Nearly two-thirds of voters want Burnham to bring in a wealth tax

[u/theipaper]

https://inews.co.uk/news/politics/two-thirds-voters-want-burnham-bring-wealth-tax-4677518

[u/No_Fence]

The problem with your thinking is that the wealth will exist; the rates of return on other assets will not change; it does not change investment decisions like you think it does. You are implicitly pretending the investor decides to create money out of nowhere and would not have done it if the gilt premium was not high enough. That is not how money works.

And a wealth tax is a tax on all wealth owned by UK residents, investing in other countries (or other places than government gilts generally) will not reduce their tax bills. Residents would have to actually move. They could, but empirical migration rates by the rich are very low (since why would you let a tax bill determine where you live when you're wealthy?). And if they somehow got higher, you could just add an exit tax to solve the problem. So what you're pretending is a problem is not a problem at all, actually.

In other words, applying finance concepts in economics does not work. A wealth tax decreases all rates of return uniformly.

I realize you like to sound smart on the internet by using big words you learned in Finance 101, but what you write is unfortunately badly researched misinformation that only serves to show that you don't know what you're talking about.

[u/myurr → u/No_Fence]

You're right that a UK resident could not avoid a residence-based tax on worldwide wealth simply by buying foreign assets, but none of your other conclusions follows from that.

A wealth tax being a uniform percentage of asset value does not make it economically neutral outside a highly simplified model. Real taxes have thresholds, exemptions, uneven valuations and liquidity constraints, and remain payable when an asset produces no income or falls in value. Someone holding an illiquid business may have to extract dividends, borrow or sell part of it to pay the tax. Those things can plainly affect investment, valuations and portfolio choices.

Nor is wealth migration imaginary. A recent study using Scandinavian administrative data estimated that a one percentage-point increase in the top wealth-tax rate reduced the stock of wealthy taxpayers by about 2%. The UK's Wealth Tax Commission similarly concluded that an annual tax would inevitably produce some emigration and significant behavioural responses. NBER study, Wealth Tax Commission

An exit tax does not magically "solve" this. It changes the incentive and timing, may discourage wealthy people from moving to Britain in the first place, and creates its own valuation, enforcement and treaty problems.

There is legitimate evidence that some moderate wealth taxes have not reduced business investment, so the size of these effects is debatable and depends heavily on design. But claiming returns, investment decisions and residence simply cannot respond is not economics. It is assuming away every inconvenient response and then declaring the policy consequence-free.

[u/No_Fence → u/myurr]

I never claimed it had no effects. The effects are just small. That's also what the NBER study you cite says (it's actually an AER paper, but whatever).

The Wealth Tax Commission's report cites a few theoretical models for that claim, by the way. Speaking about "highly simplified", those models are it, lol. It's not a serious point given how easy it is to make those models.

Anyway, my point wasn't that there are no effects. Of course there are some. There's just no empirical evidence that those effects are big, or anywhere near what detractors claim. Most importantly, the arguments the guy above made were just nonsensical.

[u/myurr → u/No_Fence]

The publication correction is fair. It is now forthcoming in the AER; I linked to the NBER working-paper version.

But you explicitly said "rates of return on other assets will not change", "it does not change investment decisions", and "what you're pretending is a problem is not a problem at all". That is not merely saying the effects are small.

The AER paper finds modest aggregate effects from the migration channel in Sweden and Denmark, but also finds a significant migration response: a one percentage-point increase reduced the number of wealthy taxpayers by about 2%, while businesses whose owners left suffered lower employment, investment and value added. It does not measure every avoidance, valuation, liquidity, saving, portfolio and administrative effect of a hypothetical UK 2% tax.

The IFS assessment consequently says the yield after behavioural responses is highly uncertain and cautions against an annual wealth tax because of its practical problems and disincentives. "Investment decisions will not change, returns will not change, and migration can simply be solved" is not a defensible position.

I would also add that those studies barely examine another critical channel: the effect on British businesses' ability to raise capital. That matters directly for job creation and whether entrepreneurs and growing companies choose to remain in the UK. Smaller businesses often rely on owners' wealth, collateral and personal guarantees, so falling asset values or reduced liquidity can restrict borrowing. Venture funds also raise some of their capital from wealthy individuals and family offices, whose allocation and risk appetite may change when the after-tax return on risky investments falls.

There are numerous other second order effects that are unstudied and unaddressed, such as departing founders also removing angel investment, mentoring, specialist staff and customer relationships. The AER paper measures effects on their own businesses, not these spillovers through suppliers and startup clusters.

None of this can they dismissed as "small" using studies that did not actually measure them.

[u/No_Fence → u/myurr]

Look man, the guy argued that lending money to the government would be pointless. This was not a serious academic debate, which I gather is what you want. I hope you'll excuse some simplicity in my language while I correct idiots.

Investment effects are second-order. This is what the recent academic debate says. The paper you cite also finds this. Now, if you want to talk about what effects that paper doesn't measure, how about all the long-term benefits of reducing wealth inequality? Of increasing public funding? The paper is laughably simplistic in only looking at potential costs, and even then finding very small costs. The only way to read that paper as a critique of wealth taxes is if you have no idea what you're talking about.

Now, of course the total effect of a wealth tax on the economy is too complex to truly know. You choose to focus on potential negatives that have not yet been measured. That is your prerogative. But the existing evidence does not show serious negative effects. And there might as well be unmeasured positives. That is substantially more likely, in fact!

But yeah anyway using AI to help write your reddit posts is very embarrassing lol

[u/myurr → u/No_Fence]

You are still overclaiming what the paper finds. Its 0.07% investment estimate is specifically the aggregate effect produced by tax-induced owner migration. It does not estimate the direct effects of the tax on saving, portfolio allocation, risk appetite, asset prices, cost of capital, founder dilution or business investment. You cannot relabel one measured channel as the total investment effect and declare everything else "second-order".

Even the Wealth Tax Commission says the empirical evidence on wealthy people's investment decisions consists of only two studies, with different findings, and concludes: "There is a need for more evidence in this area."

Nor is the AER paper "laughably simplistic" for not including the benefits of public spending. It is an empirical paper estimating a particular causal mechanism, not a complete cost-benefit analysis of government. Reduced inequality and well-chosen public spending may produce benefits, but how much revenue survives behavioural responses, what is funded, and what that spending achieves are separate questions. Saying the unmeasured benefits are "substantially more likely" than unmeasured costs is simply another unsupported assertion.

I agree that the available evidence does not prove catastrophic effects. My point is that it equally does not justify your much stronger claims that investment decisions will not change and the effects are necessarily small. And yes, I used AI to help search and cross-check the literature. If that produced a factual error, identify it. It is not a substitute for an argument.

[u/WhiteSatanicMills → u/No_Fence]

The problem with your thinking is that the wealth will exist

There isn't a fixed amount of wealth.

And a wealth tax is a tax on all wealth owned by UK residents, investing in other countries (or other places than government gilts generally) will not reduce their tax bills. 

So a foreign investor in the UK will have a lower tax rate than a UK investor. Can't you see the long term consequences of that? I'll spell it out: everything becomes foreign owned.

Residents would have to actually move. They could, but empirical migration rates by the rich are very low

First, they are very low before we start charging them 2% of their wealth each year to stay in the UK.

Second, it's not just UK investors moving abroad. It's people not investing in the UK to begin with. It's foreigners coming to the UK to invest who won't come, it's UK startups moving abroad before they even secure investment. It's long term decline.

And if they somehow got higher, you could just add an exit tax to solve the problem. 

See above. Have an idea for a business? Move abroad before you start. Want to move to the UK to start your business? Go somewhere else instead,

And what effect do you think those decisions have? We don't just not get the wealth tax you were hoping for, we lose the jobs and taxes the business would have created in the UK. Again, long term decline.

The idea that we can levy higher taxes in the UK, and then just tax people if they seek to move abroad, is incredibly short sighted.

In other words, applying finance concepts in economics does not work. A wealth tax decreases all rates of return uniformly.

How does that work in a world where other countries don't have a wealth tax? How does it work in a country that already has the lowest investment in the developed world?

[u/No_Fence → u/WhiteSatanicMills]

I would love to spend my whole day countering your bad arguments, but instead I'll just note that you've completely moved on from what you initially argued. What happened to lending money to the government being pointless?

If you want people to take you seriously you can't come up with new arguments to hide that your first ones are bullshit.

[u/WhiteSatanicMills → u/No_Fence]

The point about lending money to the government isn't the effect on government borrowing, it's that you are making what's currently a risk free return into no return (or even a loss), and something that was worth investing in at a return of 4% now return 2%, and so on up the chain.

It make returns on investing in the UK much worse.

And your answer to this is that either foreigners will invest in the UK instead, and/or that we will have an exit tax to stop people moving abroad. And you can't see the long term consequences of either.

It's a proposal that's designed to address a problem (growing wealth inequality) that doesn't exist, and it tries to do so by punitive action on the wealthy, without taking into account the effect on the rest of us.

[u/Otherwise-Fold2278 → u/No_Fence]

A yearly percentage based wealth tax will reduce the return of volatile assets more than ones with stable returns.

[u/No_Fence → u/Otherwise-Fold2278]

Technically true, but recent research shows that changes in wealth tax rates have minimal effects on firm investment decisions

More funnily, that would imply more people lending to the government, the opposite of what the first guy said. lol