Thomas Piketty’s blockbuster book on inequality has given fresh impetus to the idea of a mansion tax.
The left is all in favour of it, of course, but the tax also has some supporters on the right – who believe that shifting the tax burden from income to wealth would produce better incentives for entrepreneurial activity. But before we go down this route in Britain, we should take a look at those countries that already have a mansion tax – and where better to start than Monsieur Piketty’s homeland, France.
For an insight into the real world impact of wealth taxation, we are indebted to Gaspard Koenig, who tells all in a piece for the Centre for Policy Studies:
“In 1982, the newly elected President François Mitterrand decided to create the wealth tax, later know as ‘ISF’ (Impôt de Solidarité sur la Fortune). The principle is devilishly simple: any individual is taxed on the total value of his assets beyond a certain threshold (including property but also cash, stocks, and even furniture). For instance, today, anybody owning more than €1.3 million has to pay 0.25% a year.”
The principle of the ISF may be “devilishly simple”, but the practice most certainly isn’t:
“Thousands of pages have been written… on how to avoid paying the ISF. A mind-boggling labyrinth of exemptions (for artworks, pension funds or even timber!) allows high net worth individuals, supported by cohorts of high net worth tax advisers, to escape – most famously by selling their own property to a fund that they own themselves…”
Needless to say, the super-rich elite are those who can afford this advice, while the not-so-wealthy are caught in the tax collector’s trap:
“What if you are a modest farmer, unfortunate enough to find yourself in the middle of a booming touristic spot, and you end up owing an ISF that exceeds your annual revenues? This is exactly what happened to the now famous ‘Ile de Ré peasants’, and to some other 150,000 humble families suddenly subjected to the ISF, with penalties to boot, as they did not think of filling an ISF tax return. They had little other choice than to sell their family land and house in order to pay the taxman. This is how you get expropriated in modern-day France.”
Gaspard Koenig wonders if what befell the Ile de Ré will one day befall the Isle of Wight. A more pertinent scenario might concern England’s equivalent of the Ile-de-France – because the likeliest victims of a British wealth tax are those with the temerity to live in and around London’s crazy property market.
There’s nothing wrong with taxing income (including capital gains) derived from property-based investment. In fact, when such investment amounts to speculation, whacking it with taxation could do a lot to prevent asset bubbles from disrupting the economy. But given the essential stupidity and laziness of government, do you think the more likely scenario is that (a) the state will relentlessly chase down wealthy speculators and their crafty advisors or that (b) the taxman will go for ordinary homeowners and other sitting ducks?
For all the pseudo-sophistication of their economic arguments, the advocates of wealth taxation have overlooked both the impracticality and the immorality of their proposals.
As Koenig reminds us, the French ISF is a comprehensive failure: it only supplies one per cent of French tax revenues and is expensive to collect – so it isn’t doing much to rebalance taxation; French entrepreneurs are fleeing to London – so it clearly isn’t encouraging entrepreneurialism; the wealthiest individuals are able to avoid it – so it won’t address the issues raised in Thomas Piketty’s book; and its effect on more ordinary folk is to make them “tenants in their own homes.”
Obviously the left doesn’t mind if we all become serfs of the state, but if conservatives won’t defend the home, then what’s the point?