Astonishingly this comment comes from Janan Ganesh, George Osborne's biographer, in the FT this morning:
Conservatives can demand a relationship between desert and reward or they can oppose inheritance tax. They cannot do both. Bequests of capital give privileged children, however gormless and mediocre, a crushing advantage. When Tories dress up this warping of life chances with Burkean pieties about a concord between the generations, their most impressive feat is keeping a straight face.
Ganesh is as harsh on tax exemption for homes and second properties. His desire is less tax on enterprise. As he puts it:
But the property racket, and its fossilisation of the asset-rich, makes us look more like a rentier economy than the property-owning democracy of lore. Building more houses will not, by itself, restore sanity. Britain's growth rate over the past three years testifies to something going right.
For that, Mr Osborne must change a tax system that was designed before returns to capital (and especially property) greatly outstripped returns to labour. The Tories cannot be the workers' party until they discriminate, proudly, between those who earn their money and those who fluke their way into it.
And I have to say, he's right. It's also apparent that the thinks Thomas Piketty is right. I have written the following in The Joy of Tax (following a discussion on how to calculate the tax base):
It is important to recognise that income for tax purposes is closely related, for most purposes, to the accumulation of cash during a period as calculated before sums are expended for personal purposes. The consequence of doing so is, however, of profound importance and is that as far as anyone is concerned (and I stress, anyone) one pound accumulated from one source of income is identical in economic value to a pound from any other source. In fact, when put side by side as notes, or when mixed together in a bank account, it would be impossible for a person to tell whether a particular pound was from earned income resulting from work, or from savings income (such as interest on a bank account), or from a capital gain on the sale of shares or a house, or as a gift from another person. A pound is a pound, is a pound and each contributes in the same way to a person's well being, albeit (as already noted) the more of such pounds that there are the less each one is individually significant to the person who owns them.
Ganesh argues for a bias to income. I argue for an equality as to source, in the first instance.
What is impossible in the twenty first century, as Ganesh notes, is a tax system with a bias to unearned capital. I am a little surprised to share common ground with him, but am happy to do so on this occasion.
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I was at a commercial property agents party the other week, lots of Champagne and food, glitzy surroundings etc. Full of people in the industry who either make or extract money from clients such as myself.
While there I spoke to some of the other developers and we all agreed the problem with the UK is the guaranteed, tax free returns from UK residential property.
If any of those professionals came into funds, say £2m, from inheritance, lottery or other windfall, then I would bet 90%+ would buy a big house and/or BTL property. Would they invest in a business or commercial property?………Not when the returns from a house are tax free, stable and you get to enjoy it!
However taxing homes seems to always spell doom for any political party, so the answer must be to make business investment more attractive along with small bite sized taxation on homes that creeps up on people….
If business cannot attract funds that’s its problem
Banks are there to supply that anyway, in large part
So it is taxation of housing that has to be addressed
“If business cannot attract funds that’s its problem”
I rather fear it is both a problem for business and if businesses are part of the tax base, then also the rest of us. Most businesses have little desire to be beholden to the banks, who have little understanding of business snd do not want to back anything without a belt and braces justification to head office. Then things change when bank staff change which is increasingly and unfathomably frequent. Most small businesses would, I’m sure, rather have a nice sleeping partner. But as the returns are minimal compared to property, (which also requires no effort) there is generally little chance of attracting it. Certainly better taxation of property is desperately needed. Perhaps a reduction in income tax could be ‘offset’ against a rise in property tax?
All issues I am addressing in The Joy of Tax
Always the stick, never the carrot………just for once I would like to be shocked by you proposing lower taxes for business.
You can’t surely believe that if Business cannot attract funds then it is only a problem for business with no wider ramifications! The State cannot be there for everything……..
It is you asking for state support for business and therefore assuming the state is there fore everything, not me
Ganesh made the same point on The Daily Politics Show (Sunday) and the other FT journo (name escapes me) did not disagree. The point he made was that the tax system should be used to send ‘moral signals’ and that Osborne should tread carefully about adjusting it to favour the idle rich. The Guardian journo (name escapes me) made the point that in cutting tax credits Osborne was contradicting their election pledge to support working people. This was not challenged by either FT journo.
“their election pledge to support working people.”
The Tories, warped and psychopathic idea of ‘support’ for working people is to pull the rug from under them as much as possible, increase immiseration (whilst taking money out of the economy). To do this at a time when rents are sky high is beyond cruelty and insane. Cameron seems to believe that cutting tax credits will result in employer munificence going viral -you couldn’t make it up!
http://www.dailymail.co.uk/news/article-2512791/Banks-ruin-firms-just-make-killing-RBS-Lloyds-branded-unscrupulous-profiteers.html
Where some are doing it, others are also doing it.
In any increasingly corrupt financial industry you just cannot rely on what “they” say
At the root of the present financial disaster, which is continuing to [silently] grow, is the criminal behaviour of practically the entire financial community.
And now they say that there is too much “regulation”.
Crooks.
http://rowans-blog.blogspot.co.uk/2015/06/large-banks-are-now-finally-feeling.html
Agreed – a parallel problem is that we use the same word ‘investment’ for two very different things which need not necessarily be linked:
1.) wealth creation – funding infrastructure, technology, training, etc, that add to our ability to produce goods and services; and
2.) wealth extraction – anything that yields a return, whether savings, loans, dividends or other financial assets.
A pound from 1) is no different from a pound from 2), but the implications for the economy, and economic justice (in terms of the difference between earned income and unearned (something-for-nothing) income) are hugely important.
More on this in my book Why We Can’t Afford the Rich, Policy Press, 2014
Best regards
Andrew
I agree
That is a reason for changing rates
But in favour of wealth creation, not extraction, which is the opposite of what happens now