WEBVTT 00:00:03.015 --> 00:00:04.980 align:middle line:84% The importance of wealth in our economies 00:00:04.980 --> 00:00:06.630 align:middle line:84% and the inequality of that wealth 00:00:06.630 --> 00:00:09.420 align:middle line:84% have been going up for decades, but the tax revenue 00:00:09.420 --> 00:00:12.400 align:middle line:84% raised from that wealth has not followed suit. 00:00:12.400 --> 00:00:14.250 align:middle line:84% So I think politicians facing pressure 00:00:14.250 --> 00:00:17.110 align:middle line:84% on their public finances are missing a trick, 00:00:17.110 --> 00:00:20.190 align:middle line:84% and that trick is an annual levy on the total wealth 00:00:20.190 --> 00:00:21.150 align:middle line:90% of taxpayers. 00:00:24.220 --> 00:00:27.250 align:middle line:84% Welcome to Free Lunch On Film, the series 00:00:27.250 --> 00:00:29.500 align:middle line:84% where I explore controversial economic policy 00:00:29.500 --> 00:00:33.573 align:middle line:84% ideas that I find appealing, such as an annual wealth tax. 00:00:33.573 --> 00:00:34.990 align:middle line:84% So if you create a tax system that 00:00:34.990 --> 00:00:37.980 align:middle line:84% taxes the rich efficiently, then I'll be happy to give it away. 00:00:37.980 --> 00:00:39.460 align:middle line:84% I think it would be an awful idea. 00:00:39.460 --> 00:00:41.200 align:middle line:84% What we're really talking about is not a wealth tax, 00:00:41.200 --> 00:00:42.850 align:middle line:84% but a punishment tax of some kind. 00:00:42.850 --> 00:00:46.150 align:middle line:84% They are complicated to administer 00:00:46.150 --> 00:00:48.460 align:middle line:90% and haven't raised much revenue. 00:00:48.460 --> 00:00:50.770 align:middle line:84% The thing it can do that no other tax on wealth can do 00:00:50.770 --> 00:00:53.785 align:middle line:84% is to reduce wealth inequality at the very top. 00:00:53.785 --> 00:00:56.290 align:middle line:84% In the last 40 years wealth and capital 00:00:56.290 --> 00:00:59.350 align:middle line:84% have become much more important in rich economies. 00:00:59.350 --> 00:01:02.470 align:middle line:84% The total amount of wealth has gone from about three 00:01:02.470 --> 00:01:06.100 align:middle line:84% times annual national income to more than six times, 00:01:06.100 --> 00:01:09.400 align:middle line:84% and this larger amount of wealth is now distributed 00:01:09.400 --> 00:01:11.830 align:middle line:90% more unevenly than it used to. 00:01:11.830 --> 00:01:14.060 align:middle line:84% In many countries owners of capital 00:01:14.060 --> 00:01:17.210 align:middle line:84% now receive a larger share of national income than earlier, 00:01:17.210 --> 00:01:19.690 align:middle line:90% and workers a smaller share. 00:01:19.690 --> 00:01:21.850 align:middle line:84% For that reason, some of the very rich 00:01:21.850 --> 00:01:24.700 align:middle line:84% think that they should pay a wealth tax. 00:01:24.700 --> 00:01:26.620 align:middle line:90% Like Gary Stevenson. 00:01:26.620 --> 00:01:30.160 align:middle line:84% Born in east London, he became Citibank's top trader. 00:01:30.160 --> 00:01:32.955 align:middle line:84% He now campaigns for pressure group Patriotic Millionaires. 00:01:32.955 --> 00:01:35.455 align:middle line:84% So I came to the conclusion that we had a structural problem 00:01:35.455 --> 00:01:36.850 align:middle line:84% with inequality that wouldn't get 00:01:36.850 --> 00:01:39.000 align:middle line:84% fixed, which means that there would never 00:01:39.000 --> 00:01:40.000 align:middle line:90% be an economic recovery. 00:01:40.000 --> 00:01:42.458 align:middle line:84% And I started betting on that, and by the end of that year, 00:01:42.458 --> 00:01:45.640 align:middle line:84% I was Citibank's most profitable trader in the world. 00:01:45.640 --> 00:01:49.370 align:middle line:84% So, you know, I've spent a lot of time thinking about this. 00:01:49.370 --> 00:01:52.180 align:middle line:84% I think that if you don't fix inequality 00:01:52.180 --> 00:01:55.478 align:middle line:84% the economy will get worse and worse and worse and worse. 00:01:55.478 --> 00:01:56.770 align:middle line:90% And I'm from a poor background. 00:01:56.770 --> 00:01:58.937 align:middle line:84% There's people from where I'm from, like my friends, 00:01:58.937 --> 00:02:00.490 align:middle line:84% like my family, like me growing up, 00:02:00.490 --> 00:02:02.050 align:middle line:84% that are bearing the brunt of that. 00:02:03.930 --> 00:02:07.502 align:middle line:84% And yet many governments have moved away from directly taxing 00:02:07.502 --> 00:02:08.335 align:middle line:90% this growing wealth. 00:02:10.479 --> 00:02:13.630 align:middle line:84% Until the 1990s about a dozen European countries 00:02:13.630 --> 00:02:17.650 align:middle line:84% levied a net wealth tax, and one by one they got rid of it. 00:02:17.650 --> 00:02:19.150 align:middle line:90% Like here in France. 00:02:19.150 --> 00:02:22.660 align:middle line:84% When Emmanuel Macron became president in 2017 one 00:02:22.660 --> 00:02:26.860 align:middle line:84% of his first acts was to abolish the country's net wealth tax. 00:02:26.860 --> 00:02:28.480 align:middle line:84% For his opponents that branded him 00:02:28.480 --> 00:02:30.250 align:middle line:90% as the president of the rich. 00:02:30.250 --> 00:02:33.700 align:middle line:84% For his supporters, it ushered in a new era of French business 00:02:33.700 --> 00:02:35.065 align:middle line:90% dynamism. 00:02:35.065 --> 00:02:38.500 align:middle line:84% The idea of repealing the wealth tax 00:02:38.500 --> 00:02:42.460 align:middle line:84% was to make France more competitive and attractive 00:02:42.460 --> 00:02:45.355 align:middle line:90% to entrepreneurs. 00:02:45.355 --> 00:02:48.640 align:middle line:84% Sarah Perret, an economist at the OECD think-tank, 00:02:48.640 --> 00:02:52.225 align:middle line:84% has looked hard at the pros and cons of a wealth tax. 00:02:52.225 --> 00:02:53.740 align:middle line:90% They are unusual today. 00:02:53.740 --> 00:02:55.780 align:middle line:84% There are only three OECD countries 00:02:55.780 --> 00:02:58.480 align:middle line:84% that currently levy annual wealth taxes, 00:02:58.480 --> 00:03:03.085 align:middle line:84% and those countries are Norway, Spain, and Switzerland. 00:03:03.085 --> 00:03:06.070 align:middle line:84% It's not that other countries don't tax wealth at all. 00:03:06.070 --> 00:03:07.840 align:middle line:84% We have many taxes that could be called 00:03:07.840 --> 00:03:09.730 align:middle line:90% wealth taxes in a broad sense. 00:03:09.730 --> 00:03:11.440 align:middle line:84% My critics will point out that you're 00:03:11.440 --> 00:03:14.410 align:middle line:84% taxed when you buy a house, or when you inherit, 00:03:14.410 --> 00:03:16.750 align:middle line:84% or on capital gains when you sell an asset, 00:03:16.750 --> 00:03:18.670 align:middle line:90% to name just a few examples. 00:03:18.670 --> 00:03:21.190 align:middle line:84% Merryn Somerset Webb is an investment columnist 00:03:21.190 --> 00:03:22.302 align:middle line:90% for the FT. 00:03:22.302 --> 00:03:24.760 align:middle line:84% We don't call them wealth taxes, but they are wealth taxes. 00:03:24.760 --> 00:03:27.190 align:middle line:84% You can disagree with them or agree with them as you like, 00:03:27.190 --> 00:03:28.660 align:middle line:84% and I think that they're very flawed; 00:03:28.660 --> 00:03:30.100 align:middle line:84% but nonetheless, they do something 00:03:30.100 --> 00:03:33.340 align:middle line:84% that makes sense, which is that they ask people to hand over 00:03:33.340 --> 00:03:35.875 align:middle line:84% money at the point at which they have money 00:03:35.875 --> 00:03:38.745 align:middle line:90% - at a point of transaction. 00:03:38.745 --> 00:03:40.195 align:middle line:90% So what is a wealth tax proper? 00:03:42.835 --> 00:03:46.935 align:middle line:84% A net wealth tax is a tax on the net wealth of individuals 00:03:46.935 --> 00:03:51.550 align:middle line:84% - so assets minus debts - and it's usually 00:03:51.550 --> 00:03:54.190 align:middle line:84% levied on only certain individuals 00:03:54.190 --> 00:03:55.790 align:middle line:84% above a certain threshold of wealth, 00:03:55.790 --> 00:03:57.610 align:middle line:84% so it doesn't apply to everybody. 00:03:57.610 --> 00:04:00.550 align:middle line:84% And the important part as well is that it's a recurrent tax... 00:04:00.550 --> 00:04:03.640 align:middle line:84% we're talking about annual wealth taxes. 00:04:03.640 --> 00:04:06.490 align:middle line:84% So the base on which a net wealth tax would be levied 00:04:06.490 --> 00:04:10.360 align:middle line:84% includes all the wealth somebody owns - property, obviously; 00:04:10.360 --> 00:04:15.220 align:middle line:84% also financial wealth, such as bank deposits, shares, bonds; 00:04:15.220 --> 00:04:18.220 align:middle line:84% but also valuables, like art and jewellery, 00:04:18.220 --> 00:04:21.370 align:middle line:84% fine wine and classic cars, and ownership stakes 00:04:21.370 --> 00:04:23.020 align:middle line:90% in private businesses. 00:04:23.020 --> 00:04:26.380 align:middle line:84% From all that, you would deduct the debts somebody owes - 00:04:26.380 --> 00:04:29.050 align:middle line:84% a mortgage on their house, car loans, money 00:04:29.050 --> 00:04:32.050 align:middle line:84% they may have borrowed to invest - and finally, you would 00:04:32.050 --> 00:04:34.630 align:middle line:90% deduct a tax free allowance. 00:04:34.630 --> 00:04:36.580 align:middle line:84% And with all of that, you would arrive 00:04:36.580 --> 00:04:41.155 align:middle line:84% at the taxable wealth on which an annual rate would be levied. 00:04:41.155 --> 00:04:44.620 align:middle line:84% So for example, the people in the top 1 per cent of wealth - 00:04:44.620 --> 00:04:46.810 align:middle line:84% they are people who have more than £2mn in wealth - 00:04:46.810 --> 00:04:50.350 align:middle line:84% so if, say, you had £2.5mn in wealth and you had a 1 per cent 00:04:50.350 --> 00:04:52.967 align:middle line:84% annual wealth tax, then you'd be paying 1 per cent on the bit 00:04:52.967 --> 00:04:55.300 align:middle line:84% of wealth you have above £2mn - so about half a million. 00:04:55.300 --> 00:05:00.310 align:middle line:84% So someone at £2.5mn would be paying about £5,000 a year. 00:05:00.310 --> 00:05:01.930 align:middle line:84% And the list of taxable assets could 00:05:01.930 --> 00:05:07.390 align:middle line:84% go on - private jets, pension plans, trusts, horses, 00:05:07.390 --> 00:05:08.350 align:middle line:90% intellectual property. 00:05:11.140 --> 00:05:14.620 align:middle line:84% So at a time of increasing demands on public finance, 00:05:14.620 --> 00:05:17.970 align:middle line:84% is a wealth tax worth considering? 00:05:17.970 --> 00:05:21.000 align:middle line:84% Most economists and tax experts are sceptical, 00:05:21.000 --> 00:05:24.210 align:middle line:90% as are many of my FT colleagues. 00:05:24.210 --> 00:05:26.730 align:middle line:84% Most countries who've tried this find that it doesn't work, 00:05:26.730 --> 00:05:28.980 align:middle line:84% so I'm... to be honest, I'm bemused we're still having 00:05:28.980 --> 00:05:31.450 align:middle line:90% a conversation about it. 00:05:31.450 --> 00:05:33.200 align:middle line:84% But especially after the pandemic 00:05:33.200 --> 00:05:35.180 align:middle line:84% some experts think it's an option 00:05:35.180 --> 00:05:37.775 align:middle line:90% we should at least look into. 00:05:37.775 --> 00:05:39.650 align:middle line:84% The pandemic was awful for almost everybody. 00:05:39.650 --> 00:05:41.690 align:middle line:84% You know, lots of people were getting into debt, 00:05:41.690 --> 00:05:43.648 align:middle line:84% and at the top end you just see wealth continue 00:05:43.648 --> 00:05:45.000 align:middle line:90% to rise, continue to explode. 00:05:45.000 --> 00:05:46.190 align:middle line:84% And I think that's one of the reasons 00:05:46.190 --> 00:05:47.880 align:middle line:84% that people have then really been thinking, well, 00:05:47.880 --> 00:05:48.980 align:middle line:90% how are we taxing this wealth? 00:05:48.980 --> 00:05:50.120 align:middle line:84% Why aren't we getting more money from 00:05:50.120 --> 00:05:51.662 align:middle line:84% the people who, in some sense, really 00:05:51.662 --> 00:05:53.390 align:middle line:90% have the broadest shoulders? 00:05:53.390 --> 00:05:55.640 align:middle line:84% Arun Advani co-chaired an independent commission 00:05:55.640 --> 00:05:58.190 align:middle line:84% of academics in the UK, which ended up 00:05:58.190 --> 00:06:00.595 align:middle line:90% backing a one-off wealth tax. 00:06:00.595 --> 00:06:01.970 align:middle line:84% From an economic point of view, I 00:06:01.970 --> 00:06:05.690 align:middle line:84% think a tax like this at the very top end is very sensible. 00:06:05.690 --> 00:06:09.140 align:middle line:84% And Sarah Perret says it is becoming a live issue, and not 00:06:09.140 --> 00:06:10.595 align:middle line:90% just in Europe. 00:06:10.595 --> 00:06:13.250 align:middle line:84% So the most prominent example was the US, 00:06:13.250 --> 00:06:16.820 align:middle line:84% where wealth taxes were a big part of the debate 00:06:16.820 --> 00:06:18.980 align:middle line:90% in the Democratic primaries. 00:06:18.980 --> 00:06:21.680 align:middle line:84% But there's also been discussions in some Latin 00:06:21.680 --> 00:06:23.120 align:middle line:90% American countries... 00:06:23.120 --> 00:06:28.520 align:middle line:84% Chile is one; Argentina introduced a one-off wealth tax 00:06:28.520 --> 00:06:30.250 align:middle line:90% during the pandemic. 00:06:30.250 --> 00:06:32.780 align:middle line:84% So let's go through the arguments for and against. 00:06:32.780 --> 00:06:35.330 align:middle line:84% First, the basic function of taxes 00:06:35.330 --> 00:06:37.920 align:middle line:84% is to raise revenue for the government. 00:06:37.920 --> 00:06:40.845 align:middle line:84% So how much could a wealth tax bring in? 00:06:40.845 --> 00:06:43.910 align:middle line:84% Potentially it could raise significant amounts 00:06:43.910 --> 00:06:44.870 align:middle line:90% of revenue... 00:06:44.870 --> 00:06:47.450 align:middle line:84% and not only that, but from a limited number 00:06:47.450 --> 00:06:49.108 align:middle line:90% of very wealthy taxpayers. 00:06:49.108 --> 00:06:51.650 align:middle line:84% So for example, if you were to have an annual wealth tax that 00:06:51.650 --> 00:06:53.960 align:middle line:90% taxed all wealth above £10mn. 00:06:53.960 --> 00:06:57.080 align:middle line:84% That would be taxing the top 22,000 people in the country, 00:06:57.080 --> 00:06:59.660 align:middle line:84% and that would raise, at a rate of, say, 1 per cent, 00:06:59.660 --> 00:07:01.818 align:middle line:90% it would raise about £10bn. 00:07:01.818 --> 00:07:03.360 align:middle line:84% So that would be enough, for example, 00:07:03.360 --> 00:07:06.710 align:middle line:84% to send every household a cheque for more than £400. 00:07:06.710 --> 00:07:08.450 align:middle line:84% Of course, this money isn't free. 00:07:08.450 --> 00:07:10.730 align:middle line:84% Somebody has to pay it, and some would 00:07:10.730 --> 00:07:13.890 align:middle line:84% say the rich are taxed enough already. 00:07:13.890 --> 00:07:16.800 align:middle line:84% To look at the UK and say wealth is undertaxed relative 00:07:16.800 --> 00:07:18.635 align:middle line:84% to income, I think, is completely wrong. 00:07:18.635 --> 00:07:20.010 align:middle line:84% We've already had a jolly good go 00:07:20.010 --> 00:07:21.843 align:middle line:84% at the rich over the last couple of decades, 00:07:21.843 --> 00:07:25.005 align:middle line:84% and we've had an excellent go at the moderately rich as well. 00:07:25.005 --> 00:07:28.125 align:middle line:84% But others disagree, like Gary Stevenson. 00:07:28.125 --> 00:07:30.750 align:middle line:84% The problem is the taxes that we have don't redistribute wealth 00:07:30.750 --> 00:07:31.950 align:middle line:84% because they're all taxes on income, 00:07:31.950 --> 00:07:33.930 align:middle line:84% and some rich people pay extremely low rates 00:07:33.930 --> 00:07:35.555 align:middle line:84% on their incomes from their wealth. 00:07:35.555 --> 00:07:39.360 align:middle line:84% And so just with income taxes, the tax burden 00:07:39.360 --> 00:07:43.910 align:middle line:84% on these very wealthy individuals might be minimal. 00:07:43.910 --> 00:07:46.490 align:middle line:84% And so, say you're a billionaire, 00:07:46.490 --> 00:07:47.960 align:middle line:90% and you never sell your shares. 00:07:47.960 --> 00:07:50.450 align:middle line:84% You're never going to be subject to capital gains taxes. 00:07:50.450 --> 00:07:52.790 align:middle line:84% Say your company doesn't distribute dividends; 00:07:52.790 --> 00:07:55.730 align:middle line:84% you're not going to be paying dividend taxes on your dividend 00:07:55.730 --> 00:07:56.690 align:middle line:90% income. 00:07:56.690 --> 00:07:59.510 align:middle line:84% And so obviously, a wealth tax might 00:07:59.510 --> 00:08:03.770 align:middle line:84% be a way of taxing potentially very wealthy people. 00:08:06.493 --> 00:08:08.910 align:middle line:84% I think there are three ways you could respond to the fact 00:08:08.910 --> 00:08:12.310 align:middle line:84% that a wealth tax could raise serious amounts of money. 00:08:12.310 --> 00:08:15.330 align:middle line:84% One is to question the need for that extra government revenue - 00:08:15.330 --> 00:08:18.300 align:middle line:84% ultimately, a political judgement for each of us. 00:08:18.300 --> 00:08:20.790 align:middle line:84% Another is to say that some countries have relatively 00:08:20.790 --> 00:08:22.955 align:middle line:84% low tax burdens, others have very high ones, 00:08:22.955 --> 00:08:25.080 align:middle line:84% so the wealth tax question depends on which country 00:08:25.080 --> 00:08:27.190 align:middle line:90% we're talking about. 00:08:27.190 --> 00:08:30.780 align:middle line:84% But the third response is to consider a wealth tax, not as 00:08:30.780 --> 00:08:33.250 align:middle line:84% a policy to raise more government revenue, 00:08:33.250 --> 00:08:37.320 align:middle line:84% but to raise the same amount of revenue in smarter ways. 00:08:37.320 --> 00:08:41.465 align:middle line:84% A wealth tax could be used to reduce taxes on work. 00:08:41.465 --> 00:08:43.590 align:middle line:84% It's not the richest paying the most tax, it's not. 00:08:43.590 --> 00:08:46.440 align:middle line:84% It's the... it's the people who work who pay the most tax. 00:08:46.440 --> 00:08:50.040 align:middle line:84% A wealth tax could also replace other taxes on capital. 00:08:50.040 --> 00:08:52.800 align:middle line:84% That could, in theory, encourage better and more productive 00:08:52.800 --> 00:08:53.850 align:middle line:90% investments. 00:08:53.850 --> 00:09:01.080 align:middle line:84% A wealth tax is levied irrespective of the returns 00:09:01.080 --> 00:09:04.980 align:middle line:84% that your assets generate; so the last thing that you want 00:09:04.980 --> 00:09:09.510 align:middle line:84% when you have a wealth tax is to have assets that don't generate 00:09:09.510 --> 00:09:12.630 align:middle line:84% any returns, or that generate really small returns, 00:09:12.630 --> 00:09:16.020 align:middle line:84% because you'll be taxed anyway, so that should encourage you 00:09:16.020 --> 00:09:17.940 align:middle line:90% to invest in more... 00:09:17.940 --> 00:09:21.335 align:middle line:84% in higher yielding, more productive assets. 00:09:21.335 --> 00:09:23.130 align:middle line:84% So here's a proposal that I think 00:09:23.130 --> 00:09:26.430 align:middle line:84% could win over some sceptics; to introduce a wealth 00:09:26.430 --> 00:09:30.150 align:middle line:84% tax specifically to lower or eliminate other taxes, 00:09:30.150 --> 00:09:33.195 align:middle line:84% if they believe that that's what would happen. 00:09:33.195 --> 00:09:37.770 align:middle line:84% Would I be happy with a, say, 1 per cent annual wealth tax 00:09:37.770 --> 00:09:40.650 align:middle line:84% if other taxes were reduced or removed? 00:09:40.650 --> 00:09:43.140 align:middle line:84% Well, that would be a perfectly reasonable conversation, 00:09:43.140 --> 00:09:45.807 align:middle line:84% but I've been in this business a long time now, and so have you, 00:09:45.807 --> 00:09:49.320 align:middle line:84% and I have never seen a tax abolished, not once. 00:09:49.320 --> 00:09:51.185 align:middle line:90% Ever. 00:09:51.185 --> 00:09:53.090 align:middle line:84% Now if you think that public spending needs 00:09:53.090 --> 00:09:56.090 align:middle line:84% to go up to pay for better schools, or hospitals, 00:09:56.090 --> 00:09:58.900 align:middle line:90% or roads, then this is fine. 00:09:58.900 --> 00:10:01.540 align:middle line:84% So long as you can be sure that a wealth tax will actually 00:10:01.540 --> 00:10:04.660 align:middle line:84% bring in the expected extra money. 00:10:04.660 --> 00:10:06.850 align:middle line:84% For here, we come to the pragmatic objections 00:10:06.850 --> 00:10:10.030 align:middle line:84% to wealth taxes because in practice, they have not always 00:10:10.030 --> 00:10:12.292 align:middle line:90% worked as advertised. 00:10:12.292 --> 00:10:13.750 align:middle line:84% They didn't raise that much revenue 00:10:13.750 --> 00:10:16.600 align:middle line:84% in the countries that had them because there were 00:10:16.600 --> 00:10:20.800 align:middle line:84% so many assets benefiting from either full exemptions 00:10:20.800 --> 00:10:23.890 align:middle line:84% or other forms of preferential tax treatment, 00:10:23.890 --> 00:10:27.490 align:middle line:84% and often those were the assets that were predominantly held 00:10:27.490 --> 00:10:28.870 align:middle line:90% by the wealthiest people. 00:10:28.870 --> 00:10:30.730 align:middle line:84% And so that means that an increase 00:10:30.730 --> 00:10:33.910 align:middle line:84% in the value of household wealth doesn't necessarily 00:10:33.910 --> 00:10:36.625 align:middle line:84% translate in an increase in wealth tax revenues. 00:10:37.150 --> 00:10:39.160 align:middle line:84% And the problem hasn't just been about exempting 00:10:39.160 --> 00:10:41.440 align:middle line:84% some assets, typically your home, 00:10:41.440 --> 00:10:43.930 align:middle line:84% or more unusual assets like artwork. 00:10:43.930 --> 00:10:47.140 align:middle line:84% It is also about avoidance and evasion. 00:10:47.140 --> 00:10:53.080 align:middle line:84% It was relatively easy to avoid and evade wealth taxes in a lot 00:10:53.080 --> 00:10:55.660 align:middle line:84% of countries, which led to... in France, 00:10:55.660 --> 00:10:58.135 align:middle line:84% we would say the wealth tax was a tax on the millionaires, 00:10:58.135 --> 00:10:59.335 align:middle line:90% not the billionaires. 00:10:59.335 --> 00:11:00.190 align:middle line:90% You know what? 00:11:00.190 --> 00:11:02.800 align:middle line:84% I think these guys would pay it if they felt 00:11:02.800 --> 00:11:04.000 align:middle line:90% no one else was avoiding it. 00:11:04.000 --> 00:11:05.578 align:middle line:84% The problem is you create a situation 00:11:05.578 --> 00:11:07.870 align:middle line:84% where it's easy to avoid, and then it becomes a choice. 00:11:07.870 --> 00:11:09.820 align:middle line:84% And then you're a rich guy, and all the other guys 00:11:09.820 --> 00:11:11.410 align:middle line:84% you work with are avoiding it, and then 00:11:11.410 --> 00:11:13.300 align:middle line:84% their kids are going to go to better schools than your kids, 00:11:13.300 --> 00:11:15.800 align:middle line:84% and their kids are going to have nicer houses than your kids 00:11:15.800 --> 00:11:18.085 align:middle line:90% because you chose to pay tax. 00:11:18.085 --> 00:11:20.050 align:middle line:84% There's another common criticism; 00:11:20.050 --> 00:11:22.150 align:middle line:84% that many people with property wealth 00:11:22.150 --> 00:11:25.135 align:middle line:84% don't have the cash to pay a wealth tax. 00:11:25.135 --> 00:11:27.772 align:middle line:84% If you live in your house, it doesn't give you a return. 00:11:27.772 --> 00:11:29.230 align:middle line:84% It doesn't give you income that you 00:11:29.230 --> 00:11:32.290 align:middle line:84% can use to then pay the tax, and so we always 00:11:32.290 --> 00:11:37.570 align:middle line:84% give this example of the retiree in a house that has tripled 00:11:37.570 --> 00:11:39.580 align:middle line:84% in value in the last 30 years, and they're 00:11:39.580 --> 00:11:40.780 align:middle line:90% faced with the wealth tax. 00:11:40.780 --> 00:11:43.420 align:middle line:84% It's incredibly cruel, very unkind, 00:11:43.420 --> 00:11:46.660 align:middle line:84% to people who hold wealth and are 00:11:46.660 --> 00:11:49.900 align:middle line:84% unable to come up with cash without making very significant 00:11:49.900 --> 00:11:51.625 align:middle line:90% changes to their lifestyle. 00:11:51.625 --> 00:11:55.270 align:middle line:84% Well, there are solutions: you can have tax deferrals; 00:11:55.270 --> 00:11:58.000 align:middle line:84% you can have tax payment in instalments; 00:11:58.000 --> 00:12:03.010 align:middle line:84% also, solutions like imposing a tax cap limiting 00:12:03.010 --> 00:12:07.960 align:middle line:84% the total amount of tax that you owe as a share of your income. 00:12:07.960 --> 00:12:10.180 align:middle line:84% Another practical objection is that wealth 00:12:10.180 --> 00:12:11.455 align:middle line:90% is really hard to value. 00:12:15.087 --> 00:12:16.670 align:middle line:84% So how do you value a private company? 00:12:16.670 --> 00:12:17.510 align:middle line:90% How do you value land? 00:12:17.510 --> 00:12:18.590 align:middle line:90% How do you value a picture? 00:12:18.590 --> 00:12:20.630 align:middle line:84% How do you value the things that make up wealth? 00:12:20.630 --> 00:12:24.560 align:middle line:84% This is an extraordinarily intense admin effort 00:12:24.560 --> 00:12:25.840 align:middle line:90% we have to be put into this. 00:12:25.840 --> 00:12:27.110 align:middle line:84% And I think there is some merit to that. 00:12:27.110 --> 00:12:29.090 align:middle line:84% That's why I think you wouldn't want to have a wealth tax that 00:12:29.090 --> 00:12:31.115 align:middle line:84% covers huge shares of the population... covers, you know, 00:12:31.115 --> 00:12:32.157 align:middle line:90% 10 per cent or something. 00:12:32.157 --> 00:12:33.820 align:middle line:84% Firstly, it's administratively easier 00:12:33.820 --> 00:12:35.528 align:middle line:84% because it's just a small number of them. 00:12:35.528 --> 00:12:37.280 align:middle line:84% The other point is that they are typically 00:12:37.280 --> 00:12:38.690 align:middle line:84% people who are wealthy enough that actually, they 00:12:38.690 --> 00:12:40.580 align:middle line:84% have other people managing their money for them already, 00:12:40.580 --> 00:12:42.320 align:middle line:84% where they already have some process going on, 00:12:42.320 --> 00:12:43.520 align:middle line:84% and so actually, it's not that hard 00:12:43.520 --> 00:12:45.080 align:middle line:84% for them usually to get some kind of value 00:12:45.080 --> 00:12:46.490 align:middle line:84% and to have some discussion about where 00:12:46.490 --> 00:12:47.480 align:middle line:90% those values come from. 00:12:47.480 --> 00:12:51.080 align:middle line:84% The idea that your personal belongings should somehow 00:12:51.080 --> 00:12:54.050 align:middle line:84% be catalogued and valued by the state, I think, 00:12:54.050 --> 00:12:55.130 align:middle line:90% is very intrusive. 00:12:56.795 --> 00:12:59.990 align:middle line:84% In any case, the poor design of many actual wealth taxes 00:12:59.990 --> 00:13:03.000 align:middle line:84% was the main reason why they were eventually abolished. 00:13:03.000 --> 00:13:06.183 align:middle line:84% So what would a well-designed wealth tax look like? 00:13:06.183 --> 00:13:07.850 align:middle line:84% You have to capture all kinds of wealth, 00:13:07.850 --> 00:13:09.892 align:middle line:84% and if your worry is that you're capturing people 00:13:09.892 --> 00:13:12.278 align:middle line:84% who are too ordinary for what you're trying to go for, 00:13:12.278 --> 00:13:13.820 align:middle line:84% you need to set the threshold higher, 00:13:13.820 --> 00:13:16.400 align:middle line:84% not exempt certain asset classes - not take out businesses, 00:13:16.400 --> 00:13:18.738 align:middle line:84% or not take out pensions, or not take out houses. 00:13:18.738 --> 00:13:20.030 align:middle line:90% The people who are the problem. 00:13:20.030 --> 00:13:23.133 align:middle line:84% It's not the people with £1mn, it's the people with £100mn. 00:13:23.133 --> 00:13:24.800 align:middle line:84% I'd be more than happy to exclude people 00:13:24.800 --> 00:13:26.675 align:middle line:84% with wealth of one, two, three million pounds 00:13:26.675 --> 00:13:28.790 align:middle line:84% if that meant that we got the people who are rich. 00:13:28.790 --> 00:13:31.250 align:middle line:84% And there's a need to look at structures 00:13:31.250 --> 00:13:36.770 align:middle line:84% that may be used by individuals to circumvent wealth taxes, 00:13:36.770 --> 00:13:41.810 align:middle line:84% like trusts or foundations, or other similar structures that 00:13:41.810 --> 00:13:42.440 align:middle line:90% may be used. 00:13:42.440 --> 00:13:44.910 align:middle line:84% I think that is an important element. 00:13:44.910 --> 00:13:48.020 align:middle line:84% And then continuing efforts on - I was saying we made great 00:13:48.020 --> 00:13:50.390 align:middle line:84% progress on preventing offshore tax evasion - 00:13:50.390 --> 00:13:52.340 align:middle line:84% we need to continue working on that, 00:13:52.340 --> 00:13:56.820 align:middle line:84% because that is a prerequisite to have well-functioning wealth 00:13:56.820 --> 00:13:57.320 align:middle line:90% taxes. 00:14:00.027 --> 00:14:02.030 align:middle line:84% Politics means that no tax will ever 00:14:02.030 --> 00:14:04.220 align:middle line:84% live up to theoretical perfection, 00:14:04.220 --> 00:14:06.590 align:middle line:84% but even less-than-perfect wealth taxes 00:14:06.590 --> 00:14:08.690 align:middle line:90% are not doomed to fail. 00:14:08.690 --> 00:14:11.480 align:middle line:84% We know this because some countries have kept them 00:14:11.480 --> 00:14:16.040 align:middle line:84% for decades, if not centuries: Switzerland and Norway. 00:14:16.040 --> 00:14:18.290 align:middle line:84% They're not perfect - they also suffer 00:14:18.290 --> 00:14:20.900 align:middle line:84% from exemptions and loopholes - but they 00:14:20.900 --> 00:14:24.800 align:middle line:84% do seem sustainable, both economically and politically. 00:14:24.800 --> 00:14:27.230 align:middle line:84% These are, after all, two of the world's most successful 00:14:27.230 --> 00:14:28.100 align:middle line:90% economies. 00:14:28.100 --> 00:14:31.790 align:middle line:84% In both countries the wealth tax substitutes for other taxes. 00:14:31.790 --> 00:14:34.650 align:middle line:84% Inheritance tax has been eliminated in Norway. 00:14:34.650 --> 00:14:37.160 align:middle line:84% Switzerland strictly limits both inheritance tax 00:14:37.160 --> 00:14:41.030 align:middle line:84% and capital gains tax, and the Swiss wealth tax alone 00:14:41.030 --> 00:14:43.895 align:middle line:84% contributes as much as four per cent of total tax revenue. 00:14:49.340 --> 00:14:51.620 align:middle line:84% There's another practical objection to address. 00:14:51.620 --> 00:14:55.430 align:middle line:84% Wouldn't a wealth tax just drive the wealthy away? 00:14:55.430 --> 00:14:58.280 align:middle line:84% If people have to pay a tax, and they do not have the income 00:14:58.280 --> 00:15:00.635 align:middle line:84% to pay that tax, then they will find... 00:15:00.635 --> 00:15:03.590 align:middle line:84% a) find ways not to pay it; or b) change their behaviour 00:15:03.590 --> 00:15:05.272 align:middle line:84% in order to produce the money to pay it. 00:15:05.272 --> 00:15:07.730 align:middle line:84% There comes a point when you have to think, well, you know, 00:15:07.730 --> 00:15:10.860 align:middle line:84% might they just move to Portugal? 00:15:10.860 --> 00:15:12.645 align:middle line:90% What does the evidence say? 00:15:12.645 --> 00:15:14.400 align:middle line:84% There is definitely anecdotal evidence 00:15:14.400 --> 00:15:18.990 align:middle line:84% of people leaving countries with wealth taxes, 00:15:18.990 --> 00:15:21.270 align:middle line:84% and usually they were very high-profile cases, 00:15:21.270 --> 00:15:22.510 align:middle line:90% and quite vocal about it. 00:15:22.510 --> 00:15:24.900 align:middle line:84% So think about Gerard Depardieu in France. 00:15:24.900 --> 00:15:29.050 align:middle line:84% Another case that's cited is the founder of IKEA in Sweden, 00:15:29.050 --> 00:15:29.650 align:middle line:90% for example. 00:15:29.650 --> 00:15:32.010 align:middle line:84% And so there's definitely anecdotal evidence, 00:15:32.010 --> 00:15:35.760 align:middle line:84% but we're still missing solid evidence on, let's say, 00:15:35.760 --> 00:15:38.175 align:middle line:90% the scale of the issue. 00:15:38.175 --> 00:15:42.140 align:middle line:84% So do the wealthy move away to avoid wealth taxes? 00:15:42.140 --> 00:15:45.010 align:middle line:84% Well, the Swiss and Norwegian experiences suggest not. 00:15:45.010 --> 00:15:47.920 align:middle line:84% Both have more millionaires per capita than all the G7 00:15:47.920 --> 00:15:50.380 align:middle line:84% countries, though to be fair, Switzerland 00:15:50.380 --> 00:15:53.710 align:middle line:84% does have a lighter system for foreign tax exiles. 00:15:53.710 --> 00:15:55.960 align:middle line:84% Anyway, there are things governments can do. 00:15:55.960 --> 00:15:58.600 align:middle line:84% When US presidential hopeful Elizabeth Warren 00:15:58.600 --> 00:16:01.060 align:middle line:84% proposed a wealth tax, her advisers 00:16:01.060 --> 00:16:03.490 align:middle line:84% outlined a large one-off exit levy 00:16:03.490 --> 00:16:05.680 align:middle line:84% that would apply when someone moved their wealth out 00:16:05.680 --> 00:16:07.960 align:middle line:90% of the tax net. 00:16:07.960 --> 00:16:09.610 align:middle line:84% Even those who move away will have 00:16:09.610 --> 00:16:13.013 align:middle line:84% to leave some assets behind, and those can be taxed. 00:16:13.013 --> 00:16:14.305 align:middle line:90% I like the term wealth creator. 00:16:14.305 --> 00:16:14.967 align:middle line:90% It's sort of... 00:16:14.967 --> 00:16:17.050 align:middle line:84% conceptually, like they're Gandalf or something... 00:16:17.050 --> 00:16:19.755 align:middle line:84% they come with their magic, and they create wealth in society. 00:16:19.755 --> 00:16:21.880 align:middle line:84% And we imagine them like they got a big bag of cash 00:16:21.880 --> 00:16:24.220 align:middle line:84% that they can just magic off to the Cayman Islands. 00:16:24.220 --> 00:16:26.755 align:middle line:84% These people are rich because they own our houses, 00:16:26.755 --> 00:16:28.630 align:middle line:84% they own our mortgages, you know what I mean? 00:16:28.630 --> 00:16:30.700 align:middle line:84% They own our... they own our skyscrapers. 00:16:30.700 --> 00:16:33.360 align:middle line:84% And they can leave; the stuff is still here. 00:16:33.360 --> 00:16:35.860 align:middle line:84% The government knows that if we actually wanted to tax these 00:16:35.860 --> 00:16:38.690 align:middle line:84% people based on the assets which are here and cannot be moved, 00:16:38.690 --> 00:16:41.415 align:middle line:84% we could do it, but the government choose not to do it. 00:16:41.415 --> 00:16:43.750 align:middle line:84% But even if they stay, could a wealth tax 00:16:43.750 --> 00:16:46.810 align:middle line:84% not discourage the wealthy from saving and investing? 00:16:46.810 --> 00:16:50.815 align:middle line:84% Could the wealth creators just stop creating wealth? 00:16:50.815 --> 00:16:52.750 align:middle line:84% The studies that are out there show 00:16:52.750 --> 00:16:55.390 align:middle line:84% that the impact on savings, on wealth accumulation, 00:16:55.390 --> 00:16:57.790 align:middle line:84% are limited, and they find stronger impacts 00:16:57.790 --> 00:17:01.240 align:middle line:84% on how people report their wealth, on tax avoidance, 00:17:01.240 --> 00:17:02.035 align:middle line:90% and on tax evasion. 00:17:02.875 --> 00:17:06.505 align:middle line:84% Even my wealth tax sceptic colleague agrees with that. 00:17:06.505 --> 00:17:09.088 align:middle line:84% Humans are natural improvers, barterers, accumulators, 00:17:09.088 --> 00:17:10.630 align:middle line:84% et cetera... it's a natural instinct. 00:17:10.630 --> 00:17:13.329 align:middle line:84% People are not going to stop attempting to accumulate, 00:17:13.329 --> 00:17:16.990 align:middle line:84% but they may certainly attempt to avoid or evade anyone 00:17:16.990 --> 00:17:20.250 align:middle line:84% removing any of that accumulated wealth from them. 00:17:20.250 --> 00:17:22.420 align:middle line:84% All of this taken together suggests to me 00:17:22.420 --> 00:17:24.460 align:middle line:84% that a wealth tax doesn't have to be 00:17:24.460 --> 00:17:28.510 align:middle line:84% as impractical or as punitive as it's sometimes made out to be. 00:17:28.510 --> 00:17:31.750 align:middle line:84% But it's also not yet obvious what a wealth tax achieves 00:17:31.750 --> 00:17:33.790 align:middle line:84% that we can't do better and simpler 00:17:33.790 --> 00:17:37.540 align:middle line:84% by fixing the taxes we already have. 00:17:37.540 --> 00:17:40.030 align:middle line:84% You might want to look at your existing instruments 00:17:40.030 --> 00:17:43.750 align:middle line:84% first - so your capital gains taxes, your inheritance 00:17:43.750 --> 00:17:47.110 align:middle line:84% and gift taxes - because there's so much scope 00:17:47.110 --> 00:17:48.940 align:middle line:90% to reform those taxes. 00:17:48.940 --> 00:17:52.750 align:middle line:84% Start with that, because you can go a long way towards raising 00:17:52.750 --> 00:17:55.780 align:middle line:84% revenue from the wealthiest households and narrowing wealth 00:17:55.780 --> 00:17:57.145 align:middle line:90% gaps. 00:17:57.145 --> 00:18:00.610 align:middle line:84% There is one thing however that a wealth tax can do more 00:18:00.610 --> 00:18:03.940 align:middle line:90% forcefully than any other tax. 00:18:03.940 --> 00:18:06.130 align:middle line:84% At the point that enough people are concerned 00:18:06.130 --> 00:18:08.440 align:middle line:84% that wealth inequality at the very top end is rising 00:18:08.440 --> 00:18:09.955 align:middle line:84% - and that's something they want to do something about 00:18:09.955 --> 00:18:11.800 align:middle line:84% - that's the point at which it's clear 00:18:11.800 --> 00:18:13.610 align:middle line:84% that none of the alternatives will work, 00:18:13.610 --> 00:18:16.235 align:middle line:84% and that's the point I think in which we'll see people actually 00:18:16.235 --> 00:18:17.940 align:middle line:90% passing an annual wealth tax. 00:18:17.940 --> 00:18:20.800 align:middle line:84% If you think inequality has become dangerously high 00:18:20.800 --> 00:18:24.040 align:middle line:84% and has to be reduced, a smart wealth tax 00:18:24.040 --> 00:18:26.730 align:middle line:84% is the quickest and simplest way to do that. 00:18:26.730 --> 00:18:29.530 align:middle line:84% The ones who are smart they realise that being rich 00:18:29.530 --> 00:18:31.690 align:middle line:84% personally is not worth destroying your society, 00:18:31.690 --> 00:18:33.580 align:middle line:90% and that needs... 00:18:33.580 --> 00:18:35.440 align:middle line:84% it needs outflows from the rich to be 00:18:35.440 --> 00:18:38.500 align:middle line:84% enormously more, to be really, honestly, enormously more. 00:18:38.500 --> 00:18:39.970 align:middle line:90% There's no other way to say it. 00:18:44.682 --> 00:18:46.640 align:middle line:84% So what have I learned from these conversations 00:18:46.640 --> 00:18:49.070 align:middle line:90% about annual wealth taxes? 00:18:49.070 --> 00:18:51.650 align:middle line:84% Well, if well-designed, it would definitely 00:18:51.650 --> 00:18:55.010 align:middle line:84% reduce wealth inequality, and it could very well 00:18:55.010 --> 00:18:57.350 align:middle line:84% encourage more productive investment; 00:18:57.350 --> 00:19:00.230 align:middle line:84% but it would have to be very carefully structured, 00:19:00.230 --> 00:19:03.380 align:middle line:84% both to overcome the very real practical challenges 00:19:03.380 --> 00:19:06.260 align:middle line:84% and the design flaws that have made countries abandon wealth 00:19:06.260 --> 00:19:08.180 align:middle line:90% taxes in the past. 00:19:08.180 --> 00:19:13.020 align:middle line:84% Above all, it could raise very significant amounts of revenue. 00:19:13.020 --> 00:19:16.520 align:middle line:84% And at a time of slowing growth and pressured public finances, 00:19:16.520 --> 00:19:19.250 align:middle line:84% that is an advantage policymakers cannot afford 00:19:19.250 --> 00:19:19.790 align:middle line:90% to ignore. 00:19:23.120 --> 00:19:26.250 align:middle line:84% And finally, we'd love to hear what you think, 00:19:26.250 --> 00:19:28.660 align:middle line:90% so please share your comments.