Wealth taxes add enormous economic complexity and collect little

Patslatt1

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See Subscriber Only: David McWilliams: Wealth tax for Irish ultra-rich makes sense
Valuations of businesses for wealth taxes are a moving target, often a fast moving target in the most dynamic economic regions. For proper valuations, the services of investment bankers charging six figure salaries plus markups are needed,not the local tax accountants. In practice, given the scope for appeals, governments accept very low valuations.
Business securities that are traded in public markets present ready made valuations in market prices. But a significant wealth tax would incentivise privatisation of the securities to cloud valuations,privatising through management buyouts and private equity deals. In recent decades, falling interest rates have accelerated the growth of private equity funds that use heavy borrowing to buy out public companies, often with disruptive effects on jobs from ruthless cost cutting.
Foreign investment in third world countries with opaque accounting would be another way of clouding valuations.
For the very rich, investing in hard to value art and collectibles would become even more attractive but would not be good for economic growth. Someone visiting Imelda Marcos,wife of the former Phillipines president, noticed that her apartment walls in Switzerland were covered in extremely expensive Impressionist paintings. Again, governments accept low valuations.
Many European countries have abandoned wealth taxes because of their inefficiency and red tape, presumably when envy of the rich abated.
An effective wealth tax is the capital gains tax which in Ireland is the highest in the EU at 33%. Countries thinking of introducing wealth tax should simply raise the CG tax instead. But they should research the dampening effects on economic growth. After Germany introduced a CG tax in the 1970s, its economic growth slowed considerably, possibly due to the tax.
 


Watcher2

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We have wealth taxes, they are called something else - property tax, stamp duty, capital gains tax, capital acquisition tax/inheritance tax. Share options are taxed under PAYE.
 

Lumpy Talbot

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No
I'd prefer we went after the rule that if you live in a country you must contribute to it.

It is the ones who pay nothing at all and still access services, drive on roads they don't contribute to, under streetlights they don't contribute to, and where there is an accident or emergency still expect to access services that everyone else pays for.

There are some cardinal rules of taxation which have been conveniently forgotten when it comes to wealthy and their imaginative accountants- that taxation should be equitable and be seen to be equitable and that is not the case with the wealthy who can manipulate their tax affairs down to the minimum.

The same goes for corporations who claim back what little tax they do actually pay, make constant demands for infrastructure paid for by the taxpayer and are effectively warehousing an employment scheme through their books so that they can make those demands.
 

Lumpy Talbot

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No
The only reason wealth taxes are complex is because such people employ accountants specifically to add complexity.

Tax massaging is cannibalising onshore economies, whether it is corporations able to avoid tax altogether or the wealthy shareholders and officers of those corporations avoiding tax.

For example there is the new game of securitisation of pharma royalties where a load of private equity investors can now buy into the pharma royalties sector via a special purpose vehicle established in Dublin and pay zero tax on any profits arising.

That would be US investors mostly, warehousing investments through a Dublin special purpose vehicle which actually produce nothing for any onshore jurisdiction except non-taxable investments for foreign investors. The Irish exchequer gets nothing out of it.

Except a round of applause from very wealthy tax avoiders.
 

wombat

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There are some cardinal rules of taxation which have been conveniently forgotten when it comes to wealthy and their imaginative accountants- that taxation should be equitable and be seen to be equitable and that is not the case with the wealthy who can manipulate their tax affairs down
Taxation has to be effective and raise the expected revenue. The problem with wealth taxes is that they are either avoided by the rich or have unintended consequences. Interesting that Irish socialists oppose property taxes.
 

Watcher2

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I'd prefer we went after the rule that if you live in a country you must contribute to it.

It is the ones who pay nothing at all and still access services, drive on roads they don't contribute to, under streetlights they don't contribute to, and where there is an accident or emergency still expect to access services that everyone else pays for.

There are some cardinal rules of taxation which have been conveniently forgotten when it comes to wealthy and their imaginative accountants- that taxation should be equitable and be seen to be equitable and that is not the case with the wealthy who can manipulate their tax affairs down to the minimum.

The same goes for corporations who claim back what little tax they do actually pay, make constant demands for infrastructure paid for by the taxpayer and are effectively warehousing an employment scheme through their books so that they can make those demands.
I agree with you to a degree but I think you are leaving some things out. Companies pay rates which is supposed to go toward local infrastructure. Corporation taxes are calculated on business profits which allow for costs and expenses to be written off against those taxes and are the same for the large multinationals operating on this Island as they are for the small "main street" business (profit shifting to no tax or stateless jurisdictions aside (which are now outlawed anyway)). For wealthy individuals, tax allowances are given as an encouragement to invest in areas deemed worthy and beneficial to the country (business investment schemes for instance).

Its not perfect but only a tiny portion of the country pay zero tax. Are there figures around how much is foregone by the zero tax payers?
 

Lumpy Talbot

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Property is the main asset in Ireland, whether the loan on it is paid off or not. You get figures these days claiming there are hundreds if not thousands of multi-millionaires in Ireland.

Never mentioning the loan data outstanding on those 'assets'. All part of the push to get people to believe they can borrow their way to wealth.
 

Lumpy Talbot

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I agree with you to a degree but I think you are leaving some things out. Companies pay rates which is supposed to go toward local infrastructure. Corporation taxes are calculated on business profits which allow for costs and expenses to be written off against those taxes and are the same for the large multinationals operating on this Island as they are for the small "main street" business (profit shifting to no tax or stateless jurisdictions aside (which are now outlawed anyway)). For wealthy individuals, tax allowances are given as an encouragement to invest in areas deemed worthy and beneficial to the country (business investment schemes for instance).

Its not perfect but only a tiny portion of the country pay zero tax. Are there figures around how much is foregone by the zero tax payers?
Very unlikely to see any such data. The best you'll see is 'the wealthiest people and corporations pay x amount each year' while carefully avoiding any mention of how much of that tax is reclaimed after the end of any given year.

It is the reclaimed taxation taken off that data that is the real income figure from that group.
 

Watcher2

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Very unlikely to see any such data. The best you'll see is 'the wealthiest people and corporations pay x amount each year' while carefully avoiding any mention of how much of that tax is reclaimed after the end of any given year.

It is the reclaimed taxation taken off that data that is the real income figure from that group.
On tax reclamation, I agree, however, I do remember seeing a figure like X number pay no tax.
 

Disillusioned democrat

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I think it's fair to say complex wealth taxes add economic complexity and the reality is that our government, and most governments in so-called democracies seem to make any form of wealth tax complex and in many cases avoidable with the right advice.

I have to admit that over the past decade I've been ground down by the glaring inequity of the recovery and have little faith any longer in our democracy. PAYE workers are sheared every month, but the mega wealthy - those canny investors in REITs and facilities management companies, bankers, developers and legal professionals seem to have recovered unscathed.

How about a new 50% VAT rate on luxury cars? Nice and simple, not complex at all. How about 100% VAT rate on foreign travel (it would be reclaimable if it was genuine business travel? How about we tax inheritance as income - again very simple, but our "democrats" would run a mile from such an idea that would benefit the vast majority of people.
 

Watcher2

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I think it's fair to say complex wealth taxes add economic complexity and the reality is that our government, and most governments in so-called democracies seem to make any form of wealth tax complex and in many cases avoidable with the right advice.

I have to admit that over the past decade I've been ground down by the glaring inequity of the recovery and have little faith any longer in our democracy. PAYE workers are sheared every month, but the mega wealthy - those canny investors in REITs and facilities management companies, bankers, developers and legal professionals seem to have recovered unscathed.

How about a new 50% VAT rate on luxury cars? Nice and simple, not complex at all. How about 100% VAT rate on foreign travel (it would be reclaimable if it was genuine business travel? How about we tax inheritance as income - again very simple, but our "democrats" would run a mile from such an idea that would benefit the vast majority of people.
I was with you until your last paragraph which is simply ridiculous. You do realised that luxury cars are expensive and therefore 23% (VAT) + 25%+ (VRT) in nominal terms is far higher than those rates on your average car? Therefore, the buyers of luxury cars are already paying more nominally on their purchases.

As for foreign travel, do you think only wealthy people fly to other countries?
 

Orbit v2

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I suspect there is a reasonable correlation between income and wealth, and as we all know the vast majority of tax is paid by high income earners. That said, there is a strong case in principle for wealth taxes. The most comfortable off in society are often retirees who aren't necessarily earning a huge income, but can still have a huge pot of wealth at their disposal. So, in principle, the idea of a wealth tax makes some sense if it could be used to reduce the burden of income taxes on middle income earners who often are struggling financially, despite having a reasonable income.

The trouble of course is the practical problems. The cost of complying and the possibilities for avoidance mainly. I think wealth taxes are probably inevitable, but without coordination across many countries at the same time, they won't happen.

The temptation also to only go after the super rich would be a problem. Effective and just taxes should be as broadly based as possible. In other words, if a wealth tax is brought it, everyone should be subject to it not just the super rich (who will still pay the lion's share of it anyway).
 

Lumpy Talbot

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I suspect there is a reasonable correlation between income and wealth, and as we all know the vast majority of tax is paid by high income earners. That said, there is a strong case in principle for wealth taxes. The most comfortable off in society are often retirees who aren't necessarily earning a huge income, but can still have a huge pot of wealth at their disposal. So, in principle, the idea of a wealth tax makes some sense if it could be used to reduce the burden of income taxes on middle income earners who often are struggling financially, despite having a reasonable income.

The trouble of course is the practical problems. The cost of complying and the possibilities for avoidance mainly. I think wealth taxes are probably inevitable, but without coordination across many countries at the same time, they won't happen.

The temptation also to only go after the super rich would be a problem. Effective and just taxes should be as broadly based as possible. In other words, if a wealth tax is brought it, everyone should be subject to it not just the super rich (who will still pay the lion's share of it anyway).
We 'know' no such thing. The vast majority of tax due from high earners is either avoided or reclaimed.

The headline theory is fine. The actual practice is far different.
 

Disillusioned democrat

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I was with you until your last paragraph which is simply ridiculous. You do realised that luxury cars are expensive and therefore 23% (VAT) + 25%+ (VRT) in nominal terms is far higher than those rates on your average car? Therefore, the buyers of luxury cars are already paying more nominally on their purchases.

As for foreign travel, do you think only wealthy people fly to other countries?
So you agree with wealth tax, just not ones you'll have to pay?

So if we're going to implement a simple wealth tax what could be simpler than sticking€50k more on a Range Rover or 7 Series BMW?
 

Orbit v2

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We 'know' no such thing. The vast majority of tax due from high earners is either avoided or reclaimed.
There's two different points here:

1) The vast majority of income tax is paid by high earners. That is an indisputable fact

  • Top 1% of earners, earned over €200,000 in income and paid 20% of personal tax.
  • Top 5% of earners, earned over €100,000 in income and paid 40% of personal tax.
  • Top 23% of earners, earned earn over €50,000 in income and paid 77% of personal tax.
  • Bottom 77% of earners, earned less than €50,000 in income and paid 23% of personal tax.
2) Are the highest earners paying tax on all their income? The top 1% probably are not, but they are availing of tax shelters that are legal. I've no issue with closing of tax loopholes, but in many cases they were put in place for sound reasons; generally to encourage investment in specific areas of the economy.
 

Watcher2

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So you agree with wealth tax, just not ones you'll have to pay?

So if we're going to implement a simple wealth tax what could be simpler than sticking€50k more on a Range Rover or 7 Series BMW?
I dont drive a range rover or bmw nor do I travel abroad very often. Last time I flew anywhere for personal reasons was 15 months ago. Before that was 2015. I have never inherited anything. So its not about me as you suggest.

Like i said, we already have wealth taxes in this country. But at least one of your suggestions is not a wealth tax. Plenty non wealthy people travel abroad and you propose to penalise them. Plus, VAT and VRT on luxury cars already has the effect you are suggesting.

How many range rovers and 7 series are company cars? So you're silver bullet misses the target far more than I think you believe.

And, No, I dont agree with a "wealth tax". We already have wealth taxes. I agree they should be levied but I dont believe we shoud dream up any more.
 

wombat

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The problem with raising tax on something like luxury cars is that it will have the effect of diminishing returns. Its an effective way of getting people to switch to smaller cars, which I think is a good idea, but it won't raise the expected revenue. The only wealth tax that is hard to avoid is a property tax because property can't be moved but there are too many exemptions available to property owners.
 

Lumpy Talbot

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No
There's two different points here:

1) The vast majority of income tax is paid by high earners. That is an indisputable fact



2) Are the highest earners paying tax on all their income? The top 1% probably are not, but they are availing of tax shelters that are legal. I've no issue with closing of tax loopholes, but in many cases they were put in place for sound reasons; generally to encourage investment in specific areas of the economy.
That is not 'indisputable fact'. It is an ongoing con.

How it works is that lobbyists for this sector simply come up with a 'provisional' figure for tax income from that section of the community as if they were all paying tax at the higher levels and never, ever look at how much that cohort claim back.

If tax loopholes are created in order to increase investment in an economy, then why are many of the tax loopholes irretrievably tied in with 'offshore' investment funds?

The PAYE sector are the only sector which gets their tax deducted at source. The wealthy individual and corporations have the advantage of manipulating their income largely to ensure that the portion of their incomes on which they are due to pay tax is minimised at all times.
 

Patslatt1

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We have wealth taxes, they are called something else - property tax, stamp duty, capital gains tax, capital acquisition tax/inheritance tax. Share options are taxed under PAYE.
CG tax is based on actual selling price of assets and avoids hugely complicated business valuations in wealth tax.
Property tax is efficient because immovable property can't easily avoid the tax, being stuck in place. Also, the monopolistic profits that many properties enjoy in growing urban areas can be taxed without loss of economic efficiency. In Ireland, valuations of housing are made difficult by the great variations in styles and designs.
 

A Voice

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I'd prefer we went after the rule that if you live in a country you must contribute to it.

It is the ones who pay nothing at all and still access services, drive on roads they don't contribute to, under streetlights they don't contribute to, and where there is an accident or emergency still expect to access services that everyone else pays for.

There are some cardinal rules of taxation which have been conveniently forgotten when it comes to wealthy and their imaginative accountants- that taxation should be equitable and be seen to be equitable and that is not the case with the wealthy who can manipulate their tax affairs down to the minimum.

The same goes for corporations who claim back what little tax they do actually pay, make constant demands for infrastructure paid for by the taxpayer and are effectively warehousing an employment scheme through their books so that they can make those demands.
So low-income workers outside the tax net should cough up some tax?
 


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