UnHerd: Is it possible to design a tax that targets the really wealthy?

Mention wealth taxes and these are common responses but given the extreme levels of wealth inequality – in the UK the top 10% of households owns 45% of all wealth, the poorest 50% own less than 10%; in the US it’s even worse, the top 1% owns almost 40%, nearly twice that of the bottom 90% – are wealth taxes really such an unreasonable proposition? [...]

This all helps explain why the idea of taxing wealth is gaining traction and not just on the Left. Nick Timothy, the former chief of staff of Britain’s Conservative Prime Minister Theresa May, writing in The Sun newspaper, called on the Government to “increase taxes on accumulated wealth”.  [...]

Where there is empirical evidence, the negative impact of wealth taxes on desirable economic behaviour appears much smaller than critics would have us believe. A 2010 paper by tax expert and economist Asa Hansson looked at the relationship between wealth taxes and economic growth.4 Based on analysis of 20 OECD countries between 1980-1999 she did indeed find “robust support for the contention that taxes on wealth dampen economic growth”, but, crucially, “the estimated magnitude is relatively modest”. A one percentage point increase in wealth taxes – a very large increase indeed – reduces growth by just 0.02 to 0.04 percentage points. Not insignificant, but certainly not the picture of economic doom painted by critics.  [...]

David Seim, in his analysis of the behavioural effect of Sweden’s wealth tax, found that evasion, rather than a reduction in savings, is the more likely outcome. And herein lies the real issue, wealth taxes have tended to raise little by way of revenue – and have therefore proved ineffective at redistributing wealth – because wealthy individuals tend to have clever accountants. Just think of the Paradise Papers, or the Panama Papers before that.   

Much of today’s wealth is mobile, making an annual tax on net wealth near impossible. Where wealth is rooted and measurable, like land and property, there is often no associated revenue – so if you’re asset rich and income poor, how do you pay the tax? And how do you prevent the rich shifting their wealth to less easily identifiable investments, like art or fine jewellery?

read the article