In every country, public finances have been knocked out of joint by the pandemic and the collapse in economic activity caused by lockdowns and social distancing. In addition, there is a growing sense that state planning is back — not in the form of classical socialist economics but in an acknowledgment that governments have a role in shaping markets and giving strategic direction to private investment. Growing inequality, financial instability, the pandemic and climate change have all contributed to swing back from the post-1980 liberalising consensus to an acceptance that smart government intervention in the economy can make for more and better shared prosperity.
For these reasons, politicians and policymakers are increasingly looking at increasing taxes. Now would be a terrible time to do so. But in coming years, it is likely that tax takes will go up.
It is exactly the right time, therefore, to think hard about the best way to tax. At the start of the summer, we covered the launch of a research initiative on wealth taxes, which sought to build a solid evidence base to assess whether the UK should introduce a net wealth tax (that is a tax levied on individuals’ total net worth — the full value of their assets minus any debts).
The Wealth Tax Commission this week published its final report. In advance of that, it published a series of background evidence papers. This is a treasure trove of up-to-date research on net wealth taxation — its history, international comparisons, theoretical motivations for and against net wealth taxes, and estimates of their behavioural, economic and public finance effects. No serious debate on taxation, in the UK or anywhere else, can afford to ignore it.
There is far too much to do justice to it here, so let me focus on some of the quantitative work. The commission has done yeoman’s work in calculating the revenue that could be raised from a net wealth tax at various rates and thresholds — crucial factual input to the relative merit of wealth taxes against other tax policy options. It has even built a wealth tax simulator, which I encourage you all to try to estimate the revenue that could be had from the rates and thresholds you may personally prefer.