October 27th Lunchtime: The Recession Diaries
If there’s one country where ‘tax’ is an even dirtier word than in Ireland, its the good ‘ol USA. To argue for higher taxes in Omaha is no more popular than in Artane. And, yet, America is about to elect a politician whose platform calls for higher taxes on wealthy individuals and businesses - using income and corporation tax, and social security levies. So why can’t the Left argue that here?It gets weirder. Donald Trump is probably not a very pleasant human being. He is an icon of the vulgar rich. I had the misfortune to read one of his books in which he said that people who aspired to make a million dollars a year were wimps and girlie-men; real men want to make a €100 million. My mother taught me there is some good in everyone. My mother never met Donald Trump.
So imagine my shock when I came across The Donald’s (that’s what he goes by) tax proposals. When he was considering running for the Reform Party in 2000 he set a truly radical idea:
‘I would impose a one-time, 14.25% tax on individuals and trusts with a net worth over $10 million. For individuals, net worth would be calculated minus the value of their principal residence. That would raise $5.7 trillion in new revenue, which we would use to pay off the entire national debt and shore up the Social Security Trust Fund . . . Some will say that my plan is unfair to the extremely wealthy. I say it is only reasonable to shift the burden to those most able to pay.’
Holy moly - Donald Trump, tax prophet and redistributor (yes, he did propose abolishing inheritance tax but he opposed the Flat Tax because he thought it ‘unfair to the poor’ and too beneficial to the wealthy; he also said he avoided sales tax: I suppose he gets his minions to do his shopping). Being a born-again Trump-ite, I started working out how much a one-off capital assets tax would get us here. The numbers are quite sobering.
My first stop was the bible of the vulgar rich - the Bank of Ireland’s Private Banking report, ‘The Wealth of the Nation.’ Here’s some quick facts, all in 2006 figures:
- All Irish households own a massive €840 billion (that’s net, after liabilities)
- The top 5 percent own 40 percent of all wealth - or €336 billion.
- The top 5 percent is equivalent to 75,000 households - an average asset holding of €4.3 million.
So what are we asking these 75,000 households to cough up? Let’s say we exempt the first €1 million in assets. Variations on The Donald’s proposals would give us the following:
- Pure Trump Rate (14.25 percent): €48 billion
- Half the Trump Rate (a wimpy 7 percent): €23 billion
- A Low Trump Rate (a really wimpy 5 percent): €16.8 billion
So, a one-off capital assets tax could bring in some serious coin. Would this new burden decimate the living standards of the super-rich? Let’s go with the wimpy 7 percent (I doubt the Irish nation is ready for full-blown Trumpism) to be paid over a seven-year period. This would mean an average tax bill of €43,800 per year.
Now if I had €4.3 million in assets, I’d swallow hard and do my patriotic duty. After all a capital assets tax bill would only amount to 1 percent of my total assets on a temporary basis. Of course, critics would argue that this could put the economy at risk - the wealthy would flee or liquefy productive assets or postpone productive investments. While one cannot totally dismiss these objections, we should put some of them in perspective. Most wealthy people do not act like tax tourists - they live in their home; and if they want to change the tax code to make it more favourable for them they just contribute to Fianna Fail or Fine Gael.
As to liquefying productive assets, we should note that industry sources estimate that there are between 150,000 and 250,000 Irish-owned foreign properties. If we take the average price of an Irish-owned foreign property (as estimated by OPP Knowledge and Datamonitor) as €92,000, there are holdings potentially worth between €14 billion and €23 billion. This shouldn’t be too surprising given that finfacts.com is constantly reminding us of the amount of money that has flowed into overseas property over the last few years. So, there’s a lot of assets to liquefy before you get to ‘productive’ assets (or, do you really need that third home in St. Tropez?).
Any assets tax would need to take account of the impact on the economy. Which is why it would specifically exclude ‘productive’ assets. However, given that our homegrown rich have been making it primarily in property, that shouldn’t hit the tax base too much.
This is only an exercise but it does show two things:
- First, there is considerable scope for buttressing our public finances if we actually identify the real deposits of wealth
- Second, taxes on wealth, not income, are where the real action is. An additional 1% levy on incomes above €100,000, will get you about €120 million a year. A wimpy capital assets tax will get you a factor of several times that.
As for The Donald - I finally can avail of my mother’s advice: a good idea is a good idea.
Discussion
We welcome and encourage lively discussion from the public about articles on Irish Left Review. You can leave a comment using the form at the bottom of the page. Please read through the existing comments before posting your own.