With Falling Tax Revenue on Incomes Britain proposes Taxing Wealth that was already Taxed as Income

Posted by PITHOCRATES - September 2nd, 2012

Week in Review

Taxing the rich doesn’t raise tax revenues.  At least it hasn’t yet.  Because what taxing officials don’t understand, or refuse to understand, is that it takes two things to make tax revenue.  A tax rate.  And economic activity.  If you raise the tax rate too high you will reduce economic activity.  So those higher tax rates will tax lower amounts of income.  Thus reducing overall tax revenue.

Perhaps the British taxing officials do understand that.  So they are proposing to tax not income but wealth.  To seize a little of what the wealth creators created.  And already paid taxes on it as past income (see ‘Emergency’ Tax on the Rich Roils Britain by Robert Frank, CNBC, posted 8/30/2012 on Yahoo! Finance).

Deputy Prime Minster Nick Clegg, leader of the Liberal-Democrat Party, has proposed a one-time tax on the wealth (rather than the incomes) of high-net-worth Britons. The details aren’t clear, but Clegg says the country is facing an economic war caused by a prolonged recession, and needs to tax the rich in order to avoid social unrest…

Baroness Susan Kramer, a member of Clegg’s party in the House of Lords, said that a wealth tax could be more effective than an income tax, and that the wealthy won’t move away…

Britain’s tax distribution is less progressive than America’s, with the top 1 percent paying about 24 percent of the total income taxes in the U.K. In the United States, the same group pays more than 35 percent. The top 10 percent in Britain pays 55 percent of income taxes, while in America the top 10 percent pays 59 percent.

You would think that 1% of the people should pay 1% of the taxes.  That would be fair.  But in progressive tax systems ‘fair’ means redistributing wealth from those who’ve earned it to those who did not earn it.  Which is why 1% pays 24% of total income taxes in Britain.  And that same 1% in the United States pays 35% in total taxes.  The top 10% pay over half of all income taxes in both countries.  Yet the left in both countries insist the rich aren’t paying their fair share.  If not then what, pray tell, is fair?  Having this 1% pay 50%?  75%?  95%?  If you did make them pay this much you’d have a problem.  They would no longer be part of the 1%.

The wealthy won’t move away?  Has she never heard of tax exiles?  Like the Rolling Stones?  The Beatles?  Sting?  Led Zeppelin?  Freddie Mercury of Queen?  Phil Collins?  Pink Floyd?  David Bowie?  The Spice Girls?  Michael Caine?  Sean Connery?  Rod Stewart?  Ozzy Osbourne?  U2?  A lot of their music was played during the recent 2012 Olympic Games.  A rich treasure trove of British talent.  Chased away by high taxes.

Wealthy people move away.  Yes, some have come back when their home country reduced their confiscatory tax rates.  But high taxes make wealthy people look for sunnier climes.  And it’s the wealthiest of people that can do this.  These aren’t immigrants getting off the boat at Ellis Island with loose change in their pockets.  These are people that probably already own real estate in other countries.  And live part of their lives in these other countries.  So making the final move to these other countries is more of a matter of logistics than any deep soul searching.

What’s better?  Having, say, 30% of rich people’s income?  Or having 0%?  It doesn’t take an advanced mathematical degree to know that 30% is greater than 0%.  If you try to take more than what is fair—fair as decided by the wealth creator—the wealth creator may take all of his or her money and leave.  Following the notable train of tax exiles that went before them.  And when they do it will only make the budget crisis worse.  Because it won’t take many of the 1% to leave to cause a dangerous fall in tax revenue.

And when you think about it what do these rich people owe their governments?  Their government wasn’t with them on tour sleeping in hotels.  It wasn’t their government writing music and lyrics that enough people loved to fill stadiums during concerts.  It was something these few 1% could do.  Did.  And they did it themselves.  So when the government came around to take up to 80% or more of what they created away they said “nice knowing you but it’s time for me to go.”  And they did.  To sunnier climes around the world to places with a friendly tax policy.  Where they could keep what they earned.

And it will happen again.  Unless you arrest the wealthy and force them to be creative so you can tax them.  But under those circumstances they may withhold their creativity.  Then what?  What do you do when you take that 24% of income taxes paid by the 1% to 0%?  If you think there’s social unrest now just wait until 24% of all government spending disappears.

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