It\’s the way he tells \’em

Guess who?

Now I wonder why they looked at the USA when the proposal being made here is that CGT be changed so that it is paid at the taxpayers highest marginal income tax rate.

Nigel Lawson did that in 1988. As a result we have a case study on whether it worked or not reasdilty available.

The stats are here.

The yield rose by 68%.

Odd that the Adam Smith Institute didn’t spot that.

Do, please, look at those stats.

1) They are not inflation adjusted.

2) Anyone remember what else happened in 1988/89? No? How about the peak of the Lawson Boom?

Yes, how remarkable, CGT revenues rose in a boom.

Now, let us have a closer look. CGT revenues in 1987/8, the tax year before the rise in CGT rates, were £1,379 million. In 93/4 they were £710 million.

That may be many things (for example, the effects of booms and busts upon CGT revenues) but it most certainly ain\’t an example of a sustained rise in CGT yields from a rise in CGT rates.

11 comments on “It\’s the way he tells \’em

  1. Here’s my CGT policy.
    1) Threshold: dunno.
    2) Tapering: only in the sense that a 1 year gain is treated as capital gain.
    3) Index-linking: you bet!
    4) Tax rate: at the most, should equal the taxpayer’s marginal rate of income tax, but without treating the gain (save for <1 year gains) as income. That is, the gains leave the marginal income tax rate unchanged.

  2. he has a point…there were many financial institutions that began to pay bonuses in the form of gold or vintage wines in order to avoid either PAYE or National Insurance. So the yield from CGT might have fallen buth what about the combined yield from income tax and cgt? Perhaps Mr Murphy might be starting to think of the virtues of a flat tax rate…! LMAO

  3. “That is, the gains leave the marginal income tax rate unchanged.”

    Cue superrich working for £1 to keep the marginal rate low in the year they make a big capital gain. Rather too much distortion there.

    If the threshold is going to be low then rollover relief is needed, otherwise it becomes punitive to change investments.

  4. “Cue superrich working for £1″: yes, that had occurred to me, but I’ve no idea how to guesstimate how big the effect would be. (Not to mention the “pass it to my wife, the 0% taxpayer” effect. Still, it might save divorce costs, eh?)

    “rollover relief is needed”: a fair point, but with too many reliefs you raise no tax.

    The point is, I guess, to raise some tax while placating the Libdems and not doing too much harm.

  5. One other thing: my own prediction for the future is (i) a god-awful deflationary depression, followed by (ii) the printing of money going too far, and therefore serious inflation.

    So (i) implies that quite soon there won’t be all that many capital gains to pay tax on, while (ii) implies that you really will need index-linking or you’ll ruin what’s left of the economy by taxing fictitious gains.

  6. 1987-88 1,379
    1988-89 2323 68.46%
    1989-90 1854 -20.19%
    1990-91 1852 -0.11%
    1991-92 1140 -38.44%
    1992-93 982 -13.86%
    1993-94 710 -27.70%
    1994-95 926 30.42%
    1995-96 796 -14.04%
    1996-97 1131 42.09%

    Goes up 1 year then falls steadily for 5 years for a net annual decline of 41.51%.

    Looks to me like the filthy capitalists are right: People hate high taxes and will avoid them. Imagine that.

    Therefore I think we Need Another New Law!!! The “Capital Assets Annual Sales Requirement Act”, which will deem every capital asset sold annually, with taxes and losses accrued accordingly. We’ll need a Capital Inspection Corps, several tens of thousands of new unionized civil servants should do it. Armed, I think, and with unlimited search, seizure and forfeiture powers, certainly not subject to the courts, for after all, civil servants have only the best interests of the citizens at heart. Deeming the sale is the only way to prevent what amounts to tax evasion on accrued but hidden capital income.

    What could possibly go wrong?

    Go, quick, write a report for your Unions, you can take full credit, leave my name out of it.

    That’s what I told Murphy. I’m awaiting moderation.

    Dearieme, I fear you err. In the world of big inflation, there will be huge “capital gains to pay tax on”. ie, there will be huge artificial value gains to capital assets, to match inflation, and you will get stuck with a completely artificial capital gains tax when you sell your asset for devalued currency, lots of it, and the currency will not buy anything more than what you had.

  7. If the Treasury don’t want to allow for inflationary gains, then you can bet your bottom (inflationary eroded) dollar that there will be some inflationary gains to be taxed.

  8. “Dearieme, I fear you err.” That’s an odd thing to say, since you follow it with a very wordy recapitulation of what I’d just said. But suit yourself.

  9. Dearieme, by gum you’re right, mis-read the last part of your comment.

    Must stop this rye whiskey before breakfast habit.

  10. Murphy’s using the wrong data.

    The table he uses shows the money the Revenue collected in that year, not the amount that relates to that tax year. Because CGT is collected in arrears, the money collected in 1988/89 (when he gets his 68% increase) was actually tax due from years 1987/88 and earlier – i.e. BEFORE the Lawson tax increase.

    What you need is this table, which shows the tax collected based on the year when the disposal was made (and therefore shows what actually happened when the tax rates changed):
    http://www.hmrc.gov.uk/stats/capital_gains/table14-1.pdf

    As you’ll see, when the rates went up (1988/89), the tax fell by 17.6%, and then another 7.5% the following year. Despite stock market growth in those years.

    I’ve posted this on Murphy’s blog, but after briefly appearing it disappeared again. We’ll see if he allows it.

  11. UPDATE

    Well, since I posted my comment to Murphy’s blog, he’s put up 3 new posts on other issues, allowed through several comments on those, and responded to them.

    But he’s not put up my comment, and not admitted that he’s wrong.

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