NEW POLL: Should capital and income be taxed at the same level?

In amongst the debate over capital gains tax and the politics of whether the Budget leans more towards the previous Liberal Democrat or Conservative policies on the topic is a significant issue of principle.

The Liberal Democrats (and previously the Liberals in particular) have traditionally been much keener on the idea that the tax system should treat ‘unearned income’ more equally to earned income, and so tax more equally the growth in capital value of assets compared with salaries.

Of course the use of the word ‘unearned’ is itself the trigger for a whole range of debates as increase values of assets may be the result of work and if they flow from people creating and growing businesses the wider economy benefits too.

And so to our latest poll, which you can vote in over in the right hand columns: do you believe that as a matter of principle capital gains should generally be taxed at the same level as income?

And here are your options:

  • Yes
  • No
  • Don’t know

Feel free to show your working, below …

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This entry was posted in Voice polls.


  • of course it should, I’m actually shocked it isn’t already! (after all, interests on savings, as little as there is this days, are already taxed at the same rate).
    Although I would agree on some sort of exemption/discount for Businesses that actually create something (but not for shares or properties, no matter how long they’ve been held. If CGT on shares was much higher, maybe investors would insist on firms that provide dividends rather than speculation)

  • No way. Capital is more mobile, so the optimum level of tax for maximising tax income is lower. High CGT discourages transactions that incur CGT far more than income tax discourages work, because CGT isn’t a tax on capital per se, it’s a tax on capital at one particular time of its life cycle.

    You are comparing apples with oranges, to some extent. True capital taxes would include taxes on dividends and deposit interests. CGT is more like fining a worker for switching jobs.

  • Of course it shouldn’t

    1. Capital gains involve risk. If someone is brave enough to risk starting a new business, they should be rewarded if it works.
    2. Capital gains typically include an element of inflation. If you buy an investment and it goes up in value by 30% but inflation over the period was 10%, only the 20% gain should be taxed, not the whole 30%.
    3. Capital gains create jobs in a whole range of sectors, and CGT generates relatively little tax. The revenue benefits in raising it in no way match the damage it would do to the economy if long-term capital gains were hit hard.
    4. People who focus on capital gains are investors – they look to the long-term, they are careful with money, and typically will reinvest their gains, to the benefit of society.

    Having said all this, I have no issue with it rising above 18% but it needs to be done so that long-term gains are favoured – let’s support those who are investing in a way that creates jobs and benefits for everyone.

  • James Blessing has got it right, in articulating the case for a tax on investment that declines over time. The economy badly needs more people to invest for the longer term. That greatly increases our economic resiliance, the converse of excess borrowing.

    People who regard investment income as somehow parasitic clearly have no idea how our economy functions.

    Plus think about the hundreds of thousands of good, responsible, self-reliant people who have invested for their future, now living on no earned income, but eeking out a living on their pension and investments. Or, as in my case, unemployed, not claiming benefits, surviving on my investments, accrued over a lifetime of putting a little bit away each month…

  • Also, this idea that landlords are in some way freeloaders who deliver nothing to society, is nonsense:

    1. Landlords create jobs – for gas engineers, tradespeople, letting agents, insurance companies, etc
    2. Landlords provide a service, they have customers, and obligations – to maintain safety, to insure the property, to manage tenancies, energy efficiency, and so forth. Landlords are business owners.

  • Chris Mills 10th Jun '10 - 8:13pm

    @OC Gas engineers, Tradespeople and insurance companies would still have work should the properties be owned.

    Any work on Gas after the meter (the demarcation point between the Gas Transporter /supplier and the consumer) MUST be done by a gas safe engineer by law.

    Most people’s DIY extends little further than decorating. and insurance is required on all mortgaged properties as a condition of the mortgage (obviously that insurance can be acquired from a company of the homeowner’s choosing).

    Letting agents…. hmm but that isn’t really than many jobs.

    Landlords are required to maintain energy efficiency? REALLY?

    Anyway should CGT be taxed as the same level as Income tax? ABSOLUTELY.

  • Chris Mills 10th Jun '10 - 8:16pm

    Oh and I agree that CGT should be structured to reward long term investors rather than short termers. Investment should be about the long term.

  • Andrea Gill 10th Jun '10 - 8:47pm

    @Chris – I agree, it should be raised but I do feel that there need to be measures to protect those who hold onto such investments long-term. Oddly enough, so did David Laws – so the Telegraph gunning for him was maybe not have been the best move.

  • Why is it morally better for investment to be about the long term in some sense? Someone is always going to hold it – a share or a house doesn’t just vanish or end up ownerless. What you do by making short-term investments expensive is that you make it too costly to make a (necessarily risky) investment for anyone but those who can afford risky long-term commitments, that is to say, very large financial institutions and the wealthiest handful of people.

    I fear that long-term investments are one of those intuitively appealing ideas that don’t actually stack up to all that.

    The obvious point about landlords is that they make it possible for people without long-term investment capital to have houses and apartments to live in.

  • I too don’t understand why someone who owns a share for 20 years should pay less tax than someone who owns 10 shares for 2 years apiece.

    But inflationary gains should not be taxed – that is just silly.

    That investment is riskier than work should not matter for tax – on those grounds Grand National winnings should not be taxed at all!!

  • Matthew Huntbach 10th Jun '10 - 10:37pm

    The obvious point about landlords is that they make it possible for people without long-term investment capital to have houses and apartments to live in.

    Yes, and in return they receive rent. This rent is subsidised directly or indirectly by housing benefit. Indirectly because even if the tenants do not receive it, it buoys up the general rental market and acts as a guarantee of the rent being paid. It is thus a VERY hefty state subsidy on being a landlord.

    The rent is taxed as income. If it should happen that house prices go up, that is nothing to do with the landlords. Still, it is extra income, all that is being said is why should this extra income be taxed at less then the rent income? I’d be happy to see an inflation adjustment to it, but this isn’t some productive investment in the way those arguing for low CGT are putting it.

  • We heard all about a ‘tax on jobs’ before the election. And that from the same people who are now saying that working should be taxed up to twice as heavily as speculating. Astonishing.

    Regarding the inflation adjustment – my interest and dividend income is taxed before inflation adjustment, why would capital gains be different? It is not those people who have saved for their retirement and expected regular income who would suffer from an increase in CGT (even though the Daily Telegraph might give that impression). It is only those who have bought assets and speculated on a rise in value.

    To be fair, when you tax capital gains the same as income, you should have one joint threshold of £10k, so that pensioners who live just off investment gain are not taxed punitively.

  • Andrew Duffield 10th Jun '10 - 11:53pm

    The answer to the poll question is clearly ‘yes’, since income and genuine capital gains are EARNED and should be taxed at 0% ,whilst economic rent is totally UNEARNED. We should be shifting to fully tax that instead.

    Let’s start with the government-gifted privilege that allows banks to appropriate “interest” when they create debt-money deposits from absolutely nothing. It ain’t interest, it’s rent. And still we let them fleece us!

  • On principle I’d say yes, yes it should increase. But then you look at the statistics from other countries and the past, and it appears there’d be a high likelihood of actual revenues decreasing with a higher tax. I’m not sure that’d be prudent at this time.

  • No, but income from capital should. Why? Because it’s income. Income should be taxed at the same rate as income. That seems pretty obvious to me.

  • “But then you look at the statistics from other countries and the past” – Yes; this is a curious phenomena – it’s easier for rich people to move country than it is for poor people therefore they’ve arranged a system (through both lobbying and threats of migration causing loss of revenue) whereby they don’t pay as much tax on their income (called ‘capital gains’) as poor people do on their income (called ‘income’). Therefore we should invade Liechtenstein.

  • Hehe, poor people don’t pay 40% tax! But I see your meaning. Talk of closing up “tax loopholes”, as ol’ Nick was so fond of doing in the election campaign, really is just talk, it turns out.

  • Andrew Duffield 11th Jun '10 - 10:44am

    “In the landlord example the income from rent is clearly earned income…”

    Oh dear. Churchill and Lloyd George will be turning in their graves.

  • Roger O'Brien 13th Jun '10 - 2:07pm

    Unfortunately this poll does not distinguish between taxing capital gains at a higher rate or a lower rate than income.
    I voted ‘No’ because I believe that, as a matter of general principal, capital gains should be taxed at a rate HIGHER than the persons marginal rate of income tax, with 2 exceptions:
    1. Sole or main residence;
    2. Gains resulting from the persons own efforts, e.g. building up a small business.
    The tax system should reward effort. It should not reward ‘owning assets in the right place at the right time’.

  • Jock, Robert said only MAIN residence, which I believe is already exempt from CGT (presumably because a home is something you need to have, and if you tax that, then you would never be able to move because the whole market having increased, you wouldn’t be able to find something else).

    /now I find it weird that people say CGT should be adjusted for inflation.. most wages are not linked to inflation and neither is income tax. And if you consider saving accounts, they’re actually losing money right now (virtually all accounts have lower interest rates than the current inflation) yet are still taxed on top.

    So if you want to link CGT to inflation then you should link income tax too.

  • toryboysnevergrowup 13th Jun '10 - 7:58pm

    Sounds like you are being softened up for the reversal of what was agreed in the Coalition Agreement. And btw that was not to equalise the tax rates on earned and unearned income – this will not happen even if income tax and CGT rates are equalised, as there is still the small matter of national insurance which in reality would still be an earned income surcharge.

  • George W. Potter 14th Jun '10 - 12:09am

    With regards to property

  • George W. Potter 14th Jun '10 - 12:11am

    Sorry, incomplete comment.

    With regards to property I would hope that CGT takes into account the natural increase in value due to inflation. Someone shouldn’t be additionally taxed when selling a house if in real terms they’re only selling it for the same they bought it for.

  • George W. Potter 14th Jun '10 - 12:14am

    Sandra, wages aren’t directly linked to inflation but normally the employer will raise wages over time at a rate which more or less tracks inflation.

  • Shares may go up or down in value as does property.
    Perhaps we should be able to offset these losses against income tax.
    I voted yes but agree that inflation increases should not be taxed.

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