1 yr. ago • 98%

Earned income taxed twice as heavily as capital gains for some in UK, study finds

www.theguardian.com Earned income taxed twice as heavily as capital gains for some in UK, study finds

Thinktank says increasing capital gains tax rates to same as employment tax would raise £10bn extra

33 comments

For some?! It's literally everyone, the CGT bands are 10% and 20%, for non-property

https://www.gov.uk/capital-gains-tax/rates

Equalisation of CGT and Income tax is a no brainer. The argument has always been that CGT (and things like entrepreneur relief) should exist because of the risks involved, but given that both allow offsetting against costs and losses (and income tax doesn't) it's always been a bullshit argument which exists purely to preserve wealth.

28
- It's "for some" because if you're willing to earn an unliveable pittance, you aren't taxed very much if anything.
  
  In principle though, you are right.
  
  6
- Taxing capital gains will only dampen the economy. Instead, use this lower tax to improve your financial situation.
  
  -23
  
  What is the optimal rate then, Mr Laffer?
  
  9
  
  Yes, because everyone has money to invest. So they should just make more money on their money and stop being poor. Why hasn't a anyone ever thought of this. Just stop being poor.
  
  0
Not sure why you need a study to confirm what is literally codified in tax law, but sure.

16
- Which was designed that way on purpose...
  
  We work and pay for most everything while they collect rents with government support.
  
  7
Is anyone surprised by this? The luxury travel and house renovations for the politicians are paid by those who live off those capital gains, not by those who have to work for their money.

9
This is the best summary I could come up with:

In a separate example that also emphasises the gap between the mainly older people who generate an income from property and shares and those who rely on employment, a person receiving £60,000 a year in the form of capital gains or dividends pays less tax than someone aged 16 to 64 in a job earning £35,000.

The momentum behind calls for the equalisation of capital and employment tax rates has grown in recent years.

The former Conservative chancellor Nigel Lawson set the rates of CGT at the same level as income tax in 1988, saying: “In principle, there is little economic difference between [earned] income and capital gains ... And in so far as there is a difference, it is by no means clear why one should be taxed more heavily than the other.”

The authors said the current system allowed for significant levels of avoidance by those with income from capital gains who were allowed to smooth the declaration of their income to make sure it fell under the tax threshold over a period of years.

“Those who can manipulate the tax system in their favour tend to be those with high incomes or high levels of wealth, leaving a larger tax burden on younger people and those on lower incomes, further perpetuating inequalities between and within generations,” it added.

The tax privileges granted to those with unearned income in the UK are also over- generous by European standards, the report said.

The original article contains 630 words, the summary contains 243 words. Saved 61%. I'm a bot and I'm open source!

6
The rich bastards in government favour their rich bastard friends? Whoa! What a shock!

2
Capital gains tax discourages investment and innovation. Income tax discourages work. Pick your poison.

You can raise some tax revenue by shifting the tax burden to 'bad' things instead of 'good' things - pollution, congestion, unhealthy foods, etc. But you can only go so far with these (at some point Pigouvian taxes start to become too successful...) and even then a lot of people flip out at having to pay fuel duty, congestion charges, etc.

I mean, we do need to raise taxes somehow. It turns out voters expect quite a bit from the state.

-3
- Easy. Tax them both the same.
  
  6
  
  That assumes they both have the same societal externalities - I suspect they don't.
  
  I suspect there's a good reason why even fairly left-wing societies (e.g. Sweden, France) tax income at a higher rate than capital gains.
  
  2
- Yes tax is a disincentive in as much as it raises cost, but we are no where near the limits any maximial analysis has indicated.
  
  Also, given that losses can be offset, and structures like limited liability, mean that the financial risk to starting businesses are so small as to be almost non-existent. Literally £1.
  
  So yes, there are limits which tax does cause meaningful disencentives, but we aren't close to those.
  
  5
- Capital gains tax discourages investment and innovation. Income tax discourages work
  
  Are either of those statements true? Does capital gains tax ACTUALLY discourage investment? Does income tax ACTUALLY discourage work?
  
  1
  
  I'm an accountant and have clients regularly ask me how much tax they would have to pay for a certain investment before they make a decision. It absolutely dissuades some people.
  
  2
  
  This is pretty basic economics. Supply curves slope upwards - the higher the price people are offered for something, the more it people are willing to supply. It's exceptionally intuitive but there's reams of empirical evidence to support it if the concept isn't obvious enough to you.
  
  1
- The problem with sin tax is that they just demonize a new behavior or product whenever they want to raise taxes. It becomes a financial burden to be yourself, depending on the whims of society.
  
  1
  
  No. Pigouvian taxes are about putting a price on the social cost of antisocial activities - pollution, congestion, etc.
  
  If I close and seal all my doors and windows and then choose to pump CO2 and other harmful gases into my house, the cost of doing this is largely going to fall on me, and I can probably be trusted to be sensible about how much of this I do. But in the real world, there is no natural mechanism to force me to internalise the costs to the rest of you of pumping out carbon emissions into the atmosphere.
  
  It's nothing to do with 'sin'. Pigouvian taxes are about putting the societal price on antisocial behaviour so market forces can function.
  
  1

You've viewed 33 comments.