Published on 23 Sep 2014

Taxing wealth is the way things are going in the 21st century

I’m just watching the local news in London, where the capital’s richest residents are complaining that Ed Miliband’s “mansion tax” is a “tax on London”.

Regardless of the rights and wrongs, it’s a sign of the way things might go in the 21st century – and here’s why.

The OECD, an influential Paris-based think tank, warned in July that increased globalisation, combined with rising costs to the state of healthcare and ageing, will at some point create a structural tax crisis in the developed world.

As inequality widens (they predict) and labour mobility increases, it will be pointless trying to raise money for public services mainly through income tax and corporation tax. Instead they advocate moving to taxes based on “property, resource extraction and consumption”.

That is, stuff you can’t move.

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Already, high-tech sectors of the economy – like video games design – see rival cities and countries competing for business with income tax breaks and low business taxes. If we see this as the shape of things to come, then the high earners are going to head for the lowest tax jurisdictions.

On top of that, for the very rich, much of their income is going to come from their assets, not their wages – so taxes based on what you own, not what you earn, might be logical, says the OECD.

Obviously there is scope for injustice. Most £2m properties (87 per cent) in Britain are in London – but just under a third of them are owned by people who have been in them for more than 10 years.

They could be minted aristocrats, or just elderly people stranded in properties they’ve lived in all their lives.

In a bizarre symmetry with the bedroom tax, such people now face the prospect of having to downsize or remortgage just to pay a tax aimed at the rich. Labour says it will taper the tax around the £2m mark, but one can also expect residents to do some DIY “tapering” – for example, what price a borderline £2m house with a lovely old caravan parked in the front garden?

For most people, the idea of being taxed – every year – on something you only bought once, or even just inherited, is new.

But if the OECD is correct, the landscape of taxation will, in the next 50 years, begin to move globally away from income and towards wealth. The Labour mansion tax, and the Lib Dem version, might look like pinpricks to our grandchildren – sharp as they feel to the Chelsea tractor brigade right now.

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11 reader comments

  1. Frank says:

    If our economies are moving back into a phase where wealth yields higher returns than labour it is only natural that wealth gets taxed more. The wealthy who are complaining have themselves (1) caused the problem and (2) earned their wealth exactly by squeezing income from labour. This gap has been opening up ever since the late ’70’s …

  2. Philip Edwards says:

    Yeah, right.

    We’ll see.

  3. Boffy says:

    “In a bizarre symmetry with the bedroom tax, such people now face the prospect of having to downsize or remortgage just to pay a tax aimed at the rich.”

    I have to say, I was a bit shocked by this comment. There is no symmetry bizarre or otherwise between someone who has a £2 million asset, which they could dispose of, and buy several very nice house with, let alone one, in most parts of the country, and who, therefore could move tomorrow, and enjoy a very comfortable lifestyle, and some poor sod reduced to claiming Housing Benefit, and who, therefore has very few choices open to them.

    Still less symmetry is there considering that the former could buy any number of big, large, small urban, suburban, rural, detached, semi-detached or whatever properties. Despite all the hype, in most parts of the country, there is no shortage of supply of houses. A look in any estate agents window, or look down any street shows a forest of for sale signs, and in most parts of the country those agents have had those houses on their books for about a year, and in many cases much longer than that. But, by contrast, we know that the people paying the bedroom tax are being penalised whilst Council’s have no one bedroom properties available to move them to!

    A tax on assets over some large amount is more equitable, which is why most countries in Europe already have such taxes. But, the reality is that no system of taxes is going to fundamentally change the underlying problem, which is the fact that the vast majority of the means of production (capital) is owned and controlled by a very small minority (not the 1%, but the 0.001%), and it is that which determines the distribution of income.

    As Marx put it,

    “(a) No modification of the form of taxation can produce any important change in the relations of labour and capital.

    (b) Nevertheless, having to choose between two systems of taxation, we recommend the total abolition of indirect taxes, and the general substitution of direct taxes. [In Marx’s rough manuscript, French and German texts are: “because direct taxes are cheaper to collect and do not interfere with production”.]

    Because indirect taxes enhance the prices of commodities, the tradesmen adding to those prices not only the amount of the indirect taxes, but the interest and profit upon the capital advanced in their payment

    Because indirect taxes conceal from an individual what he is paying to the state, whereas a direct tax is undisguised, unsophisticated, and not to be misunderstood by the meanest capacity. Direct taxation prompts therefore every individual to control the governing powers while indirect taxation destroys all tendency to self-government.”

    And,

    “Any distribution whatever of the means of consumption is only a consequence of the distribution of the conditions of production themselves. The latter distribution, however, is a feature of the mode of production itself. The capitalist mode of production, for example, rests on the fact that the material conditions of production are in the hands of nonworkers in the form of property in capital and land, while the masses are only owners of the personal condition of production, of labor power. If the elements of production are so distributed, then the present-day distribution of the means of consumption results automatically. If the material conditions of production are the co-operative property of the workers themselves, then there likewise results a distribution of the means of consumption different from the present one. Vulgar socialism (and from it in turn a section of the democrats) has taken over from the bourgeois economists the consideration and treatment of distribution as independent of the mode of production and hence the presentation of socialism as turning principally on distribution. After the real relation has long been made clear, why retrogress again?”

  4. Philip says:

    The mansion tax should be the first among many devolved to counties and unitary authorities to fund expenditure on most public services – other than the obvious national ones like defence & infrastructure and the NHS. If the Mayor of London feels he can afford to start levying the mansion tax at £3m, he’ll have to cope with the revenue loss – not the rest of the country.
    And given the tenacious & ingenious (and amoral) greed of many of the rich (but not J K Rowling, for example), anything that can get them to pay a fair share should be pursued with the utmost energy & resolution.

    1. Andrew Dundas says:

      ‘Sounds as if you agree with me that NIC – a tax on workers’ incomes – should be cut. And the lost NI revenue raised by adjusting tax rates upwards.

      That’d mean our ‘jelly bean’ and multiple billionaires would pay towards the NHS and low-income families. It’s a neat idea, easier than just taxing Londoners. Which maybe why it isn’t popular.

  5. Andrew Dundas says:

    Neither investment incomes nor wealthy pensioners pay any money into the National Insurance fund that’s partly used to relieve poverty. Why not?

    It’d save all the palaver you suggest if we simply cut NICs by, say, five percent (or more) of the NI income and clawed those monies back from an increase in income tax rates.

    True, I’d be taxed more than I am. But that’s only fair, ain’t it?

  6. josie says:

    The taxsystem shoukd not allow individuals to form companies whereby their services are
    paid to the company and they draw the majority as dividends thereby reducing substantially their tax.
    eg Footballers play for a club, not the company they have formed. All income paid to them by the club should be taxed under PAYE

  7. Yorkshire Lass says:

    And while we are on the subject, what about a tax on second homes left unoccupied for most of the year while local people can’t afford to buy?

    1. Andrew Dundas says:

      I suspect you’re referring to 2nd homes within the North Yorkshire park areas. And perhaps in the Peak District too.
      Truth is that’s there’s more than enough space in most rural parts of our islands to accommodate both holiday homes and homes that permanent residents could buy. What’s needed is a less tyrannical and restrictive planning system.

  8. Nigel Wilson says:

    This will effectively annihilate the middle class. Whilst for the mobile wealthy it might seem a good idea to reduce the accountants and lawyers back to the ranks of the servile from whence they came in the eighteenth century, the consequential political disruption would change the world.
    The problem is that nobody is creating value any more, nor accumulating wealth other than in the form of speculative assets. The entire political structure has become a game of beggar thy neighbour as taxes are cut for the better off and the costs of social welfare loaded onto the recipients of social welfare. Everyone has a hand outstretched for their entitlements. If even the wealthy are unprepared to pay for the system that made and keeps them wealthy then why should anyone else? This is pathetic.
    The idea of working for a living by making things that others want to buy is now passé. This effectively destroys generations of working class politics which has degenerated anyway into some form of post-social democratic careerist opportunism.
    The circus is coming to an end. Fortunately the clowns are now on so we are all getting a laugh. An adjustment is coming as this nonsense cannot last: at least I hope so. A new politics will evolve as it has to.

  9. Mark McIntyre says:

    We are all taxed too much, but, as a scrounger with no wealth – this move sounds just fine !

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