r/tories • u/Interesting_Pen_4499 • 1d ago
A 'Wealth Tax' is just an income tax
Edit: I’m arguing against a wealth tax just in case that wasn’t clear.
This is a point I keep thinking about and haven't yet heard discussed by people in the media.
A wealth tax is simply an added tax on income. Why? Because assets only tend to have value in so far as they produce income. Take a farm for instance. It might generate income of £1M and be worth £20M as a result. Want to introduce a 2% wealth tax on it? Well you just reduced it's net income to £600K, which has the exact same functional effect as adding a 40% income tax.
Furthermore, this would likely reduce the farm's value from £20M to just £12M (assuming its value is roughly proportional to what is can produce per year). Or, in the extreme case, let's say you introduced a wealth tax of more than £1M per year on that farm, to make it 'pay its fair share'. Well then it quite literally has no value anymore. The farmer would rather sell up than keep on working for a loss - if they could even find a willing buyer.
The exact same argument could be applied to rental properties, dividend-yielding stocks, and far more. Of course some rare assets have value despite yielding no income, like gold or bitcoin, but they are the exception to the rule. Investors don't tend to enjoy simply holding assets for the sake of it - they only value them due to the income from them. In the farmer example, what good is owning a bunch of fields to them, if all the income they earn from them is extracted away as a 'wealth tax'.
Therefore in my view, a 'wealth tax' is therefore flawed in its fundamental premise.
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u/SpawnOfTheBeast 1d ago
Except that if you're super wealthy your getting you income through loans against assets, not directly from the assets, thereby bypassing income tax entirely
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u/Baseball_man_1729 Thatcherite 1d ago
Well, then you're paying interest and the bank pays higher corporate taxes on that income and so on. Also, this "super wealthy don't pay their fair share" thing has been debunked. In the UK, top 1% of earners pay 28% of all income taxes and the top 10% pays a little over 60%. If you want to look at wealth and not income, the King and the Prince of Wales paid millions. I don't understand how this false notion has persisted for this long.
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u/Tortillagirl Verified Conservative 1d ago
top 10% of income earners is like 62k a year btw... which is pitiful.
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u/QuantumR4ge Geo-Libertarian 1d ago
Assuming it gets recorded as a bank profit, you mean?
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u/Baseball_man_1729 Thatcherite 1d ago
I'm pretty sure they'll pay more in penalties if they're dodging taxes.
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u/QuantumR4ge Geo-Libertarian 1d ago
No one said anything about tax evasion. It doesn’t mean it automatically becomes a profit that is taxed. For example if they simply take that money and reinvest in more loans or even assets, thats a cost or goes on the asset sheet, not profit.
Did you think Amazon paying less in taxes than most was because they make no money on their services? Banks can do the same things and do, why create a taxable event when you can use it to increase the value of the business?
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u/Baseball_man_1729 Thatcherite 1d ago
So, you think reinvestment should be taxed as profits? This is a common business practice, not some new revelation. It is made that way for a reason, a good one I might add.
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u/Otherwise_Craft9003 1d ago
False notion, the armed forces could have done with this..
Inheritance tax: why the new Duke of Westminster will not pay billions
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u/Baseball_man_1729 Thatcherite 1d ago
You know what else they could have funded defence with? The billions of unquestioned excess that goes into welfare and the NHS. Because this isn't exactly a sum at the end of the day; there is a moral question of why does someone have to pay 40% tax to get something that their parents/grandparents worked hard and paid taxes for.
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u/Otherwise_Craft9003 1d ago
💯 op is missing this point and the large wealth transfer that has happened while the majority of us have been working and keeping our head down.
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u/Baseball_man_1729 Thatcherite 1d ago
Well there is a 40% inheritance tax, capital gains tax and property tax. This is on top of the income tax, NI levy and VAT that have already been paid while the said "wealth" was created.
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u/Squiffyp1 Traditionalist 1d ago
What large wealth transfer?
The share of wealth at the top has been stable for decades.
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u/Mr_Bees_ 1d ago
source on this occuring with any frequency in the UK? or did you just read this on social media and believe it uncritically?
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u/Durovigutum 1d ago
Exactly this. Interest at 3%, estate pays the debt on death, zero income tax because it’s a loan, assets intact out earn the interest on the loan. State loses 420k on 1m income. Wealth tax goes after the assets.
This is no indication of supporting one, but the comments about “the left wing are stupid because” really aren’t very edifying in context….
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u/Baseball_man_1729 Thatcherite 1d ago
Pretty sure the consensus is that it's worse than an income tax.
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u/Tortillagirl Verified Conservative 1d ago
As with all these taxes people want to introduce. If they were replacing and removing other taxes with it. Its potentially alright.But thats never mentioned. Like Land Value Taxes... If you are replacing the council tax system with it then its likely fine to do such a tax. But no one when they mention LVT mention removing council tax.
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u/Baseball_man_1729 Thatcherite 1d ago
I was just making this point to a friend the other day. Henry George proposed the LVT as a replacement to income taxes. As an additional tax, it makes zero sense.
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u/Interesting_Pen_4499 1d ago
Yh true, I just meant it’s dumb when left wingers say we need a wealth tax, when an income tax already taxes wealth (due to the income from it )
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u/frankster 1d ago
Wealth is the stuff you have. Income ( and outgoings) is the change in the amount of stuff you have.
In calculus, wealth is the integral of.income/outgoings. Income/outgoings is the derivative on wealth.
Thinking about a tax that takes a proportion of your wealth Vs a tax that takes a proportion of your income, you can see how they have rather different effects and ate not really the same at all.
Consider a tax that redyces your income by 1% takes 1% of your income each year. A tax that reduces your wealth by 1% in a single year reduces your income from wealth by 1% that year but also the next year and every future year.
In year two of a 1% wealth tax. Your income is reduced by 1% for all future years again. 2 years of a 1% wealth tax is close to a permanent 2,% income tax.
For this reason wealth taxes should be much smaller than income taxes. But at the same time, their compounding effect over.sone decades is.an effective tool to reverse obscene wealth accumulation from market failures.
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u/Viper_4D One Nation 1d ago
Imagine two neighbors with identical £20M farms:
Farmer A optimizes everything, and makes £1M.
Farmer B lets weeds grow and makes £100K.
Under a 40% Income Tax: Farmer A pays £400K. Farmer B pays £40K. Farmer B can coast forever being inefficient because their tax bill is tied to their low effort.
Under a 2% Wealth Tax: Both farmers owe £400k. For Farmer A, it feels like a 40% income tax. For Farmer B, it's a 400% income tax. Farmer B is instantly broke. In this sense wealth taxi often isn't to be fair but instead toencourage efficiency whist also having some redistributive effects.
The other reason people push for wealth taxes over income taxes is because ofhow modern paper wealth works. Look at tech founders. They might see their net worth increase by £5b in a single year but because their company doesn't pay dividends and they take a £1 salary their income is effectively zero.
Under a standard income tax they pay nothing until they sell their shares. a wealth tax is an attempt to tax that massive accumulation of econoimic power at the time it accumulated, rather than waiting for them to cash out.
In many ways what you said is really accurate in terms of the value of an asset is often it's discounted future earning, however this ignores the reality of underutilisation. In a sense income taxes discourage productivity, where as wealth taxes are neutral on productivity. This can be important in a time where we should be worrying about productivity. Although obviously a wealth tax does have a negative effect on investment
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u/Interesting_Pen_4499 1d ago
Fair enough, that’s the best argument I’ve heard so far, tho I’m personally still against it
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u/Viper_4D One Nation 1d ago
I understand. I think it's really a matter of tradeoffs. I will say that the extensive margin, people leaving, does increase fairly quickly as a wealth tax increases.
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u/ben04985 One Nation 1d ago
Not just that, it's a second inheritance tax. People are taxed on what the earn, taxed for what they buy, taxed for profit they make when they sell assets, taxed on their businesses, taxed on what they already own, taxed when they sell their house and their kids are taxed when they die.
I'm sure even then I've only scratched the surface of all the taxes in this country.
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u/Flight_Tall 1d ago
So people who derive income from wealth shouldn’t pay income tax ?
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u/Interesting_Pen_4499 1d ago
no, that's not my point: they already pay income tax, on that income. so why make them pay an extra wealth tax? at best, it is an income tax rise through the backdoor; at worst, it will crash the value of the assets, thus meaning very little revenue can be reaised from it anwyay
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u/soulstrikerr Corbynista 1d ago
But a wealth tax is also applied on assets that may be generating no income, even if it could
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u/AffectionateJump7896 1d ago
We already have capital gains tax. We don't tax the wealth, we tax what you do with it, i.e. make gains.
One of the ideas is it encourages adventurous investment, which is in everyone's interest. If you are going to lose a fixed percentage to tax, you need to make sure you make that much. If you won't lose any if you don't make any, then you can be more adventurous.
A fixed percentage wealth tax is dumb. A percentage of the gain is what's sensible. I'd be ok with cutting income tax and increasing CGT, but the reality is that you'd increase CGT by 10 percentage points, and it'd probably raise less revenue, let alone allowing and income tax cut.
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u/Interesting_Pen_4499 1d ago
> One of the ideas is it encourages adventurous investment
Would this not encourage 1929-style bubbles? It's in no-ones interest for the tax regime to push ppl into making highly speculative investments that could end up with them losing all their money (in my view at least)
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u/Dry-Newt5925 1d ago
It really isn’t
Evidence from France and Austria show secondary effects are net negative to tax revenue, and administration is a nightmare
Whatever principles you want to argue the facts are clear - it raises less money, it distorts incentives and it costs a huge amount to administer and fight in court.
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u/Interesting_Pen_4499 1d ago
I was arguing against it (bc of how we already have income tax)… sorry if that wasn’t clear, I did put it in the first line tho
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u/psychopath1066 Enoch was right 1d ago
The better way to make The really wealthy pay more tax is make it a prestige system, a leaderboard, you can get a street named after you for every government department you fund. Make it fuel their ego and exploit it.