Liberal policy-makers in the UK are doubling down on stupid.
Having already messed with long-established tax policies for so called “non doms”, or wealthy foreigners who camp out in Britain, and created what Bloomberg calls “the biggest exodus of wealth in the UK’s recent history”, now Labour Party brainiacs are talking about imposing a wealth tax to plug their budget hole. England could soon find itself the poor man of Europe.
Why do we care? Because the same loud politics of envy that are driving Unite, the UK’s biggest trade union, to push for “tax the rich” policies has its close cousin in the Democrat Party. Bernie Sanders, Elizabeth Warren and for sure Zohran Mamdani spout the same self-destructive fixes, which prove disastrous time and time again. Wealth redistribution is not wealth creation.
Labour’s troubles started when they chucked a 200-year-old tax break that had long attracted monied non-domiciled residents to their shores. The rule historically required non-doms to pay UK taxes only on the money they earn in the UK; such individuals did not have to pay taxes to the UK government on money made elsewhere in the world, unless those earnings showed up in a UK bank account.
For well-off folks, the rule was a valuable (and legal) way to save on taxes, as they could name a lower-tax country as their domicile.
The change has spurred a mass exodus of people now moving to lower-tax locales, much like high taxes in New York have driven the wealthy to decamp for Palm Beach.
In fairness, the former conservative government was also considering tossing the non-com rule; one of the reasons the Tories lost is they have no dedication to low-tax, pro-business and pro-growth policies such as those adopted by Donald Trump.
Bloomberg reports that more than 4,000 companies have exited the UK in the past year. More are coming, with a recent study showing the change could cost thousands of jobs. The government has predicted that dumping the non-dom break will bring about £33 billion in extra taxes; the current exodus suggests the tax rewrite might actually cost money.
So, faced with the disastrous results of one bad tax move, now Labour is thinking they should impose a 2% wealth tax, just to make sure every successful person ends up in Paris or Dubai. Most European countries have experimented with a wealth tax; almost none has found the approach successful. In fact, eight nations have rescinded the levy.
Why? For starters, a wealth tax is monstrously hard to administer. Imagine an entire country caught up in messy divorce proceedings, with people hiding their assets, lying about valuations and trying their best to take their valuables to a new locale. What is the real value of a house that needs upkeep, or a painting that hasn’t ever been traded, or a private investment that isn’t for sale? Instead of trying to trick an angry spouse, everyone ends up attempting to deceive internal revenue, a wasteful undertaking.
Secondly, a wealth tax is essentially double taxation, and unfair. People paying it have already been taxed on the money they earned, which they then invested.
Labour is hard up for money in part because the government failed to follow through on pledges to cut welfare payments. The UK’s Office for Budget Responsibility predicted Labour’s U-turn on cuts to disability payments and winter fuel subsidies would increase deficits and debts. Hence, the possible pivot to a wealth tax.
You cannot tax your way out of a budget gap; growth, promoted by lower taxes and pro-business regulations, is the only answer. UK growth this year is projected at slightly above 1%. No wonder the ruling party has an approval rating of minus 54 – just 13 per cent approve, against 67 per cent who disapprove!
Incredibly, it could get worse.
