A new report from the Wealth Tax Commission explains how various wealth taxes could be implemented to bolster UK public coffers ravaged by the pandemic.
Forcing the rich to pay higher taxes on their wealth – especially assets like property and stocks that may increase in value over time – enjoys broad support among the general public. But who is considered rich and how can governments best collect these taxes?
A new report released on Wednesday explains how different types of wealth taxes could help shore up the UK’s coffers as it faces its biggest peacetime deficit.
For example, a single one percent tax charged for five years on individual wealth in excess of £ 500,000 ($ 668,882) would generate £ 260 billion ($ 347.8 billion) in revenue for the UK, according to a report (PDF) by the Independent Wealth Tax Commission.
Raise the threshold to two million pounds, and the proposed tax would produce a much less generous windfall of 80 billion British pounds ($ 107 billion) for the British Treasury.
The threshold of half a million pounds would affect 8,246 people residing in the UK, while the higher bar of two million pounds would impact 626 people.
A key advantage of a one-time wealth tax is that it is more difficult for the wealthy to dodge, since it is based on individual wealth assessed on a given date.
“Well-designed one-off taxes are very difficult to avoid because they are based on behaviors that have already taken place and past values,” the report says.
Unlike a one-off wealth tax, an annual wealth tax would be a permanent part of the UK tax code (unless changed, of course).
The commission estimates that a 0.6% annual wealth tax over two million pounds would raise 10 billion pounds ($ 13.38 billion) after administrative costs.
The report notes several drawbacks to an annual wealth tax, including the higher administrative costs associated with the need to regularly assess individual wealth as well as the ability for people to find solutions.
“Evidence from countries with annual wealth taxes suggests that around 7-17 percent of the original tax base would be lost due to evasion at a 1 percent tax rate,” according to the report.
The committee further indicates that while the objective of an annual wealth tax is to generate more income for the better-off, a new tax is not the solution.
“Existing wealth taxes could simply be adjusted, which would generate more income for wealthy people,” the report said.
However, if the aim of the annual wealth tax is to tackle persistent inequalities by forcing the rich to pay their fair share, then “a wealth tax with a high rate could do that,” the report says. , “But only if avoidance behaviors be minimized.” “