Championing the Affluent

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The affluent are blessed in their champions.  They have a myriad of commentators fighting their corner.  In the Sunday Independent Colm McCarthy, discussing the benefits or otherwise of a third tax rate on high incomes, stated:

‘In order to raise meaningful amounts, it (the threshold to enter the third rate of tax) cannot be pitched at a level much higher than the €100,000 indicated, but that pulls into the high-tax bracket many people who do not consider themselves exceptionally well-off.’

€100,000 not exceptionally well-off?  Ok, maybe, but they certainly are ‘well-off’; very well-off.  In fact, they are in the top 3 percent of income earners in the state.  If these high-earners don’t consider themselves exceptionally well-off, what would they think if they were part of the 50 percent of income taxpayers who earn below €29,000 a year?  Or the 25 percent of the population who live in official deprivation.

These kinds of comments are part of the don’t-tax-high-earners-too-much-because-then-they-will-leave-in-a-tax-huff argument.  Thomas Molly, writing in the same newspaper, puts it this way when discussing the wealth tax:

‘Any other sort of wealth tax is likely to bring in very little money as the cash moves overseas at warp speed but is guaranteed to scare away many of the people who create wealth and jobs in our society.’

Ah, tax flight – the phenomenon whereby high taxation causes people to leave the jurisdiction.  How valid is this?  Not very.  The US is a good place to study.  Individual states can set their own income and wealth taxes in addition to Federal taxes.  And moving from one state to the next is not nearly as challenging as moving from one EU country to the next.  So what happens when states like Maryland or New Jersey or Oregon raised taxes on the highest income groups?  This study – ‘Tax Flight is a Myth’– found:

‘Attacks on sorely-needed increases in state tax revenues often include the unproven claim that tax hikes will drive large numbers of households — particularly the most affluent — to other states. The same claim also is used to justify new tax cuts. Compelling evidence shows that this claim is false. The effects of tax increases on migration are, at most, small — so small that states that raise income taxes on the most affluent households can be assured of a substantial net gain in revenue.’

In a study from the Institute on Taxation and Economic Policy, the impact of the Maryland’s ‘millionaire tax’ was assessed in depth.  It was claimed that this tax meant that millionaires were fleeing the state, thereby undermining the tax base.  It turned out not to be true.  Yes, there was a decline in millionaires but this decline was the result of a drop in incomes largely attributable to the stock market fall and recession, and not to migration.

Closer to our European home, the Wall Street Journal – not noted for its high-tax editorial line – reported on a Lloyd TSB study which assessed why affluent Britons were leaving (it was estimated that one-in-five were considering leaving over the next two years).  Tories, of course, blamed the 50 percent tax rate.  But the study found otherwise.  According to the Wall Street report:

‘The top reason that the study group gave for leaving were crime and “anti-social behavior.” About the same number, however, cited the British weather as the top reason for leaving . . . When asked what would make the U.K. a better place to live, most cited infrastructure spending. That was followed by “cutting red tape for business.” Cutting taxes got about the same number of votes as “improving public services like healthcare, education and the police. In other words, the affluent want more government services not less. And taxes were a relatively minor concern in their decision to move.’

But what’s fascinating about this report is where these affluent Britons plan to move.  The top destination is France.  Yes, France, home of the wealth tax and the 75 percent tax rate on high incomes.

So this brings us back to the issue of tax increases on high income and wealth groups.  If a wealth tax wouldn’t impact on migration, would it be worth the effort? The Minister for Finance claimed that a wealth tax, modelled on the French one, would bring in between €400 and €500 million.  That’s a nice little sum.

Dr. Tom McDonnell over at the Nevin Economic Research Institute has produced the most comprehensive and detailed study of a wealth tax in Ireland.  He estimated that a modest tax of 0.6 percent would raise €150 million.  If this rate were doubled – to bring it in line with the French model – it would raise something closer to the Minister’s estimate.

How much a wealth tax would raise depends on thresholds (e.g. taxing assets above €1 million), the exemptions and reliefs (for businesses, farmland) and the total amount of assets in the economy.  This is all up for debate.   But we should debate this without unsubstantiated claims that the rich would flee.  Or this curious claim from Molloy:

‘A wealth tax pre-supposes that we start living in the sort of police state that France, for example, has always been.’

France a police state?  A bit extreme?

Let’s remember:  a wealth tax is nothing but a property tax – but a tax on all property, both housing and financial.  Therefore, a wealth tax is merely an extension of a tax we already have.

And let’s not forget that we already have a flight going on.  Every week, approximately 1,700 ‘flee’ to other destinations.  They are not leaving for tax reasons.  Most of them are leaving to find a job and secure income.

That’s the flight that we should be discussing.

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One Response

  1. J Murphy

    June 19, 2014 12:38 pm

    The resistance to a wealth tax is caused by a mixture of people wanting to maintain a certain lifestyle and to wanting to have a comfortable surplus of money for financial security. It’s about giving your life a certain sheen and driving the car that’s that just a bit better and getting the designer handbag in Paris and not TX Maxx. They don’t want to live in the same areas as people with lower incomes and would like to avoid contact with them as much as is possible, except if they are cleaning their house or working in the their factory. The wealthy want to keep privilege in their family and ensure that the next generation gets a good head start in life and not have to struggle like all the other poor sods.

    A wealth tax will only come into being if the system that protects a wealthy elite is cracked and that is no small task. It would also mean tackling the maze like trails which they use to hide money and ensure that they are kept in the life they are accustomed to.