The wealth gap (measuring the wealth of the richest 10% compared to the poorest 10%) has grown considerably in the US and the UK, and has been driven by rising asset prices rather than incomes. The tax system in the US and the UK has not reflected this change in wealth source and taxes have continued to target income and not wealth.
The article ‘Danish Happiness – Hygge or the Wealth Gap’ published on 31st July 2018 talked about the wealth gap in Denmark being relatively low compare to America and looked at the link to the high levels of happiness amongst Danish citizens as the wealth is relatively well distributed. The richest 10% of Danes have 5.2x the wealth of the poorest 10% of Danes, much lower than America where the richest 10% have 18.8x the wealth of the poorest 10%.
Senator Elizabeth Warren is attempting to address the widening wealth gap in the US.She is standing for presidential nomination in the US for the Democrat party and is proposing an ‘ultra-millionaires tax’.
In America the wealth is so polarised that the top 0.1% of Americans own the same wealth as the bottom 90% of Americans.
She wants these super wealthy to contribute more through a wealth tax. Those with a net wealth of over US$50m would pay 2% of their asset wealth per year. Those with a net wealth of over US$1bn would pay 3% of their net asset wealth per year. Warren estimates that this will raise US$2.75 trillion over 10 years, or 1% of national income.
If Warren has her way then the US, is going to lead the way in addressing the extreme wealth gap. Warren has criticised billionaires who are trying to influence government policy by running for presidency. The link between the super rich and politics has long been acknowledged.
The US tax department (IRS) has been strengthened by the 2014 Foreign Account Tax Compliance Act (FATCA). This prevents US citizens from avoiding tax payments through placing assets in foreign accounts. In 2014 the Foreign Account Tax Compliance Act (FATCA) legally obligated banks to identify accounts held by US citizens and report to the IRS.
Also Warren has proposed that you won’t be able to avoid the tax by giving up your US citizenship. She has proposed a 40% exit tax on net wealth if you want to relinquish US permanent residence. This could be something that the UK could implement to prevent UK super rich from becoming tax exiles in other countries.
The UK has yet to show any initiative to address the widening UK wealth gap.
Rebel Economics 
A thought provoking piece Jenny.
To my mind, there is something not quite right in principle with the concept of taxing wealth, especially wealth created using previously taxed income.
What class of assets might a wealth tax apply to? Property? Shares? Savings? Jewellery? The clothes on one’s back? And how are those assets to be valued for tax purposes?
Is it not sufficient (and fair) to tax the income generated by wealth assets, or capital gains realised on their disposal or their acquisition through inheritance?
Might it not be better to deal with the legal loopholes around trusts, for example, which allow the wealthy to relocate their assets to a low tax domicile and avoid paying tax on their income from those assets?
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A wealth tax on the super wealthy in the US has received support from an organisation founded by some of those people, namely Patriotic Millionaires. There is an article about this in the NYT. I agree with the principle of taxing the wealth of the super wealthy (such as billionaires), in part because their wealth is so vast as to confer the holders with enormous political as well as economic power, which can subvert the democratic process. Examples are George Soros and Jeff Bezos. In addition, they often accumulate such wealth because of beneficial external factors for which they have no role in creating. For example, why should property developers get super-rich from harvesting planning gains conferred on them by politicians? Why should George Soros get rich by betting against sterling during the sterling crisis in the early 1990s? But I wouldn’t look to Elizabeth Warren for implementing such a policy, given her extremely tarnished record of exploiting native American Indians for personal gain. Finally, I’d comment that the relationship between income and wealth inequality and societal happiness is open to debate. Personally I’m sceptical whether such a causative relationship exists. Nonetheless I favour taxing the super wealthy, if for no other reason than they have no need of such vast wealth.
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This type of thing (see below) is typical of many of the super wealthy, who abuse their power all the time. As the technological revolution gathers pace, so will the political influence of people like Bezos (who is part of the cabal trying to subvert the democratic will of the American people, just as Soros is doing in Europe and the UK). If you know anything about this man, you’ll know how unpleasant he is.
https://www.foxbusiness.com/markets/amazon-paid-no-federal-taxes-for-the-second-year-in-a-row
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Hi Tim, Thank you for your comment on Amazon, they really are throwing their weight around literally ! Also the tax on the super wealthy, it is something that the US is looking at because the concentration of wealth has become so extreme. It is at a level seen before the Great Depression in 1929. There will be some factor that results in a correction in this concentration of wealth, however it is good to see politicians making proposals to address this extreme imbalance. I will read the Patriotic Millionaires piece.
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This is the link, Jenny, to save you the trouble.
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Thanks Tim, that is very interesting article…
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The thrust of much of your analysis on this blog Jenny is economic inequality. But it is equally the case that there is growing inequality of political influence in society, with for example the Conservative Party heavily influenced by the selfish interests of big business and the current Labour Party overly friendly with international terrorist and far-left groups (abandoning the indigenous working class in the process). This is a good article relevant to the former political party.
http://commentcentral.co.uk/big-business-wrong-on-the-euro-and-wrong-now/
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Thank you for your comments Tim, the economic inequality is the main issue that this blog is trying to address. It has resulted in a huge imbalance in society and life chances, that we didn’t see 20 or 30 years ago. This has implications in many areas and the blog is looking to see how these can be addressed. I don’t think either party are addressing these issues. Political funding by wealthy donors has always been suspicious in terms of motivation, I would welcome political parties remaining independent to individuals and institutions.
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A wealth tax would be an economically devastating thing.
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I have been carefully following American politics for a long time. This is an accurate summary of what has happened. The article should be required reading for all citizens in the western world, and discussed in schools. (Of course it won’t be.) The UK government (and media) have been complicit and involved in this story, which is probably why GCHQ head Robert Hannigan resigned suddenly in January 2017, fearing exposure. Similar events have been happening across Europe, with the liberal establishment labelling its ordinary, decent citizens as far right fascists. It is not an exaggeration to say that western democracy is under threat. These events show that focussing purely on the economics of income and wealth inequality misses the important link to political power, and its abuse.
https://www.dailymail.co.uk/debate/article-6737685/The-greatest-constitutional-crisis-Civil-War-writes-Conrad-Black.html#reader-comments
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The income tax is bad enough. To add a wealth tax on top of that would be economically devastating.
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Additional wealth taxes (which could take many forms, including capital gains taxes on residential property and inheritance taxes, both of which are perfectly normal and equitable) would aim to redistribute the existing tax burden – for the vast majority of people they imply lower taxes, so would not be “economically devastating”. If designed well, they need not even reduce work incentives, and hence need have little impact on most people’s living standards.
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Tim, it would be if the end result was wealth leaving the country.
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There was a very influential book published a decade ago called “The Spirit Level”, which argued (and used plenty of international data to show that) income and wealth inequality caused many of the ills faced by society. Of course it was written by two left-wing academics, and one should always be sceptical of anyone who presents one-sided evidence as conclusive proof of an hypothesis. The attached blog post shows that the book was a con. (Indeed, a high proportion of the results from quantitative academic research by social scientists can not be replicated when tested subsequently, probably because the researchers are biased towards their findings prior to conducting their research.) There is no good evidence that income inequality has undesirable externalities on society. That is not to say, however, that extreme levels of economic inequality should be tolerated, as Jenny says.
http://spiritleveldelusion.blogspot.com/2019/03/the-spirit-level-ten-years-on.html
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Thanks Tim – I think a lot of economic theory has been based on the trickle down effect of wealth and that it will feed through as wealth is spent. In the US the super rich do have philanthropic intentions and this does release the wealth. However the current high concentrations of wealth are at extreme levels and unlikely to be spent. There are mechanisms for rebalancing which are not government led. The last time this wealth distribution was seen in the US was before the Great Depression.
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