The problem of how to pay for the war arose, as Keynes wrote, because war is inflationary. War brings a massive increase in incomes relative to supply available for civilians. The pandemic is deflationary: it forced massive cuts in spending and mass unemployment. Whatever you may hear from your Chancellor on Budget day, therefore, the problem is not “how to pay for the pandemic.” It is how to restore the economy on just and sustainable terms.
That task includes getting to grips with the vast inequalities, instability, precarity, disillusion and despair of the entire neoliberal epoch, now savagely aggravated by death and disease. Poverty, hunger and homelessness are one face of inequality. The grotesque gains of the billionaire class are another. The issue is: what to do?
A highly progressive income tax, with top rates above the UK’s 45p in the pound, would help. But income is not wealth and unrealised capital gains, though technically income, are not taxed, so income taxes are insufficient. An annual wealth tax, favoured by some celebrity economists, is a tax man’s nightmare and a full employment scheme for appraisers, consultants, money laundries and tax lawyers. Let’s move to other options.
An estate-and-gift tax is one proven option, in force in the United States for over a century. The tax should be on estates, not inheritance—that is, on the decedent and what is left behind, not on the heirs and what they receive. The advantage of an estate tax is that since the estate is frozen at death, it can be appraised—just once, not every year—and taxed before being distributed. Despite its name, your “inheritance tax” has these features—but suffers from too many loopholes, as ours also does, especially in relation to gifts. A properly run estate tax—with a high exemption, a high rate on the non-exempt portion, application to offshore assets, and strict enforcement against evasion—encourages philanthropy, which creates jobs. Its main virtue, though, is that it works to prevent the formation of dynasties and castes—while not discouraging success in business or any other realm.
A second way to tax fairly is to tax land and other publicly created property rights, such as mineral rights, parts of the electromagnetic spectrum, corporate charters, licences, patents, copyrights and rights of way. Unlike financial wealth, land sits still. It can be measured, appraised and taxed each year on its market value. The result is efficient use of land and other rights, and abundant funds for urban reconstruction, development and maintenance—a virtuous cycle of public investment, land value and public purpose. Exceptions can be made for historic preservation and for elderly homeowners, with the taxes deferred until properties change hands.
England enacted heavy land taxes in 1692—they were the foundation of British world power!—and Adam Smith, no less, believed them the best of all taxes. The tax meets all the classical virtues: it is transparent, market-based and efficient. It places the burden on the “inelastic” factor—there won’t be any less land after it is imposed—and interferes with neither wages nor profits, while supporting the needs of infrastructure and government. It gets too little support and attention for only one reason: landowners, anciently the most reactionary of all social classes, do not like it.
As Keynes wrote during the Depression, there is work to do. There are people to do it. Why not bring them together? That should be the top priority after the pandemic. A strong estate-and-gift tax and a strong land-value tax would complement a full employment policy, promote democracy, efficiency and a green transition. And if eventually as the UK recovers it really does become necessary for HM Government to find resources, here’s a suggestion: start by getting rid of Trident.
