11 Comments

• jayu 1st Aug '10 - 12:40pm

  But Tory backbenchers say no. So whose voice carries the greater weight? I’m pretty sure most LDV readers are against VAT rises, the pushing through of Gove’s education policy, tuition fees, AV as opposed to PR. But that’s the price of entering a coalition, I suppose.

• SMcG 1st Aug '10 - 2:27pm

  But without any adjustment for inflation the long term effective tax rate for someone who hold on to an asset for some years would be much higher than the income tax rate. Seems a perverse effect.

• Rich 1st Aug '10 - 3:11pm

  It’s fairly obvious Tory backbenchers have a greater weight in parliament, as they have rather more MPs than we do. I might not like how they vote, but they’d do it anyway, and we’ve managed concessions we never expected. CGT is unlikely to have gone up without us in government after all.

• Stephen W 1st Aug '10 - 4:39pm

  “But without any adjustment for inflation the long term effective tax rate for someone who hold on to an asset for some years would be much higher than the income tax rate. Seems a perverse effect.”

  For one.

  Another good point is that wealth creation (i.e. capital gains) are for more economically important than people’s income, for everybody, so it produces a much smaller negative economic effect to disincentivise (through high tax rates) income, than it does wealth creation.

• Andrew Tennant 1st Aug '10 - 6:55pm

  I agree it’s both immoral and undesirable for the wealthy to avoid their tax obligations by diverting income as capital gains to make themselves better off at the expense of the state; I also think it undesirable for the asset rich to keep getting richer gaining from their existing wealth faster and easier than someone working hard without the same historic privileges. But I do accept the argument that the tax all capital gains as income ignores the nuanced ways in which actual capital gains are important and that it would indiscriminately do damage to these areas to apply such a blanket change. I would hope in selecting 28%, an improvement on 18%, we’ve done so for a reason; perhaps based on modelling choosing the rate at which applying it does the least economic damage or generates the largest potential income.

• Cllr Mark Wright 1st Aug '10 - 8:12pm

  Stephen W: Hold on, you cant just say “wealth creation (i.e. capital gains)” and get away with it! A lot of capital gain has absolutely nothing at all to do with wealth generation by the owner. For example, people who buy property in an area that later gets chosen as a location for a new public transport node, thus driving up the property price (a well known effect near tube stations in London). Those people have a windfall stimulated purely by public spend. Likewise those who buy houses and then ride the wave of a housing boom.

• Stephen W 1st Aug '10 - 10:14pm

  Obviously not all capital gains are virtuous wealth creation. You may just get lucky. However wealth creation is capital gains. Disincentivising capital gains is disincentivising wealth creation. It’s irresponsible to ignore this fact when determining policy just to get the chance to “punish” who benefit from wealth creation through no real virtue of their own.

• Tim Leunig 2nd Aug '10 - 10:09am

  Income – eg you work and raise GDP – are just as important as capital gains. Economically the best answer is equal rates, with indexation relief, and the ability to rollover losses. Basically the system Nigel Lawson had created and Brown mucked up. I am pretty sure that this is what the Mirlees tax efficiency commission recommended.

• Stephen W 2nd Aug '10 - 10:15am

  True. But I think that capital gains are more likely to be invested thus contributing to the general pool of capital available for investment whereas income is far more likely to be spent on consumption. Though please do excuse my limited knowledge of economics.

  The above suggestion by TIm sounds very good.

• Andrea Gill 2nd Aug '10 - 11:49am

  If finances weren’t tight right now AND tax loopholes were closed, then I’d support this, however the 28% level was calculated as the optimal income level for the treasury.

• Matthew Huntbach 2nd Aug '10 - 10:30pm

  Stephen W
  
  wealth creation is capital gains
  
  Most capital gains is not “wealth creation” at all, if by that you mean something which is tangible benefit to society. It is a by-product of wealth creation. For example, when house prices rise, no real wealth in terms of tangible benefit has been created. If anything, society is damaged by it due to the greater difficulties in obtaining housing. All that has happened when house prices rise is that wealth created ELSEWHERE has been fed into the housing system and so puffed up house prices.

  You say you have limited knowledge of economics, and that shows. You might as well say it would be good to have 25% inflation as we did in the 1970s as that too would be “wealth creation”. Here we are, sitting in an economic crisis due largely to this confusion between asset price rises and real tangible wealth creation, and yet still people like you don’t get it and go on with the old lines that got us into this mess. What a shambles.

  Stephen W, I know where you come from – you’re one of those people taken in by the super-rich in our society who are pumping out this rubbishy propaganda in defence of what they’re really about i.e. getting even more rich because you are already rich and doing nothing of any use in society to get even more rich. Oh, they claim they are all about entrepeneurialism and the like, and they use their control of the press to make out that’s what it’s about. But it isn’t – it’s about the opposite – being rich and getting richer without working for it.

  Anyone who really supported reward for hard work would see right away why taxing capital gains at the same rate as income was the right thing to do.