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Let's Tax the Wealthy

12th Sep 2012
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Nick Clegg seems intent on putting forward suggestions for means by which British society's richest members could contribute more generously to the Exchequer.

First, Mr Clegg seemed to believe that a mansion tax aimed at those owning properties worth £2 million or more was the solution to all of our economic problems. It soon became apparent that this was impractical.

His latest (temporary) suggestion seems equally unlikely to achieve his aim. A wealth tax or something similar is already operated in a number of countries including Switzerland.

The theory is great. If anyone has assets worth more than a relatively low base figure, they will have to pay tax at a modest rate, perhaps in the region of 0.5% to 1% on the value of those assets each year.

The practice is rather more difficult. First, it will be necessary to value the assets in order to tax them. Does this mean getting an estate agent or jeweller round to visit on an annual basis? In some cases the only expert capable of valuing certain categories of assets may be the putative taxpayer, which presents its own problems.

Realistically if, as the papers regularly like to remind us, the rich are dab hands at avoiding existing types of tax then the chance of their paying any significant amount of wealth tax must be virtually zero.

The ease with which one could locate assets offshore in a jurisdiction where they are hard to trace militates against such a tax, as does the use of companies, trusts and family members to obfuscate. The way that the Swiss operate is to ignore any real estate outside Switzerland.

This means that the tax is charged on a combination of all assets held within the country's borders plus non-real estate assets elsewhere.

This is probably a little easier to work in a country where rich individuals from around the world like to park their funds at the best of times.

If Mr Clegg is serious about getting additional tax revenue from our wealthiest residents, then he probably needs to consider alternative measures that may not be entirely palatable to some of his political bedfellows.

The Americans have a far more robust attitude to these matters than we do. Having become resident in the US, it is virtually impossible to escape their tax net even many years after leaving the country.

Compare that with Britain where almost everybody (apart from your loyal columnist) seems to be domiciled elsewhere, allowing them some fantastic tax breaks. While the government has introduced and token gestures that will bring in a maximum of £50,000 from some of our wealthiest residents in exchange for almost complete tax exemption on their wealth, taking a tougher stance would bring in a great deal more money, though it may scare away some of those that we believe have made this country what it is today.

It is also a bit rich for Mr Clegg to suggest new ways of taxing the rich when the LibCon coalition are in the process of reducing their highest income tax rate. The man in the street would surely have thought that one of the easiest ways of taxing the rich is to move in the opposite direction.

If the argument is that the wealthy don't bother to pay income tax anyway, then perhaps National Insurance Contributions might be a more fruitful source of revenue? At the moment, as we all know, anyone earning over about £40,000 a year pays a mere 2% NIC on the excess. This is lower than equivalents almost anywhere in the world. If we were to hike this figure up to 4%, 5% or even 10% for those on serious money, it would undoubtedly achieve some of Mr Clegg's goals.

Assuming that this is unacceptable, a slightly less directed but probably even more effective solution could be to look at VAT, which is generally harder to escape.

While we all think that 20% is a very high rate, European law permits stiffer limits and other countries operate them.

There could be two different approaches. The first would merely be to increase the basic rate, since rich people inevitably spend more than poor (who could be subsidised with other tax breaks). This could therefore prove quite effective in increasing revenues from those that Mr Clegg would like to encourage.

The alternative is to try and identify goods that the wealthy are more likely to buy than their poorer brethren and tack an extra 5% on to those.

Most of us will probably not be holding our breath as George Osborne considers fiscal measures for the future. The likelihood is that the idea of taxing wealth will remain a figment of the Deputy Prime Minister's imagination for at least the duration of this Parliament and probably a generation.

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By User deleted
12th Sep 2012 12:02

Options to avoid ....

The favourite has to be -

http://www.dailymail.co.uk/news/article-2127072/Millionaire-Tory-donor-s...

On the other hand why is any company trading in the UK allowed to remit profits overseas to avoid tax in the country of sale? If they are taking money from UK citizens by selling them goods then they should be taxed on those sales

Any other approach is a ''scorched earth' policy by removing money and dues from the UK - Apple, Google etc.

Parking themselves in Ireland, Lichtenstein etc. needs to be made unattractive by raising dues in the actual country of sale

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