Tax Research UK

It’s curious to note in the light of recent discussion here that Jersey is planning, according to TaxNews.com, to change its newly introduced goods and services tax (or VAT by any other name) so that food will be subject to tax at 0% in the future.

As the Jersey Evening Post has said:

The Council of Ministers meet on Thursday to discuss their response to huge rises in food and fuel costs.

It is widely expected that their response will be to drop GST on food and to freeze duty on petrol in the coming Budget.

But be clear: the die-hards of the Right, backed in no small part by Oxford economists were adamant during the debate about introducing GST / VAT in Jersey that it was essential that there be only one VAT rate because of the burden on business of having to differentiate products between different rates of VAT. And yet within three months of its introduction we are seeing that decision reversed because of the sheer political impossibility of imposing a tax on people who cannot afford to feed their families.

What works on the blackboard does not work in reality. The Institute for Fiscal Studies should take note.

Richard Murphy Economics, IFS, Jersey, VAT

There’s an article with the above title on the Guardian’s Comment is Free site today, with the subheading:

A thinktank that claims to be unbiased is promoting dangerous tax policies that will widen the gap between rich and poor.

I recommend it. But there again, I wrote it. That though is not the reason for recommending it. The last paragraph is. This is what worries and motivated me:

Whatever the motive, the IFS’s claim to be unbiased appears to me shaky. Some of its proposals are very dangerous indeed and about as far removed from the characteristics of a good tax system for any open developed economy in the 21st century as it is possible to be.

I genuinely believe that to be true.

This debate will run.

Richard Murphy Ethics, IFS, Tax management

I mentioned yesterday that the IFS did not appear to think that wealth was a basis for charging tax. Now I know why. This is what the they say in their report on Taxation of Wealth and Wealth Transfers:

Given that the justification for double taxation is arguable and that inheritance tax currently raises less than £4 billion a year, consideration could be given to abolishing it altogether. Regardless of whether or not a tax on wealth transfers is retained, the current rebasing of assets held at death to market value for capital gains tax purposes should be removed. In other words, capital gains should be taxed at death, although payment could be delayed until the assets are sold. This would make the double taxation implied by inheritance tax (if retained) very explicit, but double taxation is a natural feature of any taxation of wealth holdings or wealth transfers and, if justified in its own right, does not provide a rationale for not fully taxing the income (or capital gain) received by donors. Some design issues such as emigration and immigration, gains on business assets, private residences etc. would need to be resolved if capital gains tax is imposed on death and are discussed in the chapter.

They add:

The paper does not advocate the introduction of a regular wealth tax.

So now we know: wealth should not be taxed. Another £4 billion of revenue is lost to the State.

Except it’s more than that. Let’s be clear: Inheritance Tax is already heavily avoided by the wealthy, but it is still only paid by 7% of estates and despite paranoia on the point, this is unlikely to rise. Current movements in house prices are certainly helping many estates fall out of the tax.

The suggestion that Capital Gains Tax effectively apply on death does not help the middle classes though. First, whilst houses are exempt for Capital Gains Tax many other assets (cash apart, of course) are not. And there’s no suggestion of an increased Capital Gains Tax allowance in these cases. So it is those who will have to sell what they inherit that will pay the highest rates of tax under what the IFS proposal - and for some people the level of sale may be quite small before a tax charge hits - certainly much smaller than is the case with Inheritance Tax now. In that case smaller inheritances will pay more and those who can afford to defer sale can avoid tax indefinitely - and by definition those best able to do that will be the wealthy.

It’s another case of the Institute for Fiscal Studies moving tax onto those least able to pay it.

So much for it’s lack of bias.

Richard Murphy Ethics, IFS, Inheritance Tax

I found this in a slide presentation by Malcolm Gammie QC, one of the directors of the Institute for Fiscal Studies Mirrlees review, when talking about his work in that capacity:

What are relevant criteria for identifying taxable capacity? - earnings, expenditure, age, hair, status, education, gender, height, assets, disability, responsibilities?

My guess is he thinks that funny.

Many of us might think it a pretty sick sense of humour, especially given the discrimination all too readily apparent in the work the review has commissioned. Notice he forgot to mention wealth. Why? Was he trying to tell us something?

Richard Murphy IFS