Fintan O’Toole reckons there is a pot of gold, waiting just over the rainbow for us to reclaim from the tax avoiding leprechauns in whose possession it currently lies. He is advocating a wealth tax on the Celtic Tiger’s super-rich in today’s Irish Times, which he reckons is as a viable alternative to spending cuts in bridging the fiscal deficit. While it may make us feel better to decimate their holdings, it’s unlikely to make much of a difference to the deficit.
Fintan informs us that the richest 5% own 40% of the wealth, which equated to around 200bn in 2006 in monetary terms (likely substantially less today). If we were to tax this at a reasonably high rate of 33% (the French wealth tax is just over 1%), we would net around 66bn in a once off windfall (If we’re to make the 33% wealth tax an annual tax, we’d have no wealth very, very quickly). The annual budget deficit currently stands at around 22bn p.a., and if the recession were to continue into next year, that would grow. So even a swingeing once off wealth tax could only fund the gap in exchequer finances for less than 3 years!Incidentally, it’s unlikely our super-rich have that money lying around in cash, they’d probably have to sell assets – possibly including their businesses, resulting in a further loss of wealth in the economy. e.g. I suspect that Ireland’s richest man Sean Quinn holds most of his wealth in his company, and under such a scheme he would have to sell 1/3 of it to fund his tax liability.
I’m not sure what effect a very low wealth tax would have. Could even lower wealth taxes discourage the super-rich from staying and investing here? If so, what effect would that have on economic growth and employment in the long term?