1 Jun 2020

The universal 1% asset tax and non-financial and non-property assets

My proposed universal 1% annual tax should be paid by everyone on the planet with assets. It would apply to individuals, companies and corporations, but also structures such as trusts that are frequently used to hide assets from the taxman.

In the past few days, I have been looking at the value of the financial and property assets, and the numbers are impressive. When the top 2000 publicly listed companies have combined assets of over $201 trillion, and you realize that there are around 45,000 such companies in the world, the numbers are going to get very large. Add in the thousands if not millions of privately owned companies, and the numbers will get even larger. Then there is the $360 trillion in real estate across the world. Some of that real estate may be owned by companies and corporations, and should not be counted twice. But a lot of real estate will be owned by private individuals.

We are presumably talking about several hundred trillion dollars worth of assets, possibly more than 1 quadrillion dollars in all. A 1% asset tax on that could generate a very handy $100 trillion a year.

But even these numbers are not the whole story. Ordinary people can have not just financial assets and real estate. They also own things - cars, furniture, jewelry, and so forth. And some people will own private jets, yachts, race horses and works of art. For me, it is absolutely vital that these sorts of assets are also subject to the 1% annual tax on assets. If not, it would be a simple tax dodge for someone with a million dollars worth of shares to avoid the 1% tax by using the money to buy a painting by Picasso.

So, how could we work out how much a persons assets are worth? It seems to me that there is a simple way. You could just take the value of the contents insurance that the person has. In the UK, for example, and according to figures from the ABI (the British Insurers Association), the average home has contents worth about £35,000 and the cost of insuring that amount averages about £139. That's about 0.4% of the value of the goods. Adding in my proposed 1% asset tax would be the equivalent of increasing the insurance costs from 0.4% to 1.4%.

Typically, any objects that are worth more than about £1500 need to be individually named. This would be an easy way of finding out when people have substantial wealth in the form of jewelry, for example. It may be that the cost of insurance varies with the type of item being insured. Jewelry may be easier to steal than a yacht, for example. But there again, a yacht is perhaps more liable to accidental damage.

Nevertheless, it seems plausible to me that the total value of someone's non financial and non property assets could be reasonably well measured by how much insurance cover they have.

Of course, if the typical annual cost of insurance is about 0.4% of the object's value per year, and this is used to decide how much value should be taxed at 1%,  this could result in people deliberately undervaluing the value of their physical assets to reduce the tax burden. You might even decide not to insure any of your valuables as a tax dodge. 

Interestingly, in the UK, one in four households has no contents insurance at all, despite the fact that the cost of such insurance has dropped to an all time low of around £2.40 a week. If the value of the contents insurance really was the method used to decide the level of asset tax, those households would effectively avoid having to pay the tax. But it could be that those households simply don't have any assets of any real value. If so, I have no problem with them not paying any tax.

Clearly, failing to have contents insurance, or not declaring the real value of your assets, would be a way to avoid the tax. But of course, if you do that, you would be taking a very serious risk. Would it really be so tempting to not declare a £10,000 necklace that you have hidden in a safe in order to save £100 in tax, and £40 in insurance? I think that most people would prefer to play safe.

And the key point is that you would know what your £100 was being used for. It would be used to help the entire community and you would simply be doing your bit to help. Being able to look at yourself in the mirror is actually quite nice.

It is true that, under the current system, there are people that take real pleasure in being able to find "optimisation" strategies that allow them to get away without paying their fair share. Indeed there is an entire industry whose main function is to find ways for wealthy clients to "avoid" taxation. The big four accounting companies (Ernst & Young, Deloitte, KPMC and PwC) owe a lot of their business to their ability to propose tax "optimisation" schemes that often involve tax havens. My universal 1% asset tax would be bad news for them. Too simple, too efficient, and too fair!

Personally, I think that the world would be a much better place if the 99% didn't have the impression that the 1% was not paying their share. Indeed, that is one of the main reasons that I am pushing for these reforms.

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