A Bigger Slice of the Pie
The proposed new temporary wealth tax, while arguably more about political timing than fiscal-mindedness, does appear more enduring than some of this year's less digestible ideas, like the now infamous "pasties tax" that cooled quickly in the wake of public outcry on the VAT bakery items could attract.
But sentiment of the masses be damned, the coalition continues to suggest Government interventions to underpin an economic recovery.
This time round the Nick Clegg constructed "time-limited contribution" idea of taxing wealth rather than income appears to sit well alongside that party's alignment with a mansion tax on properties worth over £2million.
These are somewhat strange bedfellows to the forthcoming income tax reduction from 50p to 45p in April 2013; a so-called millionaires tax break.
But they are certainly in line with Government's pursuit of a policy capable of reflecting high asset wealth in the tax system - an HMRC "Holy Grail" as the Revenue continues its sound and fury position on tax avoidance schemes.
However, the solution to in-built disproportionate tax breaks for people at the apex of the income hill remains far closer to a full system rewrite than a single programme miracle fix.
The Government's dire record in attempting to make the uber-wealthy, businesses and individuals alike, cough-up is the stuff of legend like taxing; oil companies just before the price collapsed and bank super profits just prior to the sub-prime debacle.
The taxpayer continues to bear the burden.
It was imagined that the 50% tax would solve many problems.
But when high earners had had enough they chose to either "earn less" or exit stage left. The same came true with double NI contribution charges, with no additional benefit in retirement. Business owners who prior worked to "the spirit of law" sought out other options.
So should we pay attention to the move toward a wealth tax, temporary or otherwise?
The details are scant at this stage though it would appear Clegg & Co are looking for two new tax revenue streams; one on mansions, and the other T/B/C - to be concocted.
There's enough historical tax fodder there to grill a pasty-faced politico to a crisp, the mis-steak in judgement only revealed when under secretary, Bridie MacMince, says: "We were just trying to grab a bigger slice of the pie."
Better we take the advice of Milton Friedman to: "Drop marginal tax rates and let the small business entrepreneurs respond by making more, and employing more."
But we have to ask ourselves how temporary or limited this tax might be and if there is a ceiling on the value of assets that can be considered?
And that final point is a doozey - if there's no limit on the value of taxable wealth, the asset-rich income-poor folks could be ruined in a click of the Chancellors briefcase latches.
The other side of that coin is if there is a limit. That means the potentially swift and highly detrimental shift of capital out of the country could depend on whether temporary measures become permanent rules.
One final dilemma would be the labour and time intensive requirement to evaluate the wealthy when the Revenue already suffers from severe under resource.
A for more likely outcome here would be that the proposed wealth tax eventually travels the path of the Pastie; let it cool for a while, then watch it disappear.
The Level of Wealth Inequality in the UK
(Courtesy: the Office for National Statistics ONS)
- In 2008/10, aggregate total wealth (including private pension wealth but excluding state pension wealth) of all private households in Great Britain was £10.3 trillion
- The wealthiest 10% of households were 4.3 times wealthier than the bottom 50% of households combined
- The wealthiest 20% of households owned 62% of total aggregate household wealth
- In 2008/10, the least wealthy 10% of households still demonstrated negative values for both net financial wealth and net property wealth.
Ed Emerson is Editor of HNW Magazine