Lord Rees-Mogg on Taxing the Sovereign Individual
Ten years ago, in 1997, James Davidson and I published The Sovereign Individual , in which we tried to assess the impact of the Information Age on the relationship between individuals and the state. We discussed at some length the prospect that globalization would erode the taxing power of nation-states. We wrote:
“Information technology facilitates dramatically increased competition between jurisdictions. When technology is mobile, and transactions occur in cyberspace, as they increasingly will do, governments will no longer be able to charge more for their services than they are worth to the people who pay for them. Anyone with a portable computer and a satellite link will be able to conduct almost any information business anywhere, and that includes almost the whole of the world’s multitrillion-dollar financial transactions. This means that you will no longer be obliged to live in a high tax jurisdiction in order to earn high income.”
Swiss cantons influenced us. They had already allowed wealthy foreigners to live tax-free in return for a negotiated fee, which at that time amounted to $45,000 or thereabouts. Britain, at present, allows nondomiciled visitors to avoid tax on earnings outside the United Kingdom without any payment. This has been an extremely successful policy in developing the international competitiveness of the City of London. Now, however, there is a growing feeling that the nondomiciled group should make some payment for its freedom from tax on overseas earnings. The new prime minister, Gordon Brown, has threatened to bring the group into the tax network. The shadow chancellor has committed the Conservative Party to the Swiss policy and named the fee at 25,000 pounds -- about the same amount as Swiss cantons were successfully charging in the 1990s. The proceeds of this proposal would allow the Conservatives to raise the starting point of inheritance tax from 300,000 pounds to 1,000,000 pounds.
That would take the great majority of families that at present are liable to inheritance tax out of the tax altogether. George Osborne announced the new policy at the Oct. 1 Conservative Party conference. Since it could save an individual a 40% tax on 700,000 pounds, it has had a considerable impact. About a third of all taxpayers have current or expected capital assets of more than 300,000 pounds. In many marginal seats, with high values for housing, the proportion of the population potentially affected might be closer to 50%.
This is a shrewd electoral appeal. Many nondomiciled taxpayers can well afford to pay a 25,000 pounds fee for the tax privileges they enjoy in the U.K. Large numbers of ordinary people are anxious about inheritance tax problems. London house prices make 300,000 pounds the price of the cheapest flats in attractive districts.
The immediate importance of George Osborne’s announcement is political. About half of England’s voting population is over 50 and well aware of house price levels. But the greater long-term importance of George Osborne’s offer is that it recognizes the need to negotiate an acceptable fee for nondomiciled taxpayers.
The essential nature of the transaction is that the British government offers certain benefits, including all the usual national services, in return for payment of U.K. taxes, for earnings arising in the U.K. In addition, the U.K. government offers freedom from tax on overseas earnings in return for a fixed fee. The U.K. is offering the services of a tax haven.
Yet there is, of course, a group that would not benefit. It is the high-earning domiciled. There may come a point when they will expect similar terms. As far as I know, that has not yet happened in Switzerland, but it seems inevitable.
Taxation used to be a farm. The cows grazed in the national fields and gave milk in the evening. The cows could not live outside their protected environment. But in the global society of the Information Age, the cows have wings. If taxes are too high, they can move to other properties, in other countries, where the grass is just as good and their milk is just as valuable. George Osborne is recognizing the reality that for the citizen of the global economy, taxation becomes voluntary and reflects the market value of the services of the national government.
Ten years ago, in 1997, James Davidson and I published The Sovereign Individual , in which we tried to assess the impact of the Information Age on the relationship between individuals and the state. We discussed at some length the prospect that globalization would erode the taxing power of nation-states. We wrote:
“Information technology facilitates dramatically increased competition between jurisdictions. When technology is mobile, and transactions occur in cyberspace, as they increasingly will do, governments will no longer be able to charge more for their services than they are worth to the people who pay for them. Anyone with a portable computer and a satellite link will be able to conduct almost any information business anywhere, and that includes almost the whole of the world’s multitrillion-dollar financial transactions. This means that you will no longer be obliged to live in a high tax jurisdiction in order to earn high income.”
Swiss cantons influenced us. They had already allowed wealthy foreigners to live tax-free in return for a negotiated fee, which at that time amounted to $45,000 or thereabouts. Britain, at present, allows nondomiciled visitors to avoid tax on earnings outside the United Kingdom without any payment. This has been an extremely successful policy in developing the international competitiveness of the City of London. Now, however, there is a growing feeling that the nondomiciled group should make some payment for its freedom from tax on overseas earnings. The new prime minister, Gordon Brown, has threatened to bring the group into the tax network. The shadow chancellor has committed the Conservative Party to the Swiss policy and named the fee at 25,000 pounds -- about the same amount as Swiss cantons were successfully charging in the 1990s. The proceeds of this proposal would allow the Conservatives to raise the starting point of inheritance tax from 300,000 pounds to 1,000,000 pounds.
That would take the great majority of families that at present are liable to inheritance tax out of the tax altogether. George Osborne announced the new policy at the Oct. 1 Conservative Party conference. Since it could save an individual a 40% tax on 700,000 pounds, it has had a considerable impact. About a third of all taxpayers have current or expected capital assets of more than 300,000 pounds. In many marginal seats, with high values for housing, the proportion of the population potentially affected might be closer to 50%.
This is a shrewd electoral appeal. Many nondomiciled taxpayers can well afford to pay a 25,000 pounds fee for the tax privileges they enjoy in the U.K. Large numbers of ordinary people are anxious about inheritance tax problems. London house prices make 300,000 pounds the price of the cheapest flats in attractive districts.
The immediate importance of George Osborne’s announcement is political. About half of England’s voting population is over 50 and well aware of house price levels. But the greater long-term importance of George Osborne’s offer is that it recognizes the need to negotiate an acceptable fee for nondomiciled taxpayers.
The essential nature of the transaction is that the British government offers certain benefits, including all the usual national services, in return for payment of U.K. taxes, for earnings arising in the U.K. In addition, the U.K. government offers freedom from tax on overseas earnings in return for a fixed fee. The U.K. is offering the services of a tax haven.
Yet there is, of course, a group that would not benefit. It is the high-earning domiciled. There may come a point when they will expect similar terms. As far as I know, that has not yet happened in Switzerland, but it seems inevitable.
Taxation used to be a farm. The cows grazed in the national fields and gave milk in the evening. The cows could not live outside their protected environment. But in the global society of the Information Age, the cows have wings. If taxes are too high, they can move to other properties, in other countries, where the grass is just as good and their milk is just as valuable. George Osborne is recognizing the reality that for the citizen of the global economy, taxation becomes voluntary and reflects the market value of the services of the national government.
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