A wealth tax decks Biden’s PC—insufferable political opposition

Tax-raising policies provoke opposition, and rival politicians may seek to capitalise on this opposition by promising to lower tax rates, or repeal unpopular policies outright. While a crude rational choice model of voting behaviours might lead one to conclude that recurring wealth taxes are likely to elicit widespread popular support – because the overwhelming majority of people are not, and will never be, wealthy enough to pay them – an examination of recent fiscal history suggests otherwise. Many developed democracies have abolished their wealth taxes over the last four decades, citing both practical and normative objections. In some cases, wealth taxes were repealed or suspended only to be reintroduced, and then subject to renewed political attack.

This matters because a net wealth tax focused on the very wealthiest, levied at a sufficiently low annual rate to avoid a taxpayer exodus, requires time in order to achieve its distributional and revenue-raising goals. Recent experience suggests that a durable political consensus around such a policy will prove difficult to achieve. Introducing a wealth tax in the absence of such consensus means that it is likely to become a political football, subject to an ongoing cycle of reform, repeal and reintroduction. This undermines the predictability of the tax system, increases complexity for taxpayers and tax authorities alike, while also multiplying opportunities for investment and accounting strategies that aim at circumventing the tax charges in question.

By contrast, one-off wealth taxes are less vulnerable to changes in the political climate, and thus more likely to achieve their revenue and distributional objectives. The liability is fixed upfront, so political mobilisation and lobbying by taxpayer groups will be of limited value. True, a future government could conceivably cancel instalment payments that were still outstanding, though this would prove both expensive for the government and unpopular among those who had paid their share sooner – although the fate of Lloyd George's land taxes in 1920 shows that a sufficiently unpopular tax can end up being refunded.

Perhaps the biggest political obstacle to the introduction of a one-off wealth tax is the fact that it is politically costly, yet some of the fiscal benefits that it generates will redound to the credit of future governments – assuming annual payments extend across at least one electoral cycle, and/or the funds are used to pay down debts. Why expend political capital in the pursuit of additional revenue (or lower debt levels) for one's successors? Yet the same objection could be levelled against any significant revenue-raising measure. The time-bound nature of a one-off wealth tax means that revenues are likely to fall primarily to the tax-introducing government, depending on the timing of the tax and the length of the electoral cycle, as well as on factors such as inflation and any interest charges applied to tax liabilities paid by instalment.