If a government is to address the apparent under taxation of wealth then it is apparent that the rates of tax due on income and capital gains must be equalised.
Nope. Inflation exists – therefore there must be an inflation allowance for capital gains on things held over time.
The returns to capital – say, stocks – also pay other taxes. Like corporation tax. This must also be accounted for. The simplest is to abolish corporation tax and then think about equalising the CGT rate on shares with that on income – still after that inflation allowance of course.
This is even before we get to actual economics, which says that we don’t want to tax the returns to capital at all, even while we do tax any income used for consumption. That leads to a progressive consumption tax, which does in fact equally tax consumption financed from any source. But, you know that would require background knowledge.
Third, this disparity in rates will continue to encourage perverse behaviour in the economy, including the encouragement of the recognition of capital gains rather than dividends in the returns from companies.
What’s the dividend tax rate? It’s lower than CGT, isn’t it.
Why? Because we account for the corporation tax already paid on the dividend distribution. See above.
The recommendation is easy to implement: capital gains would simply be treated as the top part of income for assessment purposes.
He has, in the past at least, suggested 80% income tax rates. Now he’s suggesting an 80% CGT rate? That’ll aid in investment, won’t it?
And what fresh hell is this?
Richard Murphy says:
April 28 2020 at 1:39 pm
In the current environment I am reluctant to accept an inflation allowance.
Why is it necessary? To date inflation has only distorted economic well-being by increasing inequality. In that case why not tax it?