Since the Great Recession, there has been a drive among Western government bodies to identify more viable forms of long-term funding. This has been prominent in the UK and the U.S. who have suffered significant economic contraction in recent times and faced a series of financial meltdowns.
One of the most popular and topical solutions is the introduction of the ‘Millionaire’s Tax.’ This special rate of taxation is targeted at exceptionally wealthy individuals, who would be required to reinvest more into the economy and drive state or local government spending.
While this idea is relatively simple, its potential implementation is fraught with pitfalls and ethical questions. While the precise rate of the Millionaire’s Tax is not fixed, it would vary according to lawmakers in each region. A November ballot in the American state of Illinois asked voters to approve a non-binding resolution that would drive an 8% increase in the existing highest tax rate. If a similar rate were approved in the UK, the nation’s highest earners would be forced to pay nearly 50% of their earnings in taxation.
The cumulative value of such a move would be significant, as would the impact on high earners who have an existing lifestyle to maintain. When you consider the cost of living and the price of a property in high-value regions in the UK, for example, paying out an extra 8% or 10% in monthly taxation will dramatically reduce each individual’s level of disposable income. This may pose financial challenges even for high-earning citizens, especially as their lifestyle and outgoings will be tailored to suit their existing financial circumstances.
Beyond the practical impact of the Millionaire’s Tax, there is also an ethical issue that is hard to ignore. More specifically, capitalist and democratic nations such as the U.S. (and, to a lesser extent, the UK) are built on the principle that each individual is empowered to work hard and build wealth. This is opposed to the values of communist countries, where all accrued wealth is evenly distributed between rich and poor members of society.
With this in mind, it seems highly unethical that capitalist government bodies should be able to place a specific levy on their highest earning subjects, significantly when their political philosophy empowers individuals to work hard for their benefit and their families.
While implementing the Millionaire’s Tax may make sound financial sense, it is ethically questionable in countries driven by the fundamental principles of capitalism. It would also be highly difficult to enforce, as government bodies would likely face a legal backlash from citizens unwilling to pay an additional tax aimed at the highest earners.
This aside, it provides government officials with a popular and topical issue that can boost their popularity, particularly as it appeals to lower-earning families and those who would like to reduce their tax liability.