Once again, we hear calls for a wealth tax not just from Nick Clegg and Simon Hughes, but also from Tim Montgomerie.
These calls cannot go unchallenged. A wealth tax is a pernicious tax because it taxes the same wealth year after year after year. It is double taxation and an attack on property rights far greater than the attack on property rights that comes from taxation in general. A wealth tax specifically targets only income that people choose to save and invest and build up into a store of property and assets. Earn £0.2m and spend it on a luxury cruise and some entertainment packages at the Olympics and you avoid the tax; earn £0.2m and invest it in a business and you pay the tax. It is as simple as that. The income out of which the taxed wealth is accumulated has, of course, been taxed already.
Tim Montgomerie wishes to tax all wealth, but he focuses on property:
‘Many people got wealthy during the boom years not because of great ingenuity on their part or through hard work but because they invested in Britain's highly state regulated property market. They benefited from state intervention and that benefit should now be taxed by state intervention. I don't want to confiscate all of their gain - or even most of it - but I think it's right that the propertied wealthy make a bigger contribution to the Exchequer.’
This misses an important subtlety. Those of us who live in the South East, and therefore own a valuable asset from no particular act of ingenuity, have to pay more to live in the South East — we effectively rent the house to ourselves. It is not as if we can move to the moon. And, of course, additional property taxes would also damage those newcomers to the property market who have to buy a house at high prices striving to save over a long period (probably well into their thirties these days). And, when we die, that house, in our estate will, of course, be taxed at 40 per cent.
Tim Montgomerie particularly wants transactions to be taxed more. But, transaction taxes are generally regarded as the most damaging of all taxes. We already have a top rate of stamp duty of an incredible seven per cent. As the Institute for Fiscal Studies (not known for its Tea Party leanings) said after the last budget increased stamp duty: ‘To see another Chancellor increase again such a poorly designed and distorting tax does not bode well for tax reformers.’ Taxes on transactions are especially poorly designed because they cause people to hoard the wrong assets for the wrong reasons instead of putting their money to work.
Read the rest of this article on ConservativeHome.