If you think a wealth tax won’t hit you, you’re wrong
A lot of people in Britain seem keen on wealth taxes. They think it’s a way to hit the rich. But it won’t just be the rich that end up paying.
The idea of a new wealth tax in the UK isn't going away. In the last week, two parties have floated new plans.
The Greens suggested an annual tax of 1-2% on personal wealth over £3m, something they think would raise £40bn of other people's money for them to spend.
The Labour party has also had another go and come up with an additional estate tax. This would be charged at 15% and supposedly be hypothecated to cover long-term care costs. It would come on top of the 40% the heirs of anyone with any wealth pays already (assuming they haven't avoided it).
All this makes us rather uncomfortable. We think that income in the UK is over-taxed relative to wealth. But that doesn't mean wealth in the UK isn't taxed.
There is the 2% inflation target (an effective wealth tax in that it reduces the value of your cash in order to keep the state show on the road); there is unindexed capital gains tax, which along with the inflation acts as a very nasty wealth tax (see my writing on the matter here); there is inheritance tax (although I would argue this is more an income tax on heirs see my thoughts here). There is stamp duty on property and share purchases and there is council tax (a low tax on wealth, but one nonetheless).
When people suggest they are keen on wealth taxes, further questioning usually suggests that they have two thoughts on it. The first is that we won't see a wealth tax in the UK without the removal of some other tax (not many countries have a wealth tax and a high rate of IHT). And the second is that if there is a wealth tax it won't hit them.
They are certainly wrong on the first: the UK is a tax adder not a tax subtractor. And if they aren't actually on the poverty line, they are very probably wrong on the second: fiscal drag will soon take care of that.