The Case for a Wealth Tax

Patrick Nulty T.D.

Introduction

Over the last few years a range of measures were introduced by the government in an at-tempt to reduce Ireland’s budget deficit. These measures have disproportionately targeted those on low incomes. Independent analysis conducted by the ESRI showed that the distri-butional impact of budget 2012 hit people on low incomes four times as much as those on high incomes. (i)

Not only is this approach unjust and unfair; it also doesn’t work. Taking money out of the pockets of families struggling to make ends meet hurts the local economy and dampens de-mand. In the first six months of 2012, 200 jobs were lost every week, while €899 million was wiped off domestic demand, according to Central Statistics Office figures.

The ESRI assessed the impact of tax increases and spending cuts on the economy. They found that spending cuts are more damaging to GNP growth and more damaging to jobs than revenue raising measures. In other words, spending cuts will result in more business failures, more unemployment and less deficit reduction. Tax increases, on the other hand, have a far less negative impact and greater yield for the Exchequer. (ii)

There is an alternative to implementing cuts that hurt our citizens. A core part of this alterna-tive would be the introduction of a tax on wealth. Such a wealth tax would not only provide an alternative to these cuts, it would assist the economy by releasing unproductive wealth for productive investment.

It is important to clarify from the outset what a wealth tax is. It is not as reported recently by the Irish Times a tax on high income groups, though such measures should also be consid-ered. A wealth tax is a levy on the total stock of wealth of households. It is a levy on the net property, stocks, shares and savings of wealthy households.

This paper outlines how a wealth tax could be introduced and what is required to maximise its effectiveness.

Wealth Tax – The French Model

The French wealth tax model shows that a wealth tax can be an effective revenue raising mechanism that may be employed by any European Union member state. The French wealth tax is named the “solidarity tax” and it is a key part of government measures aimed at deficit reduction.

The French wealth tax is levied on the assets of households whose net worth (assets mi-nus liabilities) is more than €800,000. Assets must be consolidated for all members of the household. Couples must make a joint declaration whether married or not. Assets held by children below 18 years of age are also included. (iii) Assets include:• Land & buildings (principal & secondary residences, rental property)• Financial investments (quoted & unquoted stocks & shares, bank accounts)• Precious stones• Furniture• Cars, Motorcycles, Boats, Airplanes

The tax is calculated by adding up the total value of assets for the household and deducting all outstanding debts and overdrafts on January 1st of each year.

The tax is only applicable to any of these items if the household’s net worth (after loans, mortgages and debts are deducted) is more than €800,000.

The bands for 2013 will be as follows:

Assets (000s) French Wealth Tax (ISF) Rate applicable• 0 - 800 0%• 800 - 1310 0.55%• 1310-2570 0.75%• 2570 - 4040 1.0%• 4040 - 7710 1.3%• 7710 - 16790 1.65%• above 16790 1.8%

There are a number of measures which make wealth tax avoidance difficult in France, and similar measures here need to ensure that the tax is complied with.

These include:• An exit tax, which already exists on realised capital• A gift tax, already existing under CAT, which deters people from spreading assets amongst family members• Household Asset Consolidation: assets must be consolidated for all household members, so passing them over to a spouse to avoid paying the tax, for example, is not possible

Is there a basis for a Wealth tax in Ireland?

There are two things that are required for the introduction of a wealth tax. First there must be a sufficient basis of wealth which can be taxed. Secondly there needs to be sufficient public support for such a proposal.

This State still has the second highest proportion of millionaire households in the European Union, while the 300 richest people here are reported to be worth close to €50 billion. (iv)

Goodbody stockbrokers estimate total net wealth in Ireland to be in excess of €470bn.

The Credit Suisse’s Global Wealth Data Handbook 2011 offers the best insight available into wealth in Ireland. The report reveals that Irish concentration of wealth is one of the highest in the EU-15. 28% of all wealth – housing and financial wealth – is owned by the top 1% of adults.

The report reveals that the top 1% is made up of approximately 36,000 adults. This group owns approximately €130.2 billion. (v)

There is clearly a substantial base of wealth in Ireland that can be levied and put to productive to use.

What level of public support is there for a wealth tax?

In September 2008 TASC commissioned a survey which found that ‘80% of adults are con-cerned about high levels of wealth inequality in the Republic. (vi)

In addition a survey conducted on behalf of the Community Platform found that 82% of re-spondents favoured the introduction of a wealth tax on individuals who have net assets val-ued at more than one million euro and who have an annual income of more than €100,000. Interestingly, high levels of support were reflected across all age groups, regions and social classes. (vii)

How much could be raised by a wealth tax in Ireland?

There is insufficient data available to conclusively determine how much a wealth tax in Ire-land could take in. The yield rate would depend on what rate of wealth tax is levied and on the thresholds that are set.

However on Tuesday June 7th 2011 the Minister for Finance Michael Noonan T.D. informed the Dáil that a wealth tax in Ireland based on the French model would have a yield of €400 to €500 million per annum. This would make a very significant contribution to our deficit reduc-tion programme and would mitigate the need for substantial cuts in frontline public services. (viii)

Conclusion

Cuts to public services that will hurt people in need of healthcare or that will stifle the poten-tial of our young by withdrawing educational supports, are not an inevitable outcome of our need to reduce and eliminate our budget deficit.

There is an alternative to this cuts agenda, an alternative which will see revenue raising measures that target wealth and high income groups take centre stage. Such an approach would not only be more economically just than cuts that disproportionately hit low and mid-dle income families, it would also lead to faster deficit reduction and economic recovery, by releasing unproductive wealth and supporting the domestic economy.

The introduction of a wealth tax should be a key part of this revenue raising strategy. Other measures which should be considered include:

• The introduction of a 3rd rate of income tax of 48% for those earning more than 100,000 a year which would raise €365 million a year. (Parliamentary response, 26 September 2012) (ix)

Independent think-thank TASC has laid out a menu of revenue raising options in its pre-bud-get submission 2012. (x)

• Extension of the Universal Social Charge to all gifts and inheritances and also to all capital gains, whether liable to Capital Gains Tax or not, to raise €200 million a year.

• The ‘number of days’ test for determining the tax residence of an Irish citizen should be reduced from 183/280 days to 90/183 days, yield unknown.

In addition, a Financial Transactions Tax should be introduced. This could yield to the Irish exchequer €500 million by 2020. (xi)

There is always a choice about whether or not to implement cuts that attack the living conditions of the marginalised, the sick, the poor and the elderly. It is time to make the right choices and pursue viable alternatives such as the introduction of a wealth tax.

References

i Callan, Tim, Keane, Claire, Savage, Michael, Walsh, John R (24/02/2012) ESRI Distri-butional Impact of Tax, Welfare and Public Sector Pay Policies: 2009-2012 http://www.esri.ie/UserFiles/publications/QEC2011Win_SA_Callan.pdf

ii The Behaviour of the Irish Economy: Insights from the Hermes macro-economic mod-el ESRI Working Paper No. 287 Revised Version. 22 April 2010 http://www.esri.ie/User-Files/publications/20090403095300/WP287.pdf

iii Cabinet Gregory, 2012: French Wealth Tax and the new French Exit Tax.http://www.cabinetgregory.com/FRwealthTax.htm

iv Hearne, Rory and Donoghue, Siobhan (2011). It’s time to tax wealth.http://www.irishtimes.com/newspaper/opinion/2011/1202/1224308469069.html

v Credit Suisse Global Wealth Report 2011. https://infocus.credit-suisse.com/data/_product_documents/_shop/323525/2011_glob-al_wealth_report.pdf

vi TASC, 2008. The Solidarity Factor -Public Perceptions of Unequal Ireland.http://www.tascnet.ie/upload/PDF%20Survey%20Unequal%20Ireland_29_09_08_FI-NAL1.pd

vii Community Platform, 2010.Community Platform launches campaign for the introduction for a wealth tax: http://communityplatform.ie/wealth-tax.html

viii Community Platform, 2010.Community Platform launches campaign for the intro-duction for a wealth tax: http://communityplatform.ie/wealth-tax.html

ix Noonan, Michael 2012.Parliamentary responseWritten answer to Michael Conaghan TD, Dáil Question No 43, 26th September 2012.

x TASC, 2011. Pre-Budget Submission 2012.http://www.tascnet.ie/upload/file/Budget2012_final.pdf

xi Childers, Ness (2012) Childers welcomes Oireachtas hearings on bankers tax http://www.labour.ie/press/listing/13389965207345444.html

Published by Patrick Nulty T.D.

01 6183133 patrick.nulty@oireachtas.ie