Dominic Alexander dismantles common myths around wealth taxes as ‘discredited truisms of a broken economic system’ 

The richest 1% in of people in Britain have more wealth than the bottom 70%, and yet according to Oxfam, their effective tax rates are only 0.3% of their wealth, which is a rather lower proportion than the rest of us pay. In 1990, fifteen billionaires existed in the UK, but by 2023 that number had swollen to 171, each with an average of £4bn in wealth. 

Currently, the expectation from many quarters is that Reeves will have to raise taxes in the autumn budget just to meet her arbitrary fiscal rules, let alone to do anything to relieve the pressures of the cost of living, or ameliorate the crisis across the public sector. Why not then tax the super-rich to provide the necessary funds? The idea has considerable public support, even from a Blairite MP like Liam Byrne, but there has equally been considerable heated opposition to it from the quarters you’d expect. Reeves did rule it out in 2023, although recently it seems that it might be back on the agenda. 

There is not one but many possible forms a wealth tax could take, but regardless of those variations, the arguments against them revolve around some well-worn tropes of neoliberal thinking. An organisation called Tax Foundation Europe, funded by right-wing libertarian dark money from the US, sums them up neatly: ‘They raise little revenue, create high administrative costs, and induce an outflow of wealthy individuals and their money. Many policymakers have also recognized that high taxes on capital and wealth damage economic growth.’ All these arguments are routinely wheeled out by the right whenever the subject is raised. 

1. The rich will just leave 

This claim is perhaps the most commonly made, but it rests on very little evidence. A recent wealth tax in Norway has coincided with the relocation of thirty out of a population of 236,000 millionaires and billionaires in the country. The relocation of wealthy Norwegians is higher than in previous years, but amounts to 0.01% of the cohort, so is not compelling evidence of wealth flight. Hyperbolic claims are repeatedly made that the wealthy will flee high tax regimes, or are already leaving the UK for fear of them, but they don’t stand up to scrutiny. Despite some evidence of the wealthy leaving Spain due to its ‘feather-light’ wealth tax (on the wealthiest 0.5%), it successfully raised €1.8bn in 2023, for example. 

It is unlikely that the UK would suffer a significantly greater wealth flight than Spain, and what exactly would we be losing anyway? 

2. The rich are needed to create jobs and growth 

This canard is simply the same ‘trickle-down’ economic theory that has been proved wrong in practice time and again over the last fifty years. In fact, the more capital that has accrued to the top of society, the more growth has slowed down. There has in fact been a massive investment strike on the part of capital for decades now, particularly in the UK. A wealth tax could even help with this, if it encouraged the holders of capital to invest instead of hoarding it, as the alternative would be to lose it to the state. This would be one means of altering the behaviour of capital, rather trusting that wealth will somehow beget growth of its own accord. 

The familiar mantra that ‘entrepreneurship’ needs the carrot of fabulous wealth to get going is a simply fatuous neoliberal just-so story. Arguing that a 1 or 2% tax on a fortune above £10bn, for example, means that some putative business-genius will decide to stay in bed rather than invest is just not a serious proposition about how capitalism works. 

In any case, the equation between big capital, jobs and growth fails to add up altogether. High capital investment does not always or even usually correlate with labour-intensive industry. In a developed country like the UK, employment growth comes much more from public services, which depend upon state investment. The idea that taxes on capital would significantly dent the willingness of capital to invest is an entirely self-serving argument on the part of wealthy interests, which ignores the greater capacity of state investment to lead to jobs and growth. 

3. Other countries are abolishing wealth taxes, so we shouldn’t have one 

This argument is self-evidently nonsense. The repealing of wealth taxes elsewhere (eleven European countries have done this in the last 25 years) may only reflect the prevailing right-wing political climate in the Western world, and may well have more to do with the flows of dark money into the junktanks, like the Tax Foundation noted above, which lobby against such taxes, than any inherent problem with them. Apparently, both Germany and the Netherlands abolished their wealth taxes, under legal challenges that showed them to be unconstitutional. That’s a problem with the law in those countries, then, not an argument against a UK wealth tax. 

4. Wealth taxes raise little revenue 

This argument is premised on the notion that because the wealthy will flee the country and take their money with them, wealth taxes are self-defeating. Again, the evidence does not back this up. In so far as some wealth taxes can be said to have underperformed, this is due to their being badly designed, and full of loopholes. The answer is to design taxes in order for them to succeed, and not to allow politicians and civil servants to sabotage them at the planning and legislative stages. One opponent claims that ‘the complications of the real world ensure that taxes are rarely implemented according to purist blueprints’, but this is due to loopholes exploited by the rich, and reflects ‘how legislation is made in practice’. This is just another way of saying that corporate lobbying ensures that law is made in the interests of capital. The answer to that is better politics, it is simply not an argument against wealth taxes. 

5. They are costly to implement 

This entirely depends upon the design of a wealth tax. If it is restricted to the super-wealthy, then this limits the cost of the valuation of assets, for example. Oxfam supports a tax with a £10 million threshold, which ‘would only affect 0.04% of the population – approximately 20,000 individuals.’ Moreover, the proportion between the costs of enforcement and the revenue that would be raised render the former entirely trivial. An LSE report notes (p.5) that a 1% tax on fortunes over £10m would raise £43bn while costing £0.6bn. In any case, part of the general problem in the last few decades has been the starving of HMRC of the funding it needs to crack down on tax avoidance by the rich. One could say that this is another false economy of austerity, except it was certainly the intended result in the first place. 

6. Wealth taxes can in effect be at or over 100% 

The argument here is that, over the threshold, even a 2% tax on interest or capital gains wipes out gains on safe (therefore low-yield) investments, and if applied regularly, can amount to taxation over 100%, eliminating further growth of wealth, and ‘disincentivising’ saving. Well, yes, that’s part of the point. If a tax is set at a very high threshold, such as Oxfam’s £10m, then the social interest in redistribution is more important than the right to infinite accumulation. The arguments against wealth taxes always turn on the assumption that huge fortunes have a right to exist, and are somehow virtuous in themselves. They do not and are not. They do not have any social value, they do not ‘trickle down’ in any way, and they do not now contribute to economic growth, if they ever really did.   

7. They are complicated and usually badly designed 

This depends on the nature of the tax involved, and comes back to the problem of politics. If they are flawed, it is usually because wealth lobbyists have convinced politicians to include so many exemptions and so forth that they become unenforceable. There are however many quite simple taxes that could be raised with few additional costs that would be very lucrative. The standout one would be to equalise capital gains tax (CGT) with income tax, Oxfam says this would raise £14bn a year. CGT is only paid by around 0.65% of the adult population (350,000 people), and most CGT revenue only comes from the 0.02% of the population who make gains of over £1 million. National Insurance could be applied to investment income, for another £10.2bn. Loopholes in inheritance tax could raise £1.4bn, and a 4% tax on share buybacks, would raise £2bn more. 

Another simple way of redistributing wealth that seems to have been forgotten is good old graduated income tax. Why are there now only three rates, the basic tax rate of 20% over £12,570, 40% on income over £50,271, and 45% over £125,140? Why not have additional steps after £50,000, and much higher rates of taxation above the highest rate? Wealth taxes are needed as well, since the wealthy have always found ways of squirreling money away from the reach of income taxes, but we need to re-establish the principle of progressive taxation that you should pay higher proportions of tax the more that you earn. 

There is nothing inherently complex about wealth taxes, and the evidence that they would damage economic growth is thin at best. The arguments against wealth taxes are no more than the discredited truisms of a broken economic system.