'Emergency' Tax on the Rich Roils Britain
CNBC Reporter & Editor
As part of the global push to tax the rich, Britain is now debating an “emergency” wealth tax. But the idea has hit fierce opposition from conservatives, who say the “politics of envy” hasn’t made the country rich.
Deputy Prime Minster Nick Clegg, leader of the Liberal-Democrat Party, has proposed a one-time tax on the wealth (rather than the incomes) of high-net-worth Britons. The details aren’t clear, but Clegg says the country is facing an economic war caused by a prolonged recession, and needs to tax the rich in order to avoid social unrest.
He told the Guardian that unless the country “hardwired fairness” into the budget, “I don't think the process will be either socially or politically sustainable or acceptable."
Chancellor George Osborne shot back, saying the plan would chase out the rich and make the odds of full recovery even worse. Bernard Jenkin, the chair of the House of Commons' public administration committee, told the BBC that the tax could strangle the golden geese of Britain. “If the politics of envy made a country rich, we'd be very rich … Most rich people are contributing far more in tax than other people." (Read more: How 'Lynching' the Rich May Hurt Stocks)
Britain has already hiked taxes on the rich to 50 percent but amid a weak economy and reports of wealth flight, the tax was ratcheted down in April to 45 percent.
Baroness Susan Kramer, a member of Clegg’s party in the House of Lords, said that a wealth tax could be more effective than an income tax, and that the wealthy won’t move away.
"You have to be part of the society in which you live,” she told the Guardian. “"If we're going to be a coherent society, and that is absolutely fundamental to our success and our prosperity, everyone has to carry a share of it."
The debate in Britain mirrors the central debate in America’s presidential election: how much to tax the rich. Obama has called for raising their taxes. Romney calls for cutting them.
Britain's tax distribution is less progressive than America's, with the top 1 percent paying about 24 percent of the total income taxes in the U.K. In the United States, the same group pays more than 35 percent. The top 10 percent in Britain pays 55 percent of income taxes, while in America the top 10 percent pays 59 percent. (Read more: Wealthy Voters May Like Romney Even More Now)
But Britain’s example can be used by both Republicans and Democrats as fuel for their arguments. Republicans can argue that Britain’s tax hike on high incomes didn’t help their recovery, since their economy is still weak. Democrats can argue that the austerity measures imposed in Britain have prolonged their recession and that the tax hike was abandoned too quickly.
Either way, the debate over taxing the rich is starting to sound familiar around the world.
-By CNBC's Robert Frank
Follow Robert Frank on Twitter: @robtfrank