Nick Clegg: economic muppet

Oh dear, Nick Clegg has been expounding on topics economic and is keen to grab some cash:

"If we want to remain cohesive and prosperous as a society people of very considerable personal wealth have got to make a bit of an extra contribution," Clegg told the Guardian

Hmm. "A bit". What does this mean in the context of a planned £90bn deficit in the 2012 budget? And what does "very considerable personal wealth" mean - millionaires? Well, there are about 620,000 millionaires in the UK as of 2011. Let's hit them up for 5% of the poorest millionaire's wealth - £50,000 per head. That yields a cool £31bn one-time windfall. Sounds good?

Except - millionaires are not stupid, and employ good accountants. At the first sign of a £50K tax bill they're going to be exploring other options for their assets. You can expect the bulk of richer millionaires with £10mm+ of UK assets to be looking at selling off UK equities and property, and buying corresponding assets on the Continent, in the USA or even further afield. So you're immediately looking at a solid drop in UK equities, thereby further screwing over those poor non-public-sector sods who are trying to save for a pension. In the process they're generating write-offs so will be paying less tax. Nice one, Nick. Good luck on collecting more than 70% of that £31bn even in the first year.

Since many of those millionaires are "property" millionaires - owning a reasonably-sized house in London is enough to push you over the threshold - they won't have £50K in cash to give to the taxman. They will have to sell up, causing a glut of expensive property with very few people able to afford to buy it off them (those who could have likely also been hit for the tax). So only foreign-domiciled people with lots of cash, i.e. the Russian oligarchs and the Arabian oilygarchs, will be in the market. You've just engineered a massive transfer of wealth abroad.

Nick Clegg wants this to be "time limited" which means he wants to do this for at least two years. Good luck with that.

For reference, Nick, our problem is not that we are collecting insufficent tax. Our problem is that we are spending too much money. How are you going to fix that? How will you cap the runaway costs of NHS treatments, PFI bills, social security bills and the Department for Education in the years ahead? Bear in mind that the interest bill for the current national debt is only going up. This proposal fails even the laugh test as a statement of public policy.

For the sake of completeness I should point out that wealth taxes are not (in themselves) insane; the writings of Mr. Wadsworth on the subject of Land Value Tax are at least persuasive, though I'm not entirely convinced. The difference from Nick Clegg's proposal is that the LVT people see wealth (land in this case) tax as a replacement for income tax, not an adjunct to it. This at least allows the property millionaires to make a trade off in income versus location options (high-earning Londoners keeping their property as their income tax lowers, poor widows selling up and trading down).