The theoretical and practical problems facing the left as it seeks to tax the wealth of the rich

The wealth tax, which is the subject of much discussion at the moment, already exists in part and is in part unworkable: a sort of political manifesto destined to come up against insurmountable practical difficulties. Yet at its core lies a sensible insight, a commendable idea, which becomes distorted as it transforms into ideology. These proposals highlight a characteristic of developed and complex societies, where, paradoxically, inequalities are on the rise. Where the standard of living is modest for everyone, inequalities are also modest, as in societies based on hunting and gathering, subsistence farming or, at a push, animal societies.

In short, equality can, in other words, also be a form of ‘levelling down’, with societies in which everyone is equally badly off, as Churchill said of socialism: the equal distribution of misery as opposed to the unequal distribution of wealth in the market economy. However, it is certainly true that the decline in the industrial base of mature economies has impoverished their middle classes, whilst leaving previous wealth untouched and creating new wealth for those who manage to organise production in emerging economies or in the online world.

Rather than calling for a redistribution of this wealth through taxation, one solution is to intervene in its distribution amongst the various participants in the relevant value chain. Taxation should therefore not be over-emphasised by a left that is too preoccupied with raising money, rather than the more important concern of spending it wisely, which would also lend it greater political legitimacy. In Italy, however, the way in which tax assessment and collection have become established stands as a living testament to the inefficiency of public intervention that merely follows in the wake of private entities. Tax assessment in Italy is, in fact, based on the accounting systems of industries, banks, large-scale retailers, local and non-local public bodies, accountants and other tax intermediaries of various kinds. Public authorities ought to take a left-wing approach by intervening where this legal and documentary assessment of taxes via third parties fails to function; yet for almost sixty years, they have instead been intervening in the legal framework governing what those third parties have declared.

In fact, wealth and income taxes on financial assets already operate independently through the banks, which, however, can only act on deposits and securities within their remit. In fact, banks already administer the so-called ‘financial wealth tax’, introduced by the Monti government. A comprehensive overview of all a taxpayer’s assets, with a personalised and progressive tax system, would require the reconstruction of their total assets – a task that would fall to the tax authorities. If one considers assets held in the name of limited companies, partnerships, assets managed by Italian or foreign fiduciaries, trusts and so on, it is reasonable to expect that the first to show reluctance towards such taxes on total assets would be the Revenue Agency and the Finance Police themselves, given the enormous workload this would entail. Even wealth taxes on high-profile assets, such as property, would be far more complex if they were to shift from being levied on individual properties to the aforementioned total property portfolio, perhaps with progressive rates.

Finally, the tax on the super-rich, which would, however, end up weighing on the value of companies – a situation which today allows us to state that the wealth of the top ten Italian families is equal to that of several million poorer individuals: this wealth is, however, purely hypothetical and will only be realised and taxed when the company is sold. This is unrealised wealth, invested in productive activities, where millions of workers and employees are employed. It is no coincidence that the tax on companies’ net assets was abolished in 1998 by the first Prodi government; it would, after all, entail the distortions inherent in all wealth taxes, namely failing to distinguish between increased and decreased assets, as well as between assets built up from taxed or tax-exempt income, whether from the distant past or from evaded taxes.

The above recommends focusing attention on other aspects of wealth, without taxing it as such, but rather looking at the income derived from it, which is now treated more favourably than income from employment, whether as an employee or a self-employed person.