This New Tax Might Just Solve Wealth Inequality

Wealth inequality is out of control. For many, it’s becoming increasingly more difficult to keep up with the cost of living.

Yet the conversations are growing, regarding ways to combat it and help those at the bottom of the financial ladder to live better lives.

The main talking point is simple: a wealth tax.

A small tax on the assets of the super rich to slow the ruthless compounding effect of investment returns.

But… I have a better idea.

One that could have huge implications on wealth redistribution, and the living standards of the middle and working classes.

Give me a couple of minutes, and I will change your outlook on tax forever.

Financialisation

A lot of people really struggle to grasp the size of our financial industries in relation to our economies. Let me set the scene for you by using one market: ForEx trading.

ForEx, or Foreign Exchange, is the global market where currencies are traded. It’s the largest, and most liquid market in the world, and the trading volume is staggering.

In the UK alone, over £2 trillion worth of volume is traded every single day. £2.3 trillion, to be precise.

No, that wasn’t a typo. £2 trillion A DAY.

Although nobody seemed to want to explicitly state it on the internet, but over the course of a fiscal year, you’re looking at just under £1 quadrillion of trading volume…

…in the UK alone!

And that’s just one market, too. The most traded market in fairness, but what about…

• Commodities.

• Derivatives.

• Stock options.

• Emerging industries like cryptocurrency.

The numbers are insane, and they show you just how much money, and thus power, these markets, and those operating in them, have.

To put things into perspective, the UK GDP in 2023 was a smudge under £2.5 trillion.

The ForEx market trades in one day, what the UK produces in one year.

Also, the government budget for the same year was around £1.2 trillion.

I think you’re seeing where I’m going with this now, aren’t you?

Let’s Do The Numbers

The most reliable numbers I’ve been able to gain for everything I need are from 2023. It’s only a few years back, so we can still get a good idea of how this might be able to work.

Establishing the facts:

• UK ForEx daily trading volume: £2.3 trillion (as of April 2023)

• UK ForEx annual trading volume: £840 trillion (APPROX.)

• UK Government budget: £1.2 trillion

• UK GDP: £2.5 trillion

In all honesty, the GDP figure isn’t totally relevant for the calculations. It’s just funny to put things into perspective. Now, let’s create some theories.

Of course, the tax would have to be tiny so you wouldn’t deter people from taking their business elsewhere, but the point is that even a tiny flat tax can pull in a huge amount of revenue, and have seismic shifts on wealth redistribution.

A flat 1% tax would generate over £8 trillion in a year. That’s over 5x the annual budget.

A flat 0.1% tax would be enough to finance 2/3 of all public spending for a year.

Just for clarity: £840 trillion / 1,000 = £840 billion. That’s over 2/3 of our annual budget.

REMEMBER: Zero point one percent. Just take a minute to think about all the tax you pay for working hard at your shitty dead end job. 30%? 40%? 50%?

It’s all for nothing. Some life, eh?

The Harsh Reality

ForEx is a necessary market to exchange currencies. Obviously. But £2.3 trillion a day?! Seriously?! What’s it all for?

Wealth extraction. That’s what it’s for, and that’s why it’s been untouched for years. There’s too much money at stake, and our politicians are either being paid handsomely to leave it alone, or don’t have the courage to do the right thing and stand up to it.

This is an industry that is becoming increasingly exploitative, with entire floors of individuals sitting in high rise offices in central London doing nothing but extracting wealth from the economy for their own gain, and offering very little to society for their work.

And it’s not just the ForEx markets. Financial markets like these have been responsible for a whole number of financial crises (wealth transfers) over the past few decades.

Billions have been paid to them in bailouts, all the while they can take advantage of significantly lower tax rates.

But, this potential tax will be met with strong resistance if any action was taken.

Here are some potential drawbacks to the FT tax.

Business Going Overseas

You have to consider the possibility of business moving overseas if even the smallest tax is implemented. If the UK has a, say, 0.05% FT tax, and most other financial hubs have zero, it could stifle new business coming into the country, and perhaps even lead to current business moving to other nations.

At the same time though, how bad can it be when you consider the fact that this country has been economically stagnant for twenty damn years? Even then, are corporations really going to go to all that hassle to potentially avoid a 0.05% FT tax?

A 0.05% tax doesn’t sound like a lot, but when you factor in how small the profits often are, a 0.05% tax could cause a huge reduction in trading volume in this country.

Trading volume would drop… a lot.

If traders are now liable to pay a small tax (even if it is just 0.1%) then they’re likely to move to another market, like some of those named above.

So, to stop this movement, you’d have to…

• target all markets. This could lead to even more revenue, so a lower % tax rate will be needed to suffice.

• come to agreements with other nations. If all countries can collaborate on this, there may never need to be a tax on work ever again.

There are several pros and cons. I’m not 100% sold on it yet because the impact goes way beyond a 1,200 word blog.

But I think it’s worth having a conversation over.

Final Thoughts

There’s a reason why $7.5 trillion a day is traded globally in this market alone.

It’s profitable, and any profits made are taxed at very low rates. Much lower than conventional income. Sometimes it’s even tax free, depending on what accounts you’re using.

I truly believe that a tiny (literally a fraction of a %) financial transactions tax could do good in every country in the world. A huge burden could be lifted on the poor, with significant reductions to income tax on the cards.

This would give households more disposable income, which is exactly what you need to boost economic growth.

The core foundation for any thriving economy is a middle class with healthy levels of disposable income. This would help with that.

I’m not asking for a 10% tax, as it would destroy the industry. I’m not even asking for 1%. I’m not even really asking for 0.1%. A fraction of a fraction can do huge things.

That would almost be enough to cover our entire annual budget.

Sure, there are downsides. But with the current state the UK is in, what on Earth do we have to lose?

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