Wealth and Taxes

I am deeply uncomfortable about the ongoing debate in the UK concerning the ultra-wealthy. Polly Toynbee criticises the extremely rich in her column this week.

I've always generally agreed with Toynbee on poverty, feminism, religion, and her advocacy of the Scandinavian model of social-democracy.

But her recent obsession with the extremely wealthy is puzzling, especially as she is a liberal/social-democratic commentator. Individual freedom, personal dignity, and the right to extend you own frontiers are all integral parts of liberalism and necessary in democracies.

Extreme wealth and a tendency to avoid paying taxes seem to go hand in hand. After all, if you are the sort of person who dedicates time and effort to becoming wealthy then you are also likely to resent the state taking 40% of your earnings.

But is it fair that partners in private equity firms can pay tax at 10% rather than the standard top rate of income tax of 40%?

Speaking as a state-defined "poor person" I can only comment that in this case it is not a question of fairness. It is the duty of every citizen to pay tax at the appropriate rate. Private equity firm partners have found a loophole and parliament will work to close the loophole.

In the case of private equity this capital-gains-tax-not-income-tax loophole will be closed eventually. I only hope closing it does not adversely effect the entrepreneurial spirit of the country (I doubt it will though).

The extremely wealthy will always find ways to reduce the tax they pay. One very straightforward way is to hold wealth in the form of large and valuable companies, or shares in companies, and simply borrow millions of pounds on your unlimited credit rating and not pay any tax at all (an oversimplification I admit, but debt is a very effective way of avoiding tax).

I also take exception to Toynbee's idea that some have "more money than is decent". Decency is not a useful term in this context.

As difficult as I find it to agree with Mick Hume and disagree with Polly Toynbee, I can't help but agree with Hume's recent article over at Sp!ked (I've given up trying to understand where the hell Sp!ked lies on the political spectrum...[at a guess: old-school liberalism, enlightenment values, progressivism, freedom, equality of opportunity, justice, brotherhood - stuff I can get behind, even if I sometimes find their contrarian stance on global warming irritating]).

I agree that most of the objections to private equity are the result of "grandstanding moralism" (i.e. showing off how good you are by attacking a target that the gullible and foolish will agree is worthy of attack by such a fine and upstanding person as you want the gullible and foolish to believe you to be). I also agree that private equity is a symptom of the problems with our current flavour of global capitalism, rather than a problem in itself.

But here's the main cause of my discontent: I would like to do something entrepreneurial. I'm not exactly sure what my skills and talents (if any) are at the moment, but I suspect I am not academically proficient enough to be any kind of medical professional, I don't have the inclination to be a lawyer, banker, or actuary.

Journalism is something you do - not something you get paid for. I want to do something useful and creative and that allows me to have some kind of control (however illusory) over what will happen to me. Setting up a business of some description is the obvious way to go.

I want to go to university, It'd be fun to become a professional and enjoy the associated prestige, and if I'm going to be totally honest with myself this is probably what I'm going to end up doing.

But I'd also like to do something new and interesting and useful and remarkable.

I don't think becoming wealthy is a bad thing, or morally wrong. I'm happy to (and am aware of the necessity to) play along with the social contract I never signed. I'm happy and proud to be able to pay tax, and the more tax the better.

If we have an aim as a species, it should be to ensure the happiness of everyone, and I, as a well-off westerner am in the enviable position of being able to help other people achieve happiness. Either by paying taxes or giving to charity.

Fairness should be subsidiary to how much money ends up in the treasury - tax should be levied on the wealthy to the extent that they continue to live here and pay taxes here, but not so much that they go to some other tax haven. I'm prepared to take some billionaire's £10 million, even if his wealth increased by £100 million in the year. It's unfair, but life is unfair, and I might even get to like said billionaire if he pledged £1 billion to charity over the course of his lifetime.

Anyway. Now for a brief round up:

Private equity: parliament should get itself into gear and do something and stop scoring cheap points off people who are only doing their job (and doing it quite well, it seems). Parliament should be careful to distinguish between private equity capital gains tax and start up capital gains tax, as suggested here.

Wealthy foreigners: Britain was declared (video link) a "tax haven" by the IMF. This means rich people from abroad, who provide jobs abroad, and mainly live abroad are benefiting from our tax laws. So what? If they do live here for any length of time they will spend money to fund their (presumably) lavish lifestyles, and if they do then they are contributing substantially to our economy anyway. If they don't live here for any length of time then it is the people in the countries they lived previously who are getting screwed, and it has little affect on us either way (though we do get a load of money from the [comparatively] small amount of tax they do pay]).

Hedge funds: quants and alternative-investment funds generate wealth for pension funds, as well as for rich people. Hedgies often become very wealthy themselves - and often give generously to charity. Hedge funds aren't massively-polluting entities, and only a very few people work for them - they don't take much of what we have, and they help create wealth.

Entrepreneurs: these are a Good Thing. Enuff said.

To summarise: when I am faced with the immense complexity of the world I can either latch onto one of the many available ideologies (I like: liberal, social-democratic, enlightenment, utilitarian, Epicurean, practical, humanistic) or I can try to do good (as defined by the ethic of reciprocity) and do the job in front of me - make the world a better place.

Therefore my attitude to the rich is tainted by pragmatism: you don't kill the goose that lays the golden egg.