Does the Financial Crisis Create Opportunities for Taxing Wealth? A Study of Tax Policy Debates in the United Kingdom
| Published date | 01 June 2015 |
| Date | 01 June 2015 |
| Author | Rajiv Prabhakar |
| DOI | 10.1177/0964663915572501 |
| Subject Matter | Articles |
Article
Does the Financial Crisis
Create Opportunities for
Taxing Wealth? A Study
of Tax Policy Debates
in the United Kingdom
Rajiv Prabhakar
The Open University, UK
Abstract
Taxing wealth is an important part of tax policy debates today. The prospect though for
taxing wealth seems to be bleak. But does the financial crisis create opportunities for
taxing wealth? The financial crisis might change debates by acting as a shock to the tax
policy process and boost political arguments for taxing wealth. This article explores
whether the financial crisis has such an impact by looking at tax policy debates in the
United Kingdom. The article looks at examples of three main ways of taxing wealth,
namely, proposals for an inheritance tax, mansion tax and capital gains tax. This article
argues that the financial crisis has an impact on political debates but that its impact is
uneven. The financial crisis provides a greater boost for a mansion tax idea over
inheritance tax or capital gains tax. However, political arguments for taxing wealth are
refracted by other factors such as lobbying by vested interests.
Keywords
Capital gains tax, financial crisis, inheritance tax, mansion tax
Introduction
Taxing wealth is an important part of tax policy discussions today. In the United
Kingdom, Sir James Mirrlees chaired a commission on taxation at the Institute for
Corresponding author:
Rajiv Prabhakar, Department of Economics, The Open University, Walton Hall, Milton Keynes MK7 6AA, UK.
Email: rajiv.prabhakar@open.ac.uk
Social & Legal Studies
2015, Vol. 24(2) 271–287
ªThe Author(s) 2015
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DOI: 10.1177/0964663915572501
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Fiscal Studies. This brought together leading tax experts to outline the ideal tax sy s-
tem for the 21st century. One of the proposals from this review calls for a lifetime
wealth transfer tax that would tax the gifts or inheritances that a person receives
over his/her lifetime (Mirrlees et al., 2010, 2011). In Australia, the government in
2008 commissioned a review of taxation chaired by Dr Ken Henry. The final report
published in 2010 shows interest in taxing wealth transfers (Commonwealth of
Australia, 2010). The New Zealand government sponsored a tax policy review based
at the University of Victoria in Wellington. The final report of this review published
in 2010 proposes a land tax as part of its plans to reform the New Zealand tax sys-
tem (Tax Working Group, 2010).
The prospect for implementing such proposals though seems to be bleak. Glennerster
comments, ‘In the past two decades, however, annual wealth taxes on wealth have been
largely abandoned across Europe. Austria, Denmark and Germany abandoned them in
1997, Finland, Iceland and Luxembourg in 2006, Sweden in 2007 and Spain in 2008’
(Glennerster, 2012: 235). Other taxes on wealth seemed to have fared scarcely better
(Bertocchi, 2011; Duff, 2005). Bertocchi writes:
Bequest tax revenues have been declining in OECD countries for at least 70 years. Recent
policy debate and legislative proposals in countries such as the United States, the UK,
France, and Italy, are signalling a further acceleration of this decline. Canada, Australia, and
New Zealand have abolished their bequest tax completely. (Bertocchi, 2011: 107)
Taxes on transfers of wealth have played a fairly small role in tax systems over the
recent past. Boadway et al. (2010) note that no G7 economy has raised more than 1%
of national income from wealth transfer taxes in any single year between 1970 and 2010.
A natural conclusion to draw from this is that proposals for taxing wealth stand little
chance of being implemented. But does the recent financial crisis create opportunities for
reform? OECD (2010) says that the financial crisis might weaken the capacity of vested
interests to oppose tax reforms and so make reforms more likely. However, the crisis
might also stoke wider public opposition to reform as more people are affected by tax
reforms designed at addressing the crisis.
OECD (2010) considers the financial crisis and general tax reform. This article exam-
ines a narrower question of the impact of the financial crisis on debates on taxing wealth.
Taxing wealth might take one of three main forms, that on transfers of wealth (such as
inheritance taxes or gift taxes), taxes on stocks of wealth (such as a land tax) or taxes on
capital gains (such as taxes on the rise in property prices) (Atkinson, 1972). This article
examines the claim that the financial crisis has created space for political arguments
for the greater taxation of wealth. Bartels (2006) argues that political arguments are key
for understanding tax policy. This article tests this view by looking at political arguments
for taxing wealth in the United Kingdom. Even if the financial crisis boosts arguments
for taxing wealth, this might not affect all proposals in the same way. The crisis might
create more opportunities for certain taxes over others.
This article also considers whether political arguments for taxing wealth have fed into
actual policy. This article picks the United Kingdom as this has been an important site of
the financial crisis. Crises in UK banks such as the Royal Bank of Scotland and Northern
272 Social & Legal Studies 24(2)
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