Nation of Beancounters

An excellent argument against a wealth tax to pay off national debt

Posted in Explained from Scratch by Navin Kumar on April 22, 2012

From Tim Worstall, who considers the impact of a 20% tax on the top 10%:

What actually happens? We’ve calculated the tax bills, sent them out and then they must, obviously, sell some portion of their wealth in order raise the cash to give to HMRC. For HMRC certainly doesn’t want to be paid in paintings that go to the National Gallery, that doesn’t reduce the national debt, does it? Nor houses in Belgravia: we’re not going to turn them into council houses and even that wouldn’t reduce the national debt.

Sell them to whom?

We’ve got the top 10% of the wealth holders all trying to liquidate 20% of their wealth at the same time. So no wealthy person will be a buyer of any of these assets. And we can’t expect the 90% of the country to buy them as by definition they’re the people without enough wealth to buy them in the first place.

So prices of top end assets tumble: leading to one of two things. People have to keep liqudating assets to meet that 20% charge on the pre-tumbling asset prices. This will obviously just continue and destroy the value of many of the assets. That wealth that we’re trying to tax disappears into hte mists as market prices fall. Which doesn’t really get us anywhere.

The other is that people are indeed able to pay their taxes in kind, can hand over a house or a painting to HMRC to avoid this problem. But then as HMRC tries to liquidate the same thing happens. And if they don’t liquidate then of course we’ve not paid off any of the national debt.

A wealth tax of 1%, 2%, avoids all of these problems as it doesn’t swamp the market for these assets. But a wealth tax of that level doesn’t pay off the national debt either.

So it simply will not work.

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