Friday, October 22, 2010

CIT lecturer assumes a lot in wealth tax argument

Cork Institute of Technology lecturer Tom O'Connor says that the "wealthy" have €121bn, which should be taxed. He seems unperturbed by the fact that these people have presumably paid taxes on all of their income while they accumulated this wealth and figures taxing them twice is no big deal.

I think that would be immoral, but I don't want to argue the wealth tax. No, I'm really bothered by the assumptions O'Connor used to arrive at this €121bn figure.

He uses a 2006 Bank of Ireland Private Banking report as the basis for his figures. He then updates the figures in that report using these assumptions.
  1. BoI breaks down the wealthy into three cohorts: those whose net worth is greater than €30m, those whose net worth is between €5m and €30m, and those who fall between €1m and €5m. O'Connor assumes that each group will have an average wealth near the midpoint in the range. {I believe that it would skew strongly towards the low end each time.}

  2. O'Connor assumes that the property holdings of the wealthy have fallen in value in line with the national average. {I suspect that quite a few of those wealthy people held land that - or owned shares in companies that held the land - that was valued on its development potential and that they didn't own large tracts of built up neighborhoods or farm land.}

  3. The wealthy had perfectly diversified share portfolios across the FTSE 100. {He may be right about this, but it's also possible that Ireland's wealthy in 2006 held a disproportionate number of shares in Ireland's banks and property companies, whose prices have since collapsed.}

  4. The bonds in their portfolio were all European government bonds. {I really don't understand this one. Are we really supposed to believe those were the only bonds these people bought? But, regardless, I could probably live with this one.}

  5. Bank of Ireland Private Banking made this information public out of the goodness of their hearts and didn't produce a report that would emphasize the importance of their function to the bank. 
O'Connor wants a 1% wealth tax, which is fine. I don't agree with him, but he says some EU states already have one and others are planning to introduce it. However, if we're going to debate the issue we need a better starting place for what such a tax might bring in.