We can test these wealth tax revenue contentions
There are those who tell us all that a wealth tax will bring in such money! There are those like ourselves who insist you’re joking, Matey. We, ourselves, go further and insist that the very idea, revenue or not, is a bad one. For the whole aim of such a tax is to turn wealth, capital, into current spending. And, you know, consuming wealth now rather than investing wealth for the future is that very definition of eating the seed corn.
But it does occur to us that there’s a possible test here. One of those natural experiments. Yes, yes, we know about Norway and all that. But a much wider test.
Islamic law - it’s in fact one of the five pillars of Islam itself - demands the zakat. A tax of 2.5% of wealth, one fortieth, each year. We hear tell that a number of countries impose such a tax. Even, that the Shia/Sunni split leads to some making it a tax payable to government, others as a charitable levy spent more directly on the poor.
OK. How does this work out then? There are enough socieites and economies run along Islamic lines for this to be testable in a number of ways. What’s the revenue collected in those places where it is paid to government? What’s the flow of charitable funds where that is the case? What is the effect of liquidating capital to finance current spending in such economies? Is wealth inequality - or even income such - lower in such societies? Is there an effect on long term growth rates by not investing, but instead spending, such a portion of capital each year?
We really do not know whether such studies have been done. We’d be fascinated to see the results of any that have. At present, given that absent petrostate money, we’re not floating in a sea of rich states running upon Islamic lines our assumption would be that the effects are not all that good. But that could - because of course it could - be some combination of our own ignorance and or prejudice.
We’d also assume that the results are not all that good. For if they were then those advocating such a wealth tax in all economies would be shrieking about the glorious evidence they have. But again that could just be our prejudice.
The Islamic world has a 2.5% of capital wealth tax payable each year. So, what’s the effect of a wealth tax then?
Anyone? Bueller?
Tim Worstall