Have you ever wondered why the windows of the Bank of Ireland on College Green in Dublin are bricked up? It is because of the imposition of a wealth tax, called the “window tax”.
Ireland, the UK, Holland, parts of northern France – unlike the Mediterranean – are starved of natural light at certain times of year. In the pre-electricity era, light was a luxury in these countries.
The urban poor lived in a dark world of gloomy, window-less hovels, while the rich who wanted to live in the brightest rooms possible, built magnificent ceiling to floor windows to let in the light . Georgian sash windows attest to class difference; the poor lived in the shadows and the rich lived luminously.
Windows meant wealth.
In early 18th-century Ireland, just after the Act of Union, the new London government needed cash to finance the Napoleonic Wars and extended the window tax, long established in England, to Ireland. The College Green building was built as the parliament of Ireland but the 1801 Act of Union put paid to that, and the majestic building was sold to the Bank of Ireland. The bank avoided the wealth tax by blocking up the windows.
Tax avoidance brings out both the creative and the bluntest human responses. The Georgian approach of bricking windows was heavy-handed, but it worked. I’ve yet to meet the citizen who pays more tax than they must. When you get new taxes, you also get new tax avoidance schemes. However, that does not mean wealth should not be taxed – at least as much as income.
Wealth taxes are back. They are now a significant feature of the US presidential election, with both Elizabeth Warren and Bernie Sanders wedded to taxing wealth, particularly of the very rich.
Wealth inequality in the West is the defining issue of our day. US inequality is in a league of its own compared with Europe but wealth inequality remains stubbornly high throughout western Europe and, as asset prices have risen in the recovery, it’s getting worse.
One simple way to differentiate the wealthy from the rest of the population is to understand that the wealthy are those whose income comes from assets, such as rent and dividends, while the rest of society depends on wages for their income.
Wealth makes money for you even when you are asleep. Property ownership, land, stocks and shares in companies generate income for owners. And even if some forms of wealth do not always provide current income – such as a large valuable home – wealth always confers privilege, status and opportunity that is not available to those without it.
Even if it is not liquid, wealth confers value and is at the core of the distinction between the haves and have-nots, which is precisely why the accumulation of wealth is so desirable and a source of great human drive, ingenuity and commercial brilliance.
But if the gap between the very top and the average becomes too wide, problems arise and the gap should be redressed in the name of societal fairness. This is particularly the case if the growth in wealth far outstrips the growth in incomes, undermining the social contract and the political status quo.
Psychologically, absolute wealth is rarely the problem; the problem is relative wealth. It is the contrast between what you have and what the guy down the road has, that grates and leads not just to social anxiety but personal anxiety and the sense that you are falling backwards.
Economically, great disparities of wealth are inefficient because rich people don’t spend money, they hoard it, which is why we have so many “wealth managers”.
One of the great myths of economics is that rich people create jobs. They don’t. Demand creates jobs. If a billion (one thousand million) euro is held by one person, the chances are that 99 per cent of that money will leave circulation.
Few jobs are created by the spending of one billionaire, even a free-spending one. However, if that same billion were distributed between one million people having €1,000 each, the impact on the economy would be immense.
Poorer people have a much lower propensity to save, and so the billion euros would recirculate and recirculate, generating enormous economic dynamism and countless jobs.
Armed with these observations, let’s look at Ireland.
News this week that Ireland has the fifth largest number of “ultra-wealthy” individuals per capita in the world, got me thinking again about wealth inequality in Ireland.
A few years ago, I was involved in an RTÉ documentary called the Great Wealth Divide. We focused on two sets of data, one compiled by the European Central Bank called the Household Finance and Consumption Survey (HFCS) and data compiled by Credit Suisse, an investment bank.
Both surveys revealed startling high levels of wealth inequality. The top 5 per cent in the HFCS survey owned 37.7 per cent of all the wealth in the country, while the top 1 per cent owned nearly 15 per cent. The Credit Suisse data was even more dramatic, stating that the top 5 per cent owned 46.4 per cent and the top 1 per cent owned an extraordinary 27.3 per cent of the total wealth of the country.
(The difference might be explained by the fact that when asked in a survey, rich people brag to an investment bank but understate their wealth when asked by the State. Either way, the figures – underpinned by raw financial data on property, stocks and deposits – reveal profound unfairness.)
Imagine we decided to introduce a sliding wealth tax of between 0.5 per cent and 5 per cent on wealth, on the top 1 per cent or top 5 per cent . Even using the more modest HFCS numbers, the State could raise close to a maximum of €20 billion (5 per cent on the top 5 per cent ) or a minimum of €2 billion (0.5 per cent on the top 1 per cent ).
Given that a huge chunk of wealth is tied up in property and land and can’t – by definition – leave the country, it is clear that this is low hanging fruit.
As the world becomes less tolerant of wealth inequality (and I do believe we are moving into such an era, led by the USA), the incentive to tax the super wealthy will become more difficult to resist.
Both the popular left and right will agitate for such a move so much that the centre might eventually adopt it. This is precisely what happened in the US from the 1930s to the 1980s. Is it time for the pendulum to swing again?
This week, the column will focus on global economic policy and why central banks – still the most powerful economic institutions in the world – don’t understand how disruptive technology is changing the way our world works.
What if they are stuck in a late 20th-century mindset not sufficiently clued in to the impact of new technology and therefore, as the world worries about an impending recession, they are like old generals, fighting the last war not the new one?
This week saw a flurry of activity from the world’s central bankers. From the US to New Zealand, Thailand and India, interest rates were slashed to all-time lows. Why the hyperactivity now? What they are up to?read more
The Brexit saga has become a bizarre hostage situation: Boris Johnson is the kidnapper, the ransom is the backstop and Ireland is the hostage. Johnson is demanding the EU drop the backstop or he will shoot the hostage. We’ve been here before. Traditionally, the mantra has been: “We never negotiate with terrorists.” Let’s see what happens.
We all appreciate the notion that if we reward bad behaviour, a kidnapper will resort to intimidation again. The European Union has a choice to make. Ireland will survive this. It might well be convulsive but the economy is strong enough, just. And then what?
When you think about it, the “no-deal” option is only “no deal for now”. No deal is not a long-term option; ultimately, the United Kingdom will have to do a trade deal with the EU. The facts are pretty straightforward – 47 per cent of all UK exports go to the EU and, in turn, 52 per cent of all UK imports come from the EU. No matter how the hostage drama turns out, no matter what the political and economic fallout, the UK will be back at the table very soon. The more chaos at British ports, the shorter the self-imposed mercantile lockout.read more
As Ireland is one of the most globalised economies in the world, we should pay more attention to global trends than we pay to local or regional ones. Granted, given what is happening in London, this week has been an epoch-changing one in terms of Anglo-Irish relations. No one can be reassured by the complexion of the UK cabinet and their collective delusion that only Ireland now stands between them and their great neo-Elizabethan swashbuckling Brexit adventure.
But Westminster is not the only story. Because of Ireland’s trade flows with the US and the EU, the outlook for the global economy is as important for us as the political machinations in Whitehall, even though it doesn’t seem so right now. In fact, as a trading nation which exports six times per head more per worker than the UK, Ireland is much more plugged into decisions taken all over the world than those unveiled in London.read more
Remember the Rumble in the Jungle? The 1974 Muhammad Ali versus George Foreman fight in Zaire was one of the biggest upsets in sporting history. Ali was supposed to be knocked out by the younger, stronger world champion. Few fighters had gone more than four rounds with Foreman.
Ali gambled if he could last more than four maybe the brute force of Foreman would lead Foreman to tire himself out as he rained blows down on his opponent. But how could Ali survive the onslaught?
This is when he devised his now famous “rope-a-dope” strategy. Ali calculated that he might, just might, be able to absorb Foreman’s blows by lying on the ropes, allowing their elasticity to dissipate the enormous power in Foreman’s punches. He also suggested that Foreman wouldn’t be clever enough to realise what was going on until it was too late.read more
Strange things happen to countries’ establishments after serious crashes. Before the 2008 crash, it was deemed patriotic to talk up the economy and paint Panglossian scenarios about the future.
Back then putting on the “green jersey” meant cheerleading the credit/housing boom and vilifying the doubters. The disposition of the establishment was cavalier; these insiders could see the runway and a “soft landing” was imminent.
Today, chastened by experience, the preferred position of Ireland’s insiders is one of caution, probity and rectitude, at least in the tone of public statements. Putting on the green jersey isn’t half as much craic anymore.read more
If Boris Johnson is the answer, what the hell is the question? Perplexed? Who isn’t? Not for the first time over the past few months, the revealed nature of England, a country we thought we knew, confounds us.
To understand the dynamics at the top of the British government, and to guess what might be the question to which Johnson is the answer, we have to dig a bit.
It is individuals – rather than institutions – who make the big decisions, and therefore personal testimony and first-hand experience of those individuals can be useful in teasing out that which has rendered logic and analysis redundant.read more
Great political parties can and do disappear. It is a fact of history. The Irish Home Rule Party disappeared in 1918. Around the same time the Liberal Party, the party of Gladstone, began to atrophy, and was ultimately eclipsed by the Labour Party.
In both cases, great events – the 1916 Rising and the first World War – changed politics forever in their respective countries. In the UK the Liberals were destroyed by the Labour Party, who reframed 20th-century politics as a battle between workers and capitalists.
These big events change the rules, and it looks like Brexit is one such event for the current crop of British parties.read more
One of the most essential, but least well-understood aspects of macroeconomics is that economics is counterintuitive. This is because macroeconomics, unlike accountancy, is more concerned with the collective than the individual.
The rule of thumb that dominates economics – again, as opposed to accountancy – is that what is good for the individual is not always good for the collective. When things are going really well and demand is very strong, like now, the Government should, counterintuitively, act to dampen it.
When demand is strong and people and companies are spending, the State should save and build up a surplus. Because, as night follows day, there will be a downturn, when people stop spending.read more
David has been writing for almost 20 years and there are plenty of articles covering some of the most turbulent times in the world economy.
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