Exit taxes are a terrible idea - they remove the limit on taxation
The idea of exit taxes is raising its ugly head again. This time it’s in an IFS report. But that’s from Arun Advani and Andy Summers, which makes it very like the last time an exit tax was suggested - by Arun Advani among others. That was the tax everyone 5% of their wealth idea and if they try to leave then take it anyway. Something that one of us derided as simple theft when discussing it with the Treasury Committee.
Theft because retroactive changes in taxation are theft. Think of that idea so happily used in political philosophy, the social contract. Well, contracts are things offered and then agreed to or not. If that overall contract on offer by a country is not to the liking of someone offered it then they can leave - not sign that social contract. Insisting upon changing the terms and not allowing that exit is, as we claimed, that theft.
No, it’s not possible to say that people should not be able to escape the social contract of their current citizenship. At least, not in a country accepting a million immigrants a year it isn’t - if inward mobility is fine and dandy, even, as some would say, a moral duty then the same must apply to outward.
Moving from moral to pragmatic, exit taxes on those with any money are going to make sure that the incoming are unlikely to be those with money. Which, in a country that runs a large current account deficit is not a good idea- we do actually require, need, incoming capital. Taxing those leaving is going to reduce those coming.
But for us the gripping hand argument against exit taxes is that it increases the ability to tax. Of course, that’s exactly why those proposing it want it. So that they can ramp up taxation. And they’ll ramp up taxation on you too.
There’s an idea that if the rich can be forced to pay more tax then and therefore the tax burden on the rest of us will be reduced. Aha, aha, no, this isn’t the way politics works. Government, the state, politicians, will spend the heck out of however much they can get ahold of. That’s why we’ve tax and spending at post WWII highs right now and that spending class is still whining about an austerity that never happened. If the political system can squeeze more tax then it will not only do so it will spend it all. Which is the very reason for those calls for a 5% wealth tax, an exit tax.
If those an increase in taxation will bite upon can reject the new social contract and leave then that limits the bite that can be put upon the rest of us. Which we think is good. We think limiting the bite that can be put on the population is a good idea in and of itself.
If people can leave because taxes are too high then that lowers the peak of the Laffer Curve. Which means a revenue maximising government can tax the whole population less harshly. Which is why we’re against an exit tax - it removes that limitation upon government taxation powers.
Do not forget, a revenue maximising tax rate is not a growth maximising one - it’s rather higher in fact. But since we’re obviously not going to get a growth maximising size of the state at least we should be working to lower that revenue raising one so as to close the gap a little. For revenue raising is something politics understands even if growth isn’t. Even the most dullard politician isn’t going to plan to reduce the amount of our money they can spend after all.
Tim Worstall