IF it moves, tax it; if it doesn’t, subsidise it; and above all make sure the tax system is as complicated as possible. That, and a nasty dose of class war and anti-finance prejudice, has become the new modus operandi for many in Britain and Europe. As a result, yesterday was one of the worst days in a long time for those of us who believe that lower and simpler taxes are key to rescuing Western nations from long-term decline.
From Brussels, we got the latest plans for a Tobin tax on financial transactions. They are even more destructive than previously thought and were rightly attacked by Barack Obama’s administration and the UK government. The big problem – apart from the fact that those who will pay the tax are investors via reduced returns, companies via a higher cost of capital and the workers who suffer as a consequence -- is that they are outrageously extra-territorial, make a mockery of the single market, and are a threat to global free trade and capital flows. A transaction will be hit regardless of where it takes place, as long as it involves a financial instrument eligible to be taxed issued in one of the 11 countries stupid enough to back the tax. Jobs will be lost in London and New York; Brussels is delusional if it thinks the tax will rise tens of billions, and even more so if it thinks this money will be a free lunch. The European Commission’s own cost-benefit analysis showed that the tax would have hugely negative side-effects.
From Ed Miliband and Ed Balls, we got a proposal for a partial reintroduction of a 10p starting rate of income tax over a very narrow range of income, to be funded by a “mansion tax”. I’m very much in favour of cutting tax on the working poor, who are being horribly squeezed by falling real wages – but the best way to do it is to increase the personal allowance, not to introduce yet another band in our overly-complex tax system. Regrettably, the Tories will presumably pre-emptively adopt it. To keep the “cost” of the measure low, and to make sure the “rich” don’t benefit, we are likely to see yet another lowering of the 40p threshold, dragging more people into the net. Those of us who believe in flatter and simpler taxes have been roundly defeated.
As to the mansion tax, it represents a return to the politics of envy of the ugliest kind. It demonises those who have done well in life. It would reopen property rights and implies that even though tax is payable on income, and stamp duty payable on house purchases, and inheritance tax payable at death, the British now believe that a hefty annual fee should also be necessary to have the right to own an expensive home.
It would require the revaluation of all homes, leading to higher council tax for hundreds of thousands. Absurdities abound: some would pay over 100 per cent tax on their income; cash-poor pensioners would be forced to extract equity or sell-up (or if the tax were deferred, fork out even more inheritance tax); someone with ten £1.9m homes and no mortgages would pay nothing but someone with one £2.1m home and a £2.3m mortgage would be hit; and so on.
The only way to salvage this awful scheme would then be to impose a fully-fledged wealth tax on all assets, with disastrous consequences. Slowly but surely, the definition of a “rich” person would be broadened. Every nation that has ever tried a wealth tax – from France to Sweden – has faced an exodus of capital and talent. The poor, who get left behind, always suffer the most. Taxing the rich until the pips squeak always means less growth, investment and jobs for the rest of us. Shame nobody ever learns.