Liberal Democrat leader and Deputy Prime Minister Nick Clegg has called for a fresh tax raid on the rich. Mr Clegg cited the prolonged economic stagnation as a reason to hike taxes further still:
If we want to remain cohesive and prosperous as a society, people of very considerable personal wealth have got to make a bit of an extra contribution. In addition to our standing policy on things like the mansion tax, is there a time-limited contribution you can ask in some way or another from people of considerable wealth so they feel they are making a contribution to the national effort? What we are embarked on is in some senses a longer economic war rather than a short economic battle.
It’s clear that the Deputy Prime Minister just doesn’t get it. Almost everyone is struggling financially and taxed too heavily already, so trying to load a burden on the rich might seem reasonable to people who are rightly angry about how much tax they are lumbered with themselves. But a new, stronger, more powerful dose of fiscal crack cocaine is not the answer to our government’s debilitating tax-and-spend addiction.
Former Labour Chancellor Denis Healey warned successors off the practical difficulties involved with a wealth tax:
We had committed ourselves to a Wealth Tax: but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.
The 2020 Tax Commission’s final report, A Single Income Tax, fully explains (starting on page 323) the overwhelming case against wealth taxes from the unfairness of ‘dry charges’ to the devastating economic impact of ‘capital flight’. Recently, the Irish, Dutch and Italian governments have cited capital flight as a reason why they have all abandoned their plans for wealth taxes. In addition, the report also quotes the Financial Times reporting that the Swedish government’s decision to scrap its wealth tax in 2011 will have almost no effect on its finances because the tax was so damaging to the Swedish economy:
The move will have virtually no effect on government finances. The tax raises around SKr4.5bn a year from just 2.5 per cent of all tax payers, but it has been blamed for years of massive capital flight from the country estimated at up to SKr1,500bn.
Excessive spending and high, complex taxes are the cause of the economic malaise we’re stuck in. More taxes, especially a wealth tax which even Dennis Healey rejected due to its disproportionate economic damage, are not what we need to reinvigorate out economy. We need to simplify and cut taxes to boost our economy and we need to cut spending to close the deficit and pay for the tax cuts we all need.