(Bloomberg Opinion) -- Last week at Davos, a group of self-declared rich people demanded that elected politicians force them to pay more tax. The “patriotic millionaires” group announced in a letter, signed by 260 of them, that they would be “proud to pay more” if it were to make for better societies. They also insisted that they were not alone in wanting to pay more. Far from it.
Surveys done by the group showed that 75% of those who responded supported a 2% annual tax on the wealth of billionaires and 58% supported the same on those with more than $10 million in assets.
I’m not sure any of them have thought this through properly. That’s because all taxes creep. The patriotic millionaires might say their tax will only be for the very wealthy, but we all know how that works out. The threshold will be dropped. First, it will be those with $10 million, then $5 million, then suddenly those with a net worth of $2 million will be considered to have broad enough shoulders to take on an extra burden.
Then there will be fiscal drag — whatever the threshold is, it will not be moved up in line with inflation. Before too long, 20% of the nation will be paying the tax — and all those who supported it on the basis that only other people would be paying it will feel a little disappointed (a good few of the signatories of the letter will be on this list). It’s this kind of relentless fiscal drag that means that by 2027, one in five UK taxpayers look likely to have a marginal rate of 40%-plus.
You might also note that most countries already have an awful lot of levies that act as effective wealth taxes. In the UK, there is inheritance tax, capital gains tax (which isn’t indexed to inflation and therefore taxes real wealth) and stamp duty (on houses and on shares), for starters. All these are easier to collect and in most cases harder to avoid than the kind of seemingly simple tax the patriotics have in mind. Note that in the years before France canceled its wealth tax, an estimated 40,000 millionaires left the country to avoid it. Add it all up, and it’s hard to see the idea of more wealth taxes making sense to the thinking politician.
That’s the bad news for the UK signatories to the letter (of which there were a surprisingly large number). The good news is they don’t need to wait for political action. Want to pay more tax? You can.
Stop putting money into tax-free savings vehicles such as ISAs. Pay capital gains and dividend taxes instead. Don’t use a pension. Pay full income tax and full capital gains on the money instead. Make sure you don’t use the Enterprise Investment Scheme (which offers tax relief for investing in very small businesses), don’t claim Entrepreneurs Relief and don’t park your money in Alternative Investment Market-listed businesses, forestry or farmland (the last three of these come with inheritance tax benefits).
Also, stop giving gifts out of income to your kids (these are not liable for inheritance tax if the gift doesn’t affect your own living standards). Hang on to all your own money for IHT purposes instead — you want to pay full whack. Finally, you should also stop claiming Gift Aid when you give money to your various favored charities. This gives you and the charity back some of the income tax you pay — hence reducing the amount that ends up with the Treasury. There’s no need for that: Just don’t tick the Gift Aid box and that income tax will stay with the state.
In the US, you could create a similar tax burden bump-up for yourself simply by moving from a low-tax state to a high-tax state, never gifting cash to your kids (too many tax exclusions) and never starting a foundation (you don’t want that 30% income tax deduction).
See how easy this is? I have more good news for you. You can also give as much as you like directly.
In the US, the Bureau of the Fiscal Service will accept gifts to reduce the public debt. And in the UK, the Debt Management Office (DMO) is always happy to take your money to do the same. UK public debt is currently 100% of GDP, £38,000 ($48,3967) per resident of the UK and a grand total of £2.5 trillion. Less debt means less interest to pay and more cash left to allocate to all the things you think the state should be doing more of.
There’s plenty of room for improvement here, too: In the year to March 2023, the DMO received a mere £47,000 in gifts, something that rather suggests not quite as many people are behind the patriotic millionaires as they might think. Still, there you have it. There is no need to beg to pay more in tax, here or in Davos. If you really want to do so, you already can.
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To contact the author of this story:
Merryn Somerset Webb at [email protected]