Whatever the merits or otherwise of a general "wealth tax", it fails for practicalities, Tim W outlines some of them here.
Unlike most people who waffle on about this, I have actually prepared wealth tax returns for people, back in the early 1990s when I worked in Germany and they still had Vermögensteuer. I've still got the Beck-Texte handbook, 1991 edition, it's over 400 pages, just as long as the Corporation Tax handbook and nearly as long as the Income Tax handbook.
There were so many exemptions and exceptions that what it boiled down to was a surcharge on income tax, it raised as little money as you would expect (about DM 9 billion in its last year of operation in 1996 = approx. £3 billion), so they then got rid of it.
There's a favourable write-up of Mr Picketty's book in the FT; putting practicalities to one side, the author is stumbling along the right lines BUT he (and the reviewer, and indeed Tim W):
- assume that increasing inequality is inherently A Bad Thing. It is not, whether it is A Bad Thing or not depends entirely on why it is happening. If some people or businesses work harder or smarter than others, they get richer than those who don't. Fair enough, that's capitalism and benefits everybody overall. But if the government introduces a taxpayer-backed Help To Buy scheme to pump up land prices and mortgages, this increases inequality and is clearly A Bad Thing.
- fall into the trap which the Neo Classical Economists (early Faux Lib's) set a century ago, which is to confuse the difference between a) real personal wealth or capital on the one hand (which is a very good thing) and b) monopoly privileges (primarily freehold land titles, with a few bits and pieces like patents, barriers to entry etc).
If you make these two cardinal errors and decide that an annual wealth tax would help, you would then set the tax at a flat percentage on both kinds of wealth (real wealth and monopoly wealth). Let's say 1% to get the ball rolling, the same as the German Vermögensteuer.
The effect of that 1% tax on real wealth, which perhaps has no annual return (like a painting or jewellery) would be that people just don't declare it or spend years arguing about the value; the effect of that 1% tax on shares or cash in the bank (not directly wealth, but claims on underlying wealth) in an age where dividend yield is only 4% or so and bank interest is maybe 2% would be like increasing income tax on dividends from 25% to 50%, and increasing the income tax rate on bank interest from 20% to 60%.
The effect of that 1% tax on business capital (cars, lorries, machinery, buildings) on which the annual return is (say) 10% would be like increasing corporation tax from 20% to 30%.
The effect of a 1% tax on monopoly wealth might help a bit, but as the total return to monopolies is far, far higher than the return to anything else, at least 10% per annum compound, this would merely slow the rise of inequality at the expense of damaging the real economy to everybody's detriment, including those who live off their wages alone and own little or no wealth of either type.
And we'd still get all the bleating about Poor Widows In Mansions.
The total yield would be small (going by the German example), administratively it would be a nightmare, there would be mass evasion/arguments and it would harm the economy in much the same way as higher income tax and corporation tax rates.
However, a tax on monopoly wealth alone, primarily the rental value of land, would raise significant amounts of revenue because it can levied at up to 100% of the income/benefit arising. There would be no need to define all the stuff that wouldn't be taxed and think up all sorts of exemptions for them. There would be no scope for evasion and no damaging economic effects (as well as a lot of positive economic effects). It's the very opposite of Help To Buy.
In the UK, for example, such a tax would/could approximate to a flat 3% charge on the current selling price of land and buildings and would be enough to get rid of council tax, business rates, stamp duty, inheritance tax and capital gains tax just for starters; the remaining bulk of it would be enough to get VAT down to the EU-dictated minimum of 15% and eliminate National Insurance (super-tax on employment) and higher rate/additional rate income tax entirely.
So it wouldn't be downwards redistribution of cash, it would be a sideways redistribution of the cost of government from rent generators to rent collectors. Workers and businesses (and shareholders) would end up better off, not because they are being given money that the government took away from somebody else, but because less money is being taken away from them.
This also deals with the KLN that "Land Value Tax is a step towards a Wealth Tax". Clearly it's not, as you can raise more money from LVT alone than from a general wealth tax. If you started with full-on LVT and tried to extend it to all wealth (however defined, and that's impossible), the annual % rate would have to fall so steeply that total revenues would be lower (even ignoring the damaging economic impact).
Sorted.