Professional classes stand in way of tax on the super-rich | Phillip Inman

The professional classes act like a Praetorian Guard for the super-rich.

Having acquired some of the trappings of being rich, they defend the privileges of wealth – land, property and pensions. They do this as if they – company managers, lawyers, doctors, judges, senior civil servants, architects and chartered this and thats – were the main beneficiaries.

Crucially, tax is a hill that many upper middle-income gen Xers and baby boomers are prepared to die on. That is, they will die at some point, and want to take as much money with them, whether as a sign of success, to secure their families financial security or to give to charity. Whatever the reason, they definitely don’t want democratically elected bodies – national or local – to have the money.

It is true they pay a much higher proportion of the government’s tax receipts than they did 15 years ago, hence their reluctance to pay any more.

It is an understandable stance, except that the tax system they now defend is one that is so complex and riddled with distorting incentives that it is slowly destroying the economy. And it allows the super-rich to escape almost all obligations to support the society that gave them huge wealth in the first place.

The professional classes appear to care little that their defence of the current tax system undermines the incentive for work, and especially to work as a salaried employee, or that the current tax system deters business investment.

They have calculated that their high level of wealth will be enough to cash out, hopefully as part of an early retirement package, live on the proceeds for the rest of their days and hand on the surplus to their favoured recipients.

It might seem unfair to pick on a particular group, but wealthy gen Xers – those born from 1965 to 1980 (making them 46 to 61 years old) – and baby boomers born after the war and before the 1960s really began to swing, are the people in charge of pretty much everything; and, as such, are a powerful lobby against changes to the tax system.

Sparks are about to fly because one of the battlegrounds in Andy Burnham’s first months in office will be how to raise funds to support a wide array of measures he hopes will improve living standards.

The new prime minister’s ability to borrow more funds will be limited, leaving his advisers with little option but to raise more tax.

Taxing the rich will fit with his pledge to make the government “more Labour” to please the left flank of his party, which still flexes its considerable muscle despite Jeremy Corbyn’s expulsion.

The tax change that would do more for the economy and would introduce a huge dose of fairness into the system would be a land value tax (LVT). Anyone who wants to read more about how we could ditch council tax and stamp duty – the two main taxes on property – in favour of an annual tax on the value of land can see the latest discussion paper by Dan Neidle’s Tax Policy Associates.

It replaces the £45.2bn raised by council tax and the £11.5bn from stamp duty with a flat LVT rate of 1.28%. Under the Neidle scheme, LVT raises £56.7bn. By his calculation, about 70% of homes pay less than their current council tax. These homes are mostly outside London and the south-east.

The super-rich would be unable to dodge the tax because they cannot shift the land they own overseas.

Economists are almost uniformly in favour. One of the leading proponents, Fred Harrison, has written about how LVT was discussed in the highest circles during the early 19th century, just as wealth was being accumulated and largely untaxed, but defeated by lobbying from the newly minted professional classes.

Burnham has spoken in favour of a land tax, and he could phase in a scheme that replaces council tax and stamp duty, setting England, and possibly the other countries of the UK if they follow suit, in an exciting new direction towards land being used more productively and not as a store of wealth.

In the meantime, he needs extra cash. There are people close to the prime minister lobbying for a rise in capital gains tax (CGT) to match the thresholds for income tax. This would discourage taxpayers from accumulating wealth at the expense of income, which has been a trend for the last 40 years.

Another, possibly complementary idea, focuses on those families with more than £100m in assets, which studies have shown can pay as little as zero tax and have an average tax rate at least half that paid by the bottom 80% of households.

These wealthy families can sidestep CGT because they are so rich they do not need to sell assets and trigger a much higher CGT payout. These initiatives could raise £10bn-plus each.

A tax commission that reported almost six years ago recommended a one-off wealth tax that raised more than £300bn.

Tackling the issue will not be for the faint-hearted. As long as the professional classes remain determined to protect their privileges and luck from 40 years of pension and property accumulation at the expense of economic growth, Burnham’s resolve will be tested.

This post was originally published on this site.