering that turkeys rarely vote for it - and as the article notes "The Treasury said it had already taken steps to ensure the wealthy pay their fair share of tax."

There are a range of view on this - and Argentina has already passed a similar levy. However, the problem is that such taxes rarely earn the amount that you would expect. The wealthy are adept at tax avoidance - and indeed, you might detect that there's an equilibrium level of tax avoidance...

A Polly Toynbee piece in the Guardian that argues for the government to look at reforming the system of taxation and public spending: remodelling the Council Tax, introducing a wealth tax and scrapping the triple-lock on pensions among other things. 

Polemic? Or economically sensible? I'll leave it to you - but will note that the rate at which wealth is taxed is exceptionally low.

There's been a lot of discussion about whether the coronavirus pandemic might lead to a reshaping of the the world's economy's and this article flags up one such consideration - reshaping tax systems to equalise the differential between taxes on income and taxes on wealth.

According to Richard Murphy at City University, over the period 2011-18, income was taxed at an average rate of 29.4% whereas wealth was taxed at 3.4%. He argues - much in keeping with the Guardian's editorial tone - that this makes the UK tax system highly regressive, because increases in wealth are concentrated on an exceptionally narrow sector of the population whereas increases in taxes such as Council Tax, duties on cigarettes and alcohol and so forth fall disproportionately on the poor. 

The net result is that his calculations suggest that the effective tax rate of the wealthiest 10% of the population - taking both income and wealth into account is 18% compared to 42% for the bottom 10%.

Looked at in these terms, this is a stark reminder of the degree of inequality in the UK, although the data does seem somewhat tailored to generating exactly this sort of result. 

Micro v macroeconomics? This New Economic Foundation clip looks at the prospects for a Green New Deal, starting from the premise that if we can bail out the financial sector, then why can't we save the planet? 

It identifies five ways to pay for a Green New Deal: borrowing, the mulitplied effects of green investment paying for themselves, increased taxes on wealth and carbon, subsidies, via the Bank of England and the commercial banks.

The Economist looks at one of the pressing issues of today's world - how to fund increased public spending as a result of an ageing population.

It suggests that the options involve raising taxes on incomes, consumption or wealth, and assesses the relative merits of these solutions. The conclusion? An increase in taxes is likely and, realistically, the least distortionary involve taxes on wealth which are going to fall most heavily on the rich.

Nothing controversial here, as far as I'm concerned.

Some argue that closing taxing loopholes and removing non-dom status will be a bad thing for the UK economy, driving away the super-rich and their companies and assets. In return, it is argued that Treasury will generate paltry tax revenues, at a high opportunity cost, and lose other streams of tax revenues too.

Not everyone agrees, however, not least a group of Patriotic Millionaires who want to pay their fair share. Perhaps we should celebrate one of these groups and denigrate the other? Just a thought.  

A member of the campaign group, Patriotic Millionaires UK, Patrick White, writes in the Guardian about how inflation could be tackled, and I'm struck by the fact he points out an odd paradox. We do expect ordinary citizens to cut their spending and yet it's rarely the case that the spending of the most wealthy falls. 

Either way, his article calls for a wealth tax and a rationalisation of National Insurance, arguing that he's not in favour of taxing work per se, but taxing wealth accumulation unrelated to work. 

For all the talk of tax cuts, one group, Patriotic Millionaires UK, are calling for the government to increase taxes on the rich by taxing wealth. Strange that the Guardian should choose to publish this. 

The TUC, once again, argues in favour of a wealth tax, suggesting that such an intervention affecting the richest 140,000 people could raise over £10bn. I suspect the reality isn't that straightforward; equally, in the grand scheme of things, £10bn isn't an awful lot of revenue.

That said, I don't buy the argument that such a wealth tax would be much of a deterrent - yes, it might deter at the margin, but what about those increments to wealth that are effectively economic rents?   

The Guardian makes the case for a wealth tax arguing that currently the four richest people in Britain own more wealth than 20 million of their compatriots.

Additionally, they argue that the official data on the issue is misleading and understates the extent of inequality in the UK, by understating the share of total wages accounted for by the rich. 

Unfortunately, neither the Prime Minister, nor the opposition seem to be in favour of such a move. despite that they could apparently raise £43 billion simply by levying a 1% wealth tax on those individuals with more than £10m in wealth. 

Another Guardian article looking at alternative ways to finance social care, or shore up public finances more generally. This time Ben Tippet argues for a wealth tax on the top 1%.

However, whilst notions of 'fairness' make this sort of thing superficially appealing, you could point out that the top 1% already make a disproportionately large contribution to total tax revenues, and that any such scheme has little chance of raising the sorts of sums envisaged.

I'm going to discount any adverse effect on entrepreneurialism - because I think that this argument is hokum but tax avoidance means that such taxes aren't often very effective. 

Another look at financing social care, with the BBC looking at the implications of a rise in National Insurance to fund it. It makes the point that it isn't perceived as 'fair'. 

The Guardian editorial today supports the introduction of a one-off wealth tax to help pay for the Covid-recession. Unfortunately, I can't see this happening for a variety of reasons, in part, because it's not great economics. 

Wealth taxes, in general, need reform. They're easy to avoid, and as a result rarely generate the wealth expected of them. However, I can also see that the UK has an awful lot of untaxed wealth, and that also generates an awful lot of untaxed income. Unfortunately, the current government are bankrolled by a large number of people who would be liable for such a tax - e.g. Russian oligarchs - and will have no interest in introducing one. 

Nice Larry Elliott piece on the Chancellor's mini-Budget/Summer statement and the fact that it is going to be the most interventionist statement of fiscal policy since, well...perhaps the 1979 Budget. 

Crikey! Elliott wonders whether the Labour Party can capitalise upon this and re-energise a more leftist economic agenda, including ideas such as Universal Basic Income, wealth taxes and more direct action on climate change. You'd think it should be able to do this, given the ideological volte given the Damascene conversion the government benches appear to have undergone.

The question of how to fund government spending is going to be a major part of the aftermath of the pandemic, given that the national debt is now larger than UK GDP and that government borrowing for the year is likely to top £300bn. 

As a result, it is clear that the government are going to have to consider funding this: one way, suggested here is for there to be a wealth tax. Not only would it provide a source of revenue, but it would, according to Gus O'Donnell, also demonstrate a commitment to reducing inequality, and provide a genuine 'levelling up'. 

Of course, such a policy is likely to be unpopular among many of those with the most power and influence, so it will be interesting to see whether this is something that the government considers going forward. 

So, OK, this is from a US perspective but it's still an interesting look at alternative wealth taxes, and how they can tackle inequality in the US. 

Furthermore, Jeffrey Frankel suggests that they are more palatable than some proposals, and likely both to redistribute wealth and making the election of a Democratic President easier. 

This article looks at the proportion of income tax paid by the richest in society and argues that it's clearly the case that they pay more than their fair share of income tax, but that the lack of a coherent tax on wealth is the thing that's likely to perpetuate growing, and damaging levels of inequality.

It is essential reading for my current Divisions set looking at fiscal policy.