The Guardian reports this morning that:
George Osborne's budget is handing a tax cut averaging £3,000 to some of the wealthiest people in the country who make up just 0.3% of the population, the shadow chancellor, John McDonnell, has said.
Labour is calling for the cut in capital gains tax (CGT) to be scrapped, saying it would give investors already making money about the same, on average, as the government had planned to take from disabled people under changes to benefits.
I suspect that this may be based on Jolyon Maugham's tweeting on this issue, but do not know. What I do know is that Labour is right to take up this issue.
But it should have gone further. As it is the Conservatives can attack them because the new rate is higher than it was in 2010, when the influence of Gordon Brown (who seemed to have an absurd belief in the growth inducing power of low CGT rates) was lower still at 18% than the 20% the Conservatives propose now.
What Labour should have done is demand that the income tax and capital gains tax rates be aligned. A Chancellor once had the courage to do this. It was Nigel Lawson. This is the only proper rate for CGT if avoidance is to be discouraged. And that's what I think Labour should be suggesting.
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I completely agree about the rates but we need to go back to indexation of cost to get a fair result.
I am not wholly averse to that
I may be wrong here but you omit to mention Nigel Lawson also kept indexation relief at the same time, which is not available at present time. Making Long term investors pay the same as a short term one ie the real speculators.
The Tories will probably take that to mean shrink the state until they can half high-rate income tax.
For CGT for individuals I wonder whether CG component can be a sub-category of income tax or whether we should consider an Earnings Tax (not sure about the name) that presumes any money gained is income which surely isn’t contentious on the face of it. I’m not aware of the mechanics by a long chalk to be sure of any certain path but it does seem clear scrutiny of the entire situation is needed. In particular – and again suggestion made cautiously due to limited understanding – looking at where income may be shuffled to a gain as a ploy.
Surely there should be a higher rate for unearned income. Only labour earns its return.
To get the rate up to income tax levels would be a start
I have suggested putting up a statue to Robert Maxwell on the grounds that he seems to be the guiding spirit to government policy these days.
And might not capital gains be reasonably regarded as income where thresholds are concerned?
I don’t know how things stand now, but there was once a tax free capital gains allowance.
There is now
A whole extra annual allowance, in effect
It’s quite simple really, treat all forms of “income” equally i.e. money coming in (earned or unearned, capital gain, wages, dividends etc…) and we can put a stop to the sort of evil discrimination that this government, and the last coalition which was little better, have delivered on those who through no fault of their own cannot enjoy the same opportunities and look forward to the future in the same rosy way as those more fortunate in life are always able to….
http://www.independent.co.uk/voices/think-the-disability-benefits-overhaul-is-justified-you-need-to-see-this-video-of-my-daughter-being-a6956561.html
Richard,
While I agree that CGT needs to be maximised, do we not run the risk that an equation with income tax will run the risk of effectively lowering the rate on CGT?
I may be missing a crucial element, but I find it worrying that this could, theoretically, be a possibility.
James
I never see that possibility
What I do think we need is an additional investment income surcharge in place of NIC
I could then imagine lower income tax rates on work
Given that the gross cost of paying an employee in the form of earned income is paid out of the gross income of the employer, the current total rate of tax on that gross cost to the employer can be derived as follows (starting from the nominal earnedincome):
Rate Amount
Gross Cost of Employment 113
Employer Mid-Income NICs 13.00% 13
Nominal Earned Income 100
Employee Mid-Income NICs 12.00% 12
Employee Mid-Income Income Tax 20.00% 20
Net Income 68
Total Tax on Earned Income 39.82% 45
May I suggest 40% (rounded from 39.82%) as a functionally-equivalent rate for CT, IT on unearned income, CGT and IHT?
Of course, CT already paid (e.g. on dividends) would be deducted from IT due on unearned income delivered net of CT, and the base for CGT would be inflation-linked.