IPPR has issued a report this morning calling for the alignment of tax rates on capital gains tax with the equivalent income tax rate applicable to the taxpayer making the gain. In effect, they are arguing that gains should be taxed as income. This is a policy proposal I entirely agree with, as I noted recently. It is virtually inexplicable that when we are worried about increasing income and wealth inequality in the UK, which organisations as left-wing as the IMF argue is harmful to society, the tax system is designed to exacerbate this trend. I say virtually because for some this is entirely explicable: that increase in inequality is their aim.
The Guardian report on the IPPR proposals is supportive.
Worth actually reading the report really:
The first two are significant: it is a deeply economically orthodox view of tax to think that it is simply a tool for raising revenue that must be maximised in a microeconomic sense as if a government is the same as any other entity subject to the rules of the market, which that microeconomic approach would suggest to be the case. This view, best summarised of late in the IFS’s own Mirrlees Review, is profoundly wrong. It fails to recognise the importance of tax as an instrument of social and economic policy in its own right. I would suggest that the IFS is repeating its own error in endorsing the Mirrlees view in making these comments on the IPPR proposal.
The IPPR proposal discusses, at length, the Mirrlees view and suggests that it’s an entirely viable method of structuring matters. Someone who had read the report before pontificating would know that.
In that case the IFS objection on the grounds of whether or not this policy might raise significant revenue is irrelevant. The whole purpose of equalising tax rates would be to change behaviour. The object would be to remove the incentive to re-categorise income as gains and to as a result minimise the tax avoidance activity that takes place around this rate differential to the benefit of society at large. It really is time that the Institute for Fiscal Studies understood these most basic issues with regard to text design, which their blinkered adherence to orthodox neoclassical economics prevents them doing.
I applaud IPPR’s approach. This change needs to happen.
Well quite. The IPPR models both an inflation allowance and the Mirrlees risk free return allowance. Pointing out that one of the two is – probably – needed in order not to tax illusory capital gains.
But, you know, why bother to read before commenting, eh?