So 1% wealth tax is equivalent to 50% tax on the return of the asset, every year.
Say what you want, but this makes holding the asset or investing a lot less attractive. It will affect people's decisions and willingness to invest. Maybe we're OK with less investment but we shouldn't assume there is no impact.
In addition what if this is a volatile asset (read: startup) whose value goes up and down? Will the gov't give you a refund if it loses 20% of its value 10 years in?
What if the asset is illiquid (again:startup)? Who will lend to an otherwise not-wealthy startup founder 1% of their company's paper value every year to pay the tax? Because if the startup fails most founders will have to declare bankruptcy (having paid years of paper wealth taxes with no positive outcome in the end).
Not really. Where else is that money going to go? It's not enough to just say there is a disincentive, you have to show that the disincentive is so great that it makes other opportunities more attractive. But those other opportunities don't exist, because it is a wealth tax, it doesn't matter what instrument you use, the tax will still hit you.
Also, those numbers are pretty much non-sense in today's economy, with inflation consistently below 2% and nominal capital asset growth being closer to 10%, a 1% wealth tax represents a tax rate of ~12.5%.
I'm not losing sleep over a startup founder who owns so much of a company to be worth over $100MM on paper or otherwise. Startup founders have the ability to sell a part of their shares in liquidity events. If they choose to hold onto their shares above all else, it's on them to figure out how to pay the tax. It might even create a whole new financial instrument or class of investments.
Other countries, for one. Capital is global.
> It might even create a whole new financial instrument or class of investments.
Absolutely. There will be a layer of, essentially, financial parasites taking value away from value creators to make this 'work'. Not sure what's great about that.
I also love how creating liquidity is now considered being a financial parasite. The US is nothing without the financial innovations that we have developed and embraced over the last 150 years.
In the US both you and the founder/management team/other investors all pay tax if company is successful; in UK, only you (as US citizen) pay tax. You and the founders/management can split the difference and will be better off.
These things may sound small but play out significantly at scale (like interest rates etc)
That is a vast oversimplification of the problem that ignores all of the reasons to start and do business and business operations in the US, because there are already tons of places that you could start your company at that would result in lower taxes, yet very few if any choose to do so. You are making a huge logical leap that businesses will be as successful running out of the UK with its laws, regulations, and taxes as the US.
The world is not as simple and clean as whatever economic model you can cook up in your head. If it was, companies wouldn't pay developers in the US $300k/yr.
My principle is we should remove all obstacles for starting/running/investing in companies, which are the engine of the economy and create both wealth and jobs, and we should tax outcomes and consumption. Also, we should keep things simple to avoid both overhead and tax avoidance that comes with complexity.