Today, income inequality is so extreme that the interest alone on the accumulated wealth of the richest few exceeds the growth of many economies in which they live. In other words, by owning so much already, the rich are now absorbing all of the growth generated by many of the world’s leading economies, and more. It’s not even a case of active exploitation any more: the only way a multimillionaire could avoid perpetuating her/his build up of wealth is to stick her/his millions under a mattress. Or deposit it in Barclays. This is why economies with apparently healthy GDP figures, like the UK and US, are delivering rising living standards only to a tiny minority.
The Simpson’s Mr Burns on wealth inequality
Logically speaking, the only way to end this spiral into virtual feudalism is to redistribute not only income (as inequality of wealth is now so great) but also wealth too. That was relatively easy from the 1940s to the 1970s. But in today’s globalised society, wealth redistribution through the tax system- when capital is highly mobile and capable of skipping between competing tax regimes- is easier said than done. It’s not even easily said when the majority of politicians (but fewer and fewer economists) are attempting to ignore the issue.
The Green Party has proposed that Britain follow France, Norway and the Netherlands, and introduce its first tax on accumulated wealth, rather than income. The “Wealth” or “Solidarity” Tax would apply to all British residents with assets (of any kind) worth £3 million or more. The rate would vary (it would presumably be banded) between 1% and 2% per year. Green Party policymakers estimate revenues of £21.5 billion and £43 billion- greater than the entire transport and defence budgets respectively.
I think the idea deserves consideration, even if a 2% wealth tax is quite steep for a medium-sized economy to pursue without international co-ordination. Although I don’t hold with the notion that tax rates must fall through the floor or the wealthy and talented will leave the country, there are limits to practicable tax rates. Without exchange controls or an internationally co-ordinated wealth tax rate, we’ll find that there would be little wealth left in the UK to be taxed at 2%.
Not that a wealth tax itself is an impossibility. The Netherlands, for example, has a marginal top rate of Income Tax of 52% and levies a wealth tax of 1.2% on all investments above €21,400. While this is quite heavy, the Netherlands is seen as one of the most “business friendly” (a phrase which is often code for “anti-worker” and “pro-inequality”) economies on Earth. Assuming that Britain could raise even £10 billion a year with a similar rate, one in eight pounds of planned spending cuts could be cancelled altogether.
Not that the policy has any significant prospect of fruition. The most influence the Greens could yield in the next parliament is as a band of two or three MPs negotiating with a minority Labour government. The list of policy concessions made by Labour would not be long.