Seumas Milne's mad wealth tax
Seumas Milne believes he has the answer to Britain's economic woes. Unfortunately for him, he is spectacularly wrong
When the government closes its books in April 2013 it is estimated that it will have borrowed £119 billion in the financial year. That works out at about £326 million pounds added to Britain’s national debt every single day, £13.6 million every single hour, £226,000 every single minute, or £3,766 every single second of fiscal year 2012/2013.
Colossal as that is it represents an improvement on the £4,946 per second that Labour was adding to the debt upon leaving office.
There are some who see no problem with this. And there are those who acknowledge the problem, but think the solution to runaway government debt can be found not in cutting government spending but in raising government income; massive tax rises, in other words.
But where will we find the goose who will be content to sit still and not only be plucked but stripped to the bone to fund our government, without hissing the house down?
Seumas Milne, the Guardian’s resident, privately-educated Stalinist, thinks he has an answer. “The richest 1,000 people in Britain have seen their wealth increase by £155bn since the crisis began”, Milne observes, “more than enough to pay off the whole government deficit of £119bn at a stroke”. Phew, that’s that sorted then!
Except of course it isn’t. For someone so expensively educated Milne appears unable to tell the difference between assets and income, something any first year finance student would be expected to know by the end of their first term.
That £155 billion increase in wealth will be, as the Bank of England reported recently, mostly down to rising asset prices. This will be the increase in value of property, stocks, bonds etc., which are mostly held by the better off.
But how do you tax the increase? Bear in mind that you can only pay tax with cash. If your house has risen in price by, say, £10,000, and, as Milne suggests, a tax of 100 percent was levied on that asset price increase you would need £10,000 cash to pay the tax. But your house increasing in price by £10,000 does not mean that you have £10,000 more cash lying around.
If you do not have the cash to pay Milne’s wealth tax then you will have to swap your asset for cash. You sell your house for cash and pay your £10,000 tax. Then you go and find a new place to live.
There are two glaring problems that follow. First, if everyone tries to swap their assets for cash at once by selling them then their prices plummet. You would see house prices fall and an increase in negative equity; you would see share prices fall and companies have millions wiped from their net worth. Some portion of the asset price increase you intended to tax away disappears.
And, secondly, what do you do next year? Even if Milne’s mad asset tax covered this year’s deficit by expropriating the assets of the rich, those assets are then gone; they won’t be there to tax again next year. But the deficit will still be there.
It doesn’t take much thinking to figure this out, a couple of minutes or so. Is it too much to ask that people like Milne expend a little mental energy before making such stupid proposals?
John Phelan is a Contributing Editor for The Commentator and a Fellow at the Cobden Centre. He has also written for City AM and Conservative Home and he blogs at Manchester Liberal. Follow him on Twitter @TheBoyPhelan
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