Taxing sums for Leprechauns

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?