Nick Clegg – Mad, innumerate or desperate?

Nick Clegg, the leader of the Lib Dems and Deputy PM yesterday called for a new “Wealth Tax” so that wicked rich people could “make an extra contribution” during the economic downturn. In an interview with the Guardian, he links his call with the word “fair.” Hmmm. Mad, innumerate or just desperate?

I note that Clegg has not actually put forward a concrete proposal just a general idea. As such it can be dismissed as pre-conference grandstanding and the chances of anything actually happening are pretty much zero. But hypothetically let us humour the guy and assume that it did. Would it a) assist the economy, b) strengthen Government finances or c) be fair? The answer is no on all three counts. As such Clegg is at best economically illiterate and at worst just plain mad. Or perhaps this is a desperate gambit to win back lost voters?

To the economy first. Folks acquire wealth by various means. Sometimes it is inherited (and taxed) and, more often it is built up as a result of the proceeds of investing already taxed income. Either way the principal of a wealth tax is to tax for a second time income that has been reinvested rather than spent. Clegg does not define who he deems as rich enough to pay this tax (odd that) but you can assume that at least some of those folk will decide to put it in a safe place ( a Trust, overseas, etc) where Clegg cannot get at it. At least some folk would decide that the UK is not a place that wants them and leave. Generally people who are wealthy do not become so by paying more tax than they need to. And so will this boost the economy? I very much doubt it. By removing some wealth or wealthy people from the UK it would probably (albeit only marginally) damage it.

Would it strengthen Government finances? This one is easy. No. The actual funds raised would in the greater scheme of things be trivial. It is actually possible that the total tax take would fall if some folks left the UK to avoid wealth taxes and thus stopped paying income tax to the UK, buying VATtable goods, employing staff, etc. Meanwhile the cost of collating relevant information, collecting sums, hiring more IR staff to stop evasion etc would not be trivial. I understand that the Government that includes Clegg is actually increasing its spending year on year and needs to fund that profligacy but this will not work. Clegg might find it more productive to look at that profligacy.

And finally is this fair? Here I revert to Clegg’s colleague Susan Kramer who noted “no one in society must be given a “free ride” from paying their fair share of tax.” This rather says it all. The implicit assumption from these folks is that it is always “fair” for the rich to hand over more and more of their cash to the State.
Why is it fair? Do Kramer/Clegg think that the State has a moral right to decide how cash earned as the result of productive labour is spent rather than allowing the person who engaged in that labour/took the risk of reinvesting the already taxed fruits of that labour to decide how it is spent?

The rich already pay more tax than the poor via higher marginal rates and of course in absolute terms. The implicit assumption of Clegg etc is that ever increased taxes on the rich is always fair? Do they have a limit on how much taxes can be increased before it stops being “fair” or do they think that they rich should always pay more? And then more again.

So at a theoretical level what they suggest is poppycock. At a practical level I offer up the idea of a widow left with a minimal income but living in a very large house as a result of her husband’s toiling and decision to invest the proceeds rather than spend it on cocaine and loose ladies. She is wealthy but poor (in income terms). Should she be forced to pay a wealth tax (like the Lib Dems beloved but thankfully aborted Mansion Tax) she would have no option but to sell the house in which she hoped to die. I accept that this is an extreme example but it is one that shows how any wealth tax can in fact be extremely unfair. And it is not me who is arguing for such a tax on the basis of being “fair.”

The imposition of any new tax will distort the way in which any economy operates. One that targets the wealthy will penalise those only just in the category (at whatever threshold Clegg would decide was a “fair” threshold) as they would struggle to avoid it. The super wealthy would as ever avoid it. “Taxes are for little people.” Clegg is clearly desperate to suggest such half baked nonsense. If he actually believes what he is saying he is either innumerate or mad. Or plausibly both.