A crisis is always an opportunity and whatever happens, someone benefits. John Maynard Keynes pointed out long ago that rapid inflation always puts the financial boot on different feet: creditors lose and debtors gain.
This, in turn, can have profound social and cultural consequences. Conduct that was once deemed prudent becomes imprudent, and vice versa. Whole virtues can disappear because of inflation.
When the COVID-19 crisis struck, governments that were already highly indebted found themselves constrained to expand their debt as rapidly as during a world war.
To be fair to them (and it doesn’t come naturally to anyone to be fair to governments) it’s difficult to see what else they could have done. They could hardly have left businesses to go bankrupt en masse, or millions unemployed without an income.
Needless to say, government largesse wasn’t invariably well-directed: it was often more like a blunderbuss aimed at a sparrow. A neighbor of mine, a small but prosperous businessman, received thousands when he hadn’t the slightest need of them and without the slightest official effort to ascertain whether he needed them or not.
Wealth TaxPresumably, the bill will come in one day, probably in the not-very-distant future. One way of meeting it that is now being touted in Britain, and apparently is very popular with the public, is a wealth tax: that is to say, a tax on all the assets of the wealthiest people, from their houses to their pension funds to their possessions valued at more than $4,000.
Of course, any tax is popular with the people who won’t have to pay it and who think the proceeds will be spent on, or at least trickle down to, them; but given human nature, the main attraction of the tax is probably more that of the certainty of inflicting pain on others than of the hope of benefiting oneself.
To adapt the words of St. Paul slightly, “Now abideth resentment, greed, envy, these three; but the greatest of these is envy.”
The tax was first proposed by an organization calling itself the Wealth Tax Commission, which sounds official but actually is an alliance of academic economists. Their naivety—not to ascribe worse motives to them—beggars description.
They say that the tax will be “one-off,” a special measure to meet an undoubted economic emergency. But who would believe that a tax supported by so much of the population will be easy to reverse? And why should anyone ever afterward believe in the security of property that is held in the country?
UnrealityThe proposal that all possessions of a value greater than $4,000 should be taxed (say at 1 percent of their market value, though the commission graciously concedes that it would be up to the politicians to decide what the rate should be) could only have been made by persons with a very firm grasp of unreality—or, alternatively, with a vocation for instituting a police state.
It’s highly unlikely that people would meekly declare the true market value of their valuables: that is, if they knew them. The tax authorities would either have to accept the underestimates that people made, or create an inspectorate with powers of entry to people’s homes and a system of exemplary penalties for underestimation.
The inspectorate, of course, would also have to have some expertise in everything from paintings to silver to furniture to Chinese porcelain, and an Englishman’s home would no longer be his, but the revenue’s, castle.
Professional valuers, if employed to avoid arbitrary valuations, wouldn’t work for nothing; if the revenue paid their fees, no money would accrue to it from their valuations, the cost of the valuation having eaten up the amount raised. Alternatively, if the owner had to pay those fees, the tax on valuables might effectively double the rate of tax.
Even though, again very graciously, the commission would permit the total amount of wealth tax due to be spread over five years without penalty, the amount might still eat so severely into the incomes that people who were asset rich but income poor—a fairly common type in these days of asset inflation and low returns on capital—that they would feel obliged to sell some assets.
They would thus be obliged to pay tax on pre-forced-sale prices, and receive only a force-sale price when they sold: and thus the effective rate of taxation would be considerably higher than that initially levied.
It would be the merely prosperous, whose wealth had been slowly accreted over many years, rather than the truly rich who would be most affected. Naturally, the economists presenting the tax propose that everyone above a certain level of wealth would be equally affected, that there would be no allowances or exemptions, so that there would be no loopholes through which anyone could slither.
Incipient TotalitarianismBut all these objections—to say nothing of the fairly obvious injustices of the proposal—are probably beside the point. The purpose of the wealth tax is only tangentially to raise money at a particularly difficult time, for I should be very surprised indeed if members of the commission hadn’t been in favor of a wealth tax before the COVID-19 crisis struck.
The purpose behind it is thus social reform, not the meeting of an economic necessity. The crisis is an opportunity: to advance the centralization of power and the permanent boosting of government powers vis-à-vis the population.
There is, however, one small potential fly in the ointment of my argument, namely that I haven’t fully worked out an alternative. But whatever the problem, incipient totalitarianism isn’t the solution.