Since I made the mistake yesterday of writing about my unpopular views on tax policies, let me follow up today with another one: I think wealth taxes are a bad idea and create so many unintended consequences that we are better off not introducing them in the first place.
Stamp duty on residential property is a wealth tax. This was originally a small percentage of the value of your home, but has already increased to the point where it seriously distorts the market for homes.
One further consequence of any large (over about 0.5%-1% pa) wealth tax:
People with wealth - who are mostly aged 50+ - can and will relocate to other jurisdictions. Several very habitable countries give residency for retirees. Saves the UK a bit in healthcare costs... but overall bad for public finances.
People running growing successful businesses would also have an incentive to scoot off elsewhere. So we would be mainly left with just those businesses tied strongly to the UK (eg property sector) or to uk govt money. Not great.
One area where i do diverge is i think we should scrap stamp duty and council tax and replace them with a tax on property ownership that is proportionate to value. Indexed to property values and revaluing after any major works. With suitable adjustments for single occupancy, holiday homes, probably with exemptions for some businesses (eg working farms, heritage properties open to visitors all week) etc.
Stamp duty is a brake on freeing up properties that are too big for their owners, and council tax fails to tax big properties adequately, fails to charge developers anything for sitting on land banks for decades.
Fixing this would be a big step to making housing more affordable.
Why look at one isolated non-starter item? Plus, the value of assets has been driven to a large degree by gov and CB actions the past decades. While those without assets were exposed to foreign worker competition, making redistribution (of taxes) even more impactful than before. And, the worse the redistribution the angrier the electorate - unless one professes to the progressive idea that these voters simply fell for some pied piper. (I would add to this that regardless of ((loss of)) income, immigration is at play here as well).
But if a ‘rational’ pov (the core economist’s claim) is preferred let’s pull things broader, let’s look at a real tax - caused by an utter irrational fear of impending doom:
A massive, gigantic, humongous wealth tax has already been introduced - to everybody.
The 3 T spent the past twenty years on ‘renewable’ energy resulting in a 3% share for renewables of the global energy generation mix. Add to that the coming damage/carnage (hello German chemical industry) from not a single country having prepared its electric grid for the chaos renewables cause. It was all fancy Teslas, windmills and solar panels, heavily subsidized (13 B in the NL just for Tesla) and mostly devoured by the middle classes (who could then sell back their generated energy at guaranteed prices, making investing/maintenance even more expensive for regular utilities).
The brilliant idea in a nutshell:
Subsidize the least efficient energy sources making them so expensive that industry impacted by the high prices will also need to be subsidized. And a new form of redistribution has to be introduced: energy rationing.
In the Netherlands alone 6600 companies are on a waiting list to get the electricity they need to expand.
Consumers are prepared though media to 'optimize' their usage...
Neighborhoods can’t be built since they can’t be connected to the grid (while the housing shortage is amplified yearly from immigration, asylum and refugees (who are mostly middle class immigrants).
But the energy ‘transition’ is not a bad idea according to the professional classes who’ve (once again) indulged themselves in gov subsidies: finance (selling ESG, to which another abbreviation should be added: BS), consultants (McKinsey writes thick reports based on technically impossible climate scenarios like RCP/SSP8.5) and obviously PE: ‘We’re saving the planet! And our fees! With your money’.
Pension funds, assetmanagers and banks also agreed: great idea. We’ll (very publicly) divest from the energy sector and we won’t provide loans anymore. ‘We’re enabling the energy ‘transition’!
From secure supplies to rationing. Who wouldn’t choose that? (Indonesia and Vietnam apparently don’t think this is an attractive idea although Bloomberg is mostly worried about their ‘climate goals’...https://bit.ly/3SWaQtb)
The rather hilarious unintended consequences of ESG:
Making energy (even) more expensive makes building wind parks c.s. even more un-economical than it already was. With the current high energy prices and without QE and low interest rates the entire industry is on its ass now and solar is following suit.
Another funny unintended consequence of ESG: divestment from the weapons industry.
Currently the European arms sector cannot find the private funds it needs to ramp up production to help provide Ukraine ‘victory’(sic) over Russia. (A ‘victory’ which would become a pain in the ass as soon as UA troops would somehow near the borders of Crimea and the Donbas. But let’s not expect too much thinking from western politicians, pundits, think(?) tanks, media etc. Let them swim in their sea of sameness).
Gov’s are now contemplating subsidies for the weapons industry...
Of course they are.
After corporate profits (especially US) the past twenty years were significantly propped up by QE and corporate tax & debt tricks, just like investor’s rewards were, as most of the 100.000 sexy saas startups also ate from the QE & low rates trough, and knowing that QE is on hold, rates are high and corp tax & debt have been stretched to the limits, it’s clear capitalism needs new sources of gov funding (Schumpeter is for boring SMB suckers who find it ever more harder to obtain bank loans).
It seems Socialism and Capitalism are not immune to the M&A industry.
Now who have driven climate hysteria, ESG, the energy ‘transition’ and who are still doubling down on it?
Universities, climate thinktanks, activists and media. Typically funded by billionaires - old rentier families like Getty, Ford, Rockefeller, and new rentier families like Soros and Bezos.
This leads to the conclusion that if we really want to save the planet (and capitalism) we need to divest these billionaires from their funds…
Last week Rob Henderson in his great substack posted an article based on research that shows how it’s the most intelligent who are the most at risk from groupthink and general stupidity:
‘White-collar professional workers were likewise two to three times more supportive of communist ideology, relative to farm laborers and semi-skilled workers.’
Why Dumb Ideas Capture Smart and Successful People
Intelligent individuals are better at understanding the reputational consequences of their beliefs
Well, I have to salute your courage in publishing a post dealing with public policy. That'd be way above my pay grade, for sure. Too many complex second-order effects.
One can quickly agree however that a wealth tax is not a good idea for countries that suffer from too little economic dynamism. If you have few people starting companies, then introducing new penalties to those who are successful founders is toxic.
On the other hand, there is an argument to be made that southern european countries such as Italy have a lot of hidden private wealth (in real estate) in combination with public debt. Germany for instance is the other way around -- with little public debt but on average unwealthy. Why not shift some tax collection in Italy to those living in their own houses, and away from folks on a paycheck?
Conversely, if you have an economy that is very dynamic but has high or even growing inequality (USA), the cost/benefit analysis might be that taxing billionnaires makes sense. Warren Buffett would agree.
In the US wealth taxes are widespread but we call them property taxes and they are typically levied on real estate at the local level. It works just fine. People argue over whether to increase them or lower them, people argue about whether the value has been assessed correctly, but overall it just works.
Stamp duty on residential property is a wealth tax. This was originally a small percentage of the value of your home, but has already increased to the point where it seriously distorts the market for homes.
One further consequence of any large (over about 0.5%-1% pa) wealth tax:
People with wealth - who are mostly aged 50+ - can and will relocate to other jurisdictions. Several very habitable countries give residency for retirees. Saves the UK a bit in healthcare costs... but overall bad for public finances.
People running growing successful businesses would also have an incentive to scoot off elsewhere. So we would be mainly left with just those businesses tied strongly to the UK (eg property sector) or to uk govt money. Not great.
One area where i do diverge is i think we should scrap stamp duty and council tax and replace them with a tax on property ownership that is proportionate to value. Indexed to property values and revaluing after any major works. With suitable adjustments for single occupancy, holiday homes, probably with exemptions for some businesses (eg working farms, heritage properties open to visitors all week) etc.
Stamp duty is a brake on freeing up properties that are too big for their owners, and council tax fails to tax big properties adequately, fails to charge developers anything for sitting on land banks for decades.
Fixing this would be a big step to making housing more affordable.
Why look at one isolated non-starter item? Plus, the value of assets has been driven to a large degree by gov and CB actions the past decades. While those without assets were exposed to foreign worker competition, making redistribution (of taxes) even more impactful than before. And, the worse the redistribution the angrier the electorate - unless one professes to the progressive idea that these voters simply fell for some pied piper. (I would add to this that regardless of ((loss of)) income, immigration is at play here as well).
But if a ‘rational’ pov (the core economist’s claim) is preferred let’s pull things broader, let’s look at a real tax - caused by an utter irrational fear of impending doom:
A massive, gigantic, humongous wealth tax has already been introduced - to everybody.
The 3 T spent the past twenty years on ‘renewable’ energy resulting in a 3% share for renewables of the global energy generation mix. Add to that the coming damage/carnage (hello German chemical industry) from not a single country having prepared its electric grid for the chaos renewables cause. It was all fancy Teslas, windmills and solar panels, heavily subsidized (13 B in the NL just for Tesla) and mostly devoured by the middle classes (who could then sell back their generated energy at guaranteed prices, making investing/maintenance even more expensive for regular utilities).
The brilliant idea in a nutshell:
Subsidize the least efficient energy sources making them so expensive that industry impacted by the high prices will also need to be subsidized. And a new form of redistribution has to be introduced: energy rationing.
In the Netherlands alone 6600 companies are on a waiting list to get the electricity they need to expand.
Consumers are prepared though media to 'optimize' their usage...
Neighborhoods can’t be built since they can’t be connected to the grid (while the housing shortage is amplified yearly from immigration, asylum and refugees (who are mostly middle class immigrants).
But the energy ‘transition’ is not a bad idea according to the professional classes who’ve (once again) indulged themselves in gov subsidies: finance (selling ESG, to which another abbreviation should be added: BS), consultants (McKinsey writes thick reports based on technically impossible climate scenarios like RCP/SSP8.5) and obviously PE: ‘We’re saving the planet! And our fees! With your money’.
Pension funds, assetmanagers and banks also agreed: great idea. We’ll (very publicly) divest from the energy sector and we won’t provide loans anymore. ‘We’re enabling the energy ‘transition’!
From secure supplies to rationing. Who wouldn’t choose that? (Indonesia and Vietnam apparently don’t think this is an attractive idea although Bloomberg is mostly worried about their ‘climate goals’...https://bit.ly/3SWaQtb)
The rather hilarious unintended consequences of ESG:
Making energy (even) more expensive makes building wind parks c.s. even more un-economical than it already was. With the current high energy prices and without QE and low interest rates the entire industry is on its ass now and solar is following suit.
Another funny unintended consequence of ESG: divestment from the weapons industry.
Currently the European arms sector cannot find the private funds it needs to ramp up production to help provide Ukraine ‘victory’(sic) over Russia. (A ‘victory’ which would become a pain in the ass as soon as UA troops would somehow near the borders of Crimea and the Donbas. But let’s not expect too much thinking from western politicians, pundits, think(?) tanks, media etc. Let them swim in their sea of sameness).
Gov’s are now contemplating subsidies for the weapons industry...
Of course they are.
After corporate profits (especially US) the past twenty years were significantly propped up by QE and corporate tax & debt tricks, just like investor’s rewards were, as most of the 100.000 sexy saas startups also ate from the QE & low rates trough, and knowing that QE is on hold, rates are high and corp tax & debt have been stretched to the limits, it’s clear capitalism needs new sources of gov funding (Schumpeter is for boring SMB suckers who find it ever more harder to obtain bank loans).
It seems Socialism and Capitalism are not immune to the M&A industry.
Now who have driven climate hysteria, ESG, the energy ‘transition’ and who are still doubling down on it?
Universities, climate thinktanks, activists and media. Typically funded by billionaires - old rentier families like Getty, Ford, Rockefeller, and new rentier families like Soros and Bezos.
This leads to the conclusion that if we really want to save the planet (and capitalism) we need to divest these billionaires from their funds…
Last week Rob Henderson in his great substack posted an article based on research that shows how it’s the most intelligent who are the most at risk from groupthink and general stupidity:
‘White-collar professional workers were likewise two to three times more supportive of communist ideology, relative to farm laborers and semi-skilled workers.’
Why Dumb Ideas Capture Smart and Successful People
Intelligent individuals are better at understanding the reputational consequences of their beliefs
https://bit.ly/40PlzHt
Well, I have to salute your courage in publishing a post dealing with public policy. That'd be way above my pay grade, for sure. Too many complex second-order effects.
One can quickly agree however that a wealth tax is not a good idea for countries that suffer from too little economic dynamism. If you have few people starting companies, then introducing new penalties to those who are successful founders is toxic.
On the other hand, there is an argument to be made that southern european countries such as Italy have a lot of hidden private wealth (in real estate) in combination with public debt. Germany for instance is the other way around -- with little public debt but on average unwealthy. Why not shift some tax collection in Italy to those living in their own houses, and away from folks on a paycheck?
Conversely, if you have an economy that is very dynamic but has high or even growing inequality (USA), the cost/benefit analysis might be that taxing billionnaires makes sense. Warren Buffett would agree.
In the US wealth taxes are widespread but we call them property taxes and they are typically levied on real estate at the local level. It works just fine. People argue over whether to increase them or lower them, people argue about whether the value has been assessed correctly, but overall it just works.