A wealth tax consensus?

Survival of the Richest. Last week, on the opening day of the World Economic Forum in Davos, Oxfam published its report “Survival of the Richest: How we must tax the super-rich now to fight inequality”. The report (backed by Bill Gates) highlighted how the wealthiest 1%  “grabbed nearly two-thirds of all new wealth… created since 2020, almost twice as much as the bottom 99 percent of the world’s population”. It calls for a “wide-ranging increase in taxation of the super-rich”, specifically an annual wealth tax of up to 5 percent on the world’s billionaires and multi-millionaires, which Oxfam says could raise enough money to lift 2 billion people out of poverty, deliver a plan to end hunger, and deliver healthcare to low- and lower middle-income countries. However, Oxfam is not alone in its calls for higher taxes on the wealthy. As the cost of living crisis continues, the gap between the richest and poorest grows, and climate catastrophe becomes reality, more and more seem to be turning to wealth taxes as a possible solution to the world’s, and the UK’s, economic problems. While momentum for the idea grows among inequality campaigners, they are certainly not alone. Economists, journalists, and policy experts across the political spectrum are starting to consider wealth taxes as a viable solution.

• The campaigners. It wasn’t just Oxfam who used the World Economic Forum in Davos as an opportunity to call for wealth taxes. Last week, a group of millionaires from across the globe wrote to political leaders at Davos, arguing that taxing rich people like them was “common-sense economics”. Signatories of the letter (coordinated by Patriotic Millionaires, Patriotic Millionaires UK, taxmenow and Millionaires for Humanity) included Disney heiress Abigail Disney and actor Mark Ruffalo. Last week also marked ‘Black Band Friday’, a global campaign for taxing the rich which deliberately coincided with the conclusion of the meeting of world “elites” at Davos. Outside of Davos, many ongoing campaigns are calling for wealth taxes. Stop the Squeeze, for example, is a UK-based coalition campaign which calls for higher taxes on wealth to fund solutions to the cost of living crisis. The campaign is spearheaded by the Economic Change Unit, Tax Justice UK and the New Economics Foundation and is supported by a range of civil society organisations, trade unions and grassroots groups.
• The “experts”. Nobel prize winning economist Joseph Stiglitz has joined recent calls for wealth taxes over the past week, arguing that a worldwide income tax rate of 70% on the highest earners would “make sense” and that annual wealth tax proposals such as Elizabeth Warren’s call for a 3% tax on those with more than $1 billion, were “reasonable”. 
• The press. In an editorial last week, the Guardian came out in favour of higher wealth taxes, arguing that “Britain has wealth taxes. But they don’t work very well” due to the fact that levies such as inheritance tax are easy to evade. Instead, an annual wealth tax of 1% on wealth above £10 million, or a “solidarity tax”, it argues, could tackle “the causes of low growth and high inequality”. Meanwhile, at the Financial Times, Chief Economics Commentator Martin Wolf called for policy-makers to consider “wealth taxes or taxes on bequests, to help fund the state people will need” in an essay defending “democratic capitalism” and criticising the rise of “rentier capitalism”. 
• The unlikely suspects. Conservative-aligned think tank Bright Blue has called for higher wealth taxes which it argues should be coupled with lower taxes on income from work which it says would help the Government achieve its “levelling up” objectives. The current Work and Pensions Secretary Mel Stride has previously alluded to his support for a one-off tax on stocks of wealth. In 2021, the IMF called for wealth taxes to reduce inequality in the aftermath of the Covid-19 pandemic. 

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The proposals. Those who call for higher taxes on wealth agree that taxation is currently too heavily concentrated on income from work and not on assets or income acquired outside of work (for example, through inheritance). However, taxation of wealth comes in a variety of forms. In the UK, current forms of wealth taxes generally tax transfers of wealth such as inheritance tax and capital gains tax. Some, such as centre-right think tank Bright Blue, focus on the need to reform such taxes or to make it easier for those taxes to be avoided or evaded. Others call for the introduction of taxes on stocks of wealth, as opposed to transfers. These come in the form of annual or “one-off” wealth taxes. 

• Capital gains reform. The University of Warwick’s Arun Advani has highlighted the dramatic difference in capital gains increases compared to incomes. While incomes have remained largely stagnant, capital gains have “skyrocketed in recent years”, almost trebling “from £22 billion to £63 billion, between 2012-13 and 2019-20”. He explains how most of the value of capital gains comes from the sale of small businesses, with 92% of these gains going to those with more than £100,000 in gains. Equalising rates of capital gains tax with income tax could raise £16 billion per year.  
• Extending national insurance. While workers pay an additional tax on their income in the form of national insurance, landlords, investors and those who benefit from owning assets do not pay such a levy. Advani argues that a “simple extension of national insurance to cover all income equally would raise £31.4 billion”. 
• Inheritance tax reform. Though concerns about inheritance tax are common, research shows that the very wealthiest actually pay less than those with large, but comparatively modest, estates. According to the Government’s 2018 Inheritance Tax Review, estates of £2-3 million pay 20% in inheritance tax on average while estates worth over £10 million pay only 10%. The IFS has argued that “inherited wealth stands in the way of social mobility”, finding that for those “in the top fifth of the wealth distribution, their inheritance could increase their lifetime income by nearly 30 per cent.” Meanwhile, “those born at the same time but with parents in the bottom fifth of the wealth distribution are likely to receive inheritances that add only 5 per cent to their lifetime income”. According to the Stop the Squeeze campaign, removing inheritance tax loopholes could raise £2.7 billion per year. 
• Annual wealth tax. Taxing stocks of wealth, as opposed to transfers, is an idea that is growing in popularity. While some call for one-off or windfall taxes, annual wealth taxes on the very richest could consistently raise significant sums for the public purse. A 1% tax on those with more than £10 million in stocks of wealth could raise £10 billion per year, according to the Wealth Tax Commission. Cristina Enache of the Tax Foundation outlines how different European countries implement annual wealth taxes. Countries such as Norway and Spain implement a net wealth tax, covering all the wealth an individual owns. Others have taxes on selected assets such as France which taxes all worldwide real estate of French tax residents worth over €1.3 million and non-French tax residents whose net real estate assets located in France are valued at or above €1.3 million. 
• Further reading. The House of Commons library has produced a helpful briefing and list of resources on the potential merits of wealth taxes. The Wealth Tax Commission’s tax tool allows individuals to model different wealth tax thresholds and simulate their own tax liabilities in the event of various levels of wealth tax. 

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The politics of wealth taxes. Prime Minister Rishi Sunak has been under continuous pressure to cut taxes throughout (and leading up to) his premiership and, together with his Chancellor, Jeremy Hunt, has been accused of being responsible for “the highest tax burden since World War Two”. However, Sunak has repeatedly demonstrated that he is unwilling to share that “burden” with those whose income stems from wealth rather than work. Other than lowering the threshold at which people pay capital gains tax (doing little to increase taxes on the very wealthy), Sunak has not introduced or increased any wealth taxes and in his role as Chancellor in 2021, rejected calls for an emergency wealth tax to fund pandemic spending. 

• Labour and wealth taxes. While Labour has vowed to abolish the “non-dom” tax loophole in which individuals who are resident in the UK can claim on their tax return that their permanent home (‘domicile’) is abroad, the party has been reluctant to make any commitments on higher taxes on wealth, though some comments suggest that the policy has not been ruled out. Shadow Chief Secretary to the Treasury Pat McFadden, while not specifically addressing the question of wealth taxes, said that “wealth creation” should be matched by “fair taxation” in a Westminster Hall debate on wealth taxes last year. Shadow Chancellor Rachel Reeves has said that she currently doesn’t have any plans to introduce wealth taxes, but has previously hinted at higher taxation on income from wealth. However, Labour have been keen to stress that all of their policy commitments won’t be “unfunded, un-costed", while at the same time pledging not to increase taxes on the “squeezed middle” and last year pledging not to reverse Liz Truss’ cut in the basic rate of tax from 20% to 19%. Reeves also made it clear that Labour opposed Truss’ “tax cut for the wealthiest one percent”. So, if Labour are “against austerity”, want to fully cost their pledges, prevent tax rises on everyday earners, and ensure the wealthy pay their fair share - do all roads lead to wealth taxes? ‍
• Polling. New YouGov polling shows that Britons generally support a variety of wealth taxes, especially when the threshold for paying the tax is high: “around three quarters would support a wealth tax of 2% on wealth over £5 million (73%), and of 1% on wealth over £10 million (78%). Both proposals draw cross party support, with seven in ten Conservative (69%) voters supporting the former, and 77% supporting the latter, along with 83% and 86% of Labour voters respectively”. The polling found that there was less support for a one-off wealth tax on wealth over £500,000.