Nobody likes paying taxes. We hate income taxes such as the USC. We loathe consumption taxes like Vat. We truly hate even the idea of a wealth tax.
Everyone feels like someone else should be taxed to pay for the services we are all provided by the state. If you are blessed with a high income and lots of property or financial assets like bonds and shares, you’ll point out, correctly, that people like you - the top 5 per cent - already pay well over 50 per cent of all taxes. You’ll point out, again correctly, that after the next budget, far more than half a million workers will pay almost no income taxes, and surely will receive more in benefits from the state than they contribute in taxes.
You’ll point out that the Irish state tops the OECD’s group of rich countries in terms of the redistribution it effects from rich to poor, which means people like you contribute more than your fair share.
You’ll point out that as the property bubble burst, relative inequality fell in Ireland because people like you, who took all the risks and reaped the rewards for a short time, lost the arse out of your trousers as the value of your assets collapsed.
You’ll point out that the average age of entrepreneurs in Ireland is rising from its historical average of 37 to 39 years of age, because of the huge levels of indebtedness members of this generation now have. Rather than being able to walk into a bank and be supported to take risks, when many people of this age group walk into banks today, alarms go off because they are swimming in debt. That means growth in the future won’t be as high.
You might look at the first release of Ireland’s household finance and consumption survey, a pretty extensive look at income, debt and wealth in Ireland. You’ll point out that it shows a few really interesting trends.
First, the main ‘wealth’ of most people in Ireland is property. About 53 per cent of the total value of all assets assessed in the survey was just the main residence. Land made up 21.4 per cent, and other property was about 14 per cent. The rest was mostly savings accounts. Only 13 per cent of all households had shares, and 7.5 per cent had bonds or mutual funds.
Secondly, you’ll see that this wealth is concentrated among a small fraction of society, and crucially, a large proportion of the population has large levels of debt.
Thirdly, educational level was a key differentiator. You probably already know this. For example, 96.8 per cent of all households headed by a person with a postgraduate level of education had savings, while households in the top fifth had three times as much in savings as the median group of households.
You’ll point out that Ireland has a plethora of taxes on wealth already. As well as inheritance and gift taxes, you pay dividend taxes on income from companies, capital acquisitions and capital gains taxes on assets you buy and sell, if you own a business you’ll pay corporation tax, if you own a home you’ll pay a local property tax, and if you save money you’ll pay Dirt tax. You might argue that talk by many political parties of introducing a wealth tax feels a bit like adding a hay bale to a camel’s back: somewhere in there is the crucial straw, but who cares which one it is?
Wealth taxes try to do something pretty straightforward: redistribute from those with the stock of wealth towards those without that stock. No problem there. The issues come in the implementation of this tax, because you have to value that stock and find a way to convert it into a flow of payments to the state that isn’t more costly in administrative terms than any benefit from the taxes it takes in. Sometimes this isn’t hard, because some types of wealth ‘emit’ flows in the form of things like interest, dividends, rents and royalties.
Then you have to worry about exemptions. What kinds of asset are included, and what aren’t? If you own a bond issued by, say, an oil company, and a state savings bond, are they to be treated the same? Who values these assets? The implementation tends to be rife with exemptions and workarounds. So your granny’s prize bonds might be exempted, or they might not. The farmer’s land might be exempted, or it might not. Both are certainly ‘wealth’ as we broadly defined it, but I would imagine politicians would rather neuter themselves with rusty butter knives before touching either issue.
So, really, we’re talking about ‘high net worth’ individuals with, say, €1 million or €2 million in net worth - the difference between the value of their assets and their liabilities.
You can see pretty quickly that all the arguments will centre around the kinds of assets to be taxed. Which ones might get taxed? Some obvious assets like land, houses, commercial property, business equity, and agricultural assets including livestock can get taxed, but you could conceivably see assets like vehicles, cash, current accounts and deposits, life assurance reserves, pension fund equity, securities like bonds and derivatives, antiques, art collections and even jewellery included for assessment.
Enda Kenny, or his successor as taoiseach, might be coming for your engagement ring. I joke, but there are households in Ireland with all of these assets, and more.
You might say something like this. I pay a bucketload of tax already, far out of proportion to what I’d pay in other countries. I have access to accountants and advisers, and I’ll just move out of the taxed-asset classes, revalue my assets to fall below the threshold, or take my wealth and move it elsewhere. You’ll lose any income you might get via other means.
You might say wealth taxes are naked ‘soak the rich’ populism, unworkable and ultimately a waste of time, as the wealth tax put in place between 1975 and 1978 in Ireland was.
You might say all of that. But you’re wrong.
Your assets might be the results of your hard work and your genius, or your winning of the genetic lottery. Regardless, the contribution the wealthy make to our little country simply isn’t enough to run the state at first world levels.
The truth is that in 2002 in Ireland we got 26 per cent of all our tax revenue from capital. That fell to 22.2 per cent in 2011, and is barely 22.5 per cent in 2012. In 2008 the state got €349 million from capital taxes, and in 2014 it got €356 million. That’s a paltry amount. Wealth taxes can be well designed, and if they fail in their implementation, so be it.
Everyone should pay what they can, and the wealthy should be the first to step forward, not hide behind their accountants and offshore financing vehicles.
The exact same argument holds for the nearly 750,000 workers being pulled out of the USC, by the way. An unavoidable tax is the best kind of tax. Better again, an old and unavoidable tax. Wealth taxes should be tried. You won’t like them, but society will benefit.