Question of the day: should we have an investment income surcharge

Theory – optimal tax theory says that income from investment shouldn’t be taxed at all. Consumption financed from investment income, go for it, but not income from investment itself. Which is why hte progressive consumption tax is the desired structure.

Empirical – social security taxation pays for social security. There is no social security benefit that covers any income from investment. Therefore taxing the investment income to provide no benefit – well, tad unfair, no?

13 thoughts on “No”

  1. Why narrow it to social security? That’s a straw man argument.

    The most common argument is that tax pays for the roads on which the company’s goods travel; for the education, healthcare, and retirement of the company’s employees; and so on. Therefore investment income from the company is fair game for taxation. I don’t think you’ve answered that critique.

    Aside, Ritchie’s suggestion that the tax only apply to investors aged under 60 is a wonderful example of taxation for thee but not for me; the good prof is 62.

  2. Bloke in North Dorset

    This is one of those reverse Chesterton Fence situations. We had an investment income surcharge in this country for many a year and it was scrapped. Before erecting the fence again shouldn’t we look at why it was scrapped and what effects scrapping it had?

    Maggie/Evil Tories scores zero points on this exam question and the student will be failed the whole exam.

  3. Wasn’t it only a day or so ago he was arguing for alignment of capital gains and income tax? But now, apparently a surcharge on some income is even better. Screw alignment.

    Tomorrow it will be capital gains must be taxed at the investment surcharge level plus a levy plus we’ll be sending someone round to check down the back of your couch.

  4. Bloke in North Dorset

    Aside, Ritchie’s suggestion that the tax only apply to investors aged under 60 is a wonderful example of taxation for thee but not for me; the good prof is 62.

    Indeed.

    Anyone prepared to bet he’s understood Rawls’ veil of ignorance, if he’s even heard of it.

  5. Consumption financed from investment income, go for it,

    What’s the difference? The point of income is consumption. If all it does is sit in the bank then its not doing me any good.

    So, instead of taxing it when it goes into the bank, I let it sit there to be taxed when I take it out. Sounds like taxing investment income but with extra steps.

  6. Empirical – social security taxation pays for social security.

    I am assuming that you’re not talking about US social security – which most emphatically is not paid for through social security taxation.

  7. @Agammamon

    NO. The consumption tax is VAT when you spend the investment income. But, you’ve already paid Tax on the interest from your investment and you can’t claim tax relief on interest you pay

  8. We had an investment income surcharge in this country for many a year and it was scrapped. Before erecting the fence again shouldn’t we look at why it was scrapped and what effects scrapping it had?

    It was scrapped because (by and large), the people who had income subject to the surcharge (at eye-watering rates) also had the ability to take themselves to foreign climes to avoid paying the surcharge and in so doing also removed taxation for income, consumption and every other tax under the sun. Sure they might have been paying something to whatever tax haven they landed in, but the point is that they weren’t paying it to HM Treasury and Inland Revenue.

    Once again, Spud spins this bullshit without any consideration for the behavioural response of peeps, but then again, this is the same little scrote who thinks the entire world should switch from resident taxation to taxation by citizenship to avoid that favourite means of avoiding taxes “voting with your feet”. Despite the fact that only the USA (not even Eritrea any longer), implements citizenship taxation and even that comes with a large allowance for non-resident US citizens.

    Spud really is a moron.

  9. To summarise the historical situation:

    In 1971 the top rate of income tax on earned income was cut to 75%. A surcharge of 15% kept the top rate on investment income at 90%[1]. In 1974 the cut was partly reversed and the top rate on earned income was raised to 83%. With the investment income surcharge this raised the top rate on investment income to 98%, the highest permanent rate since the war. This applied to incomes over £20,000 (£209,963 as of 2019)[2].

    The Government of Margaret Thatcher, who favoured indirect taxation, reduced personal income tax rates during the 1980s[3]. In the first budget after her election victory in 1979, the top rate was reduced from 83% to 60% and the basic rate from 33% to 30%[4]. The basic rate was also cut for three successive budgets – to 29% in the 1986 budget, 27% in 1987 and to 25% in 1988[5]. The top rate of income tax was cut to 40% in the 1988 budget. The investment income surcharge was abolished in 1985.

    Under the government of John Major the basic rate was reduced in stages to 23% by 1997

    1 – http://www.ifs.org.uk/bns/bn25.pdf
    2 – https://measuringworth.com/ukearncpi/
    3 – http://www.nationalreview.com/nrof_bartlett/bartlett200405170929.asp
    4 – https://en.wikipedia.org/wiki/History_of_taxation_in_the_United_Kingdom#cite_note-19
    5 – http://www.margaretthatcher.org/archive/displaydocument.asp?docid=111449

  10. It’s really an attempt to tax ISAs, isn’t it ? The idea of people saving and potentially amassing substantial sums of money excites his envy. They have money…. TAX THEM!!!!

  11. @John Galt

    Left know HNW will leave and admit it when provoked. There response is Good riddance to them, if they don’t want to pay their fair share we don’t want them here

    Caroline Lucas was goaded into this admission on BBC Question Time iirc during 2015 election

    Brown, Osborne, Hammond knew less tax would be raised when ‘free’ non-dom abolished and annual fee ramped up

  12. Yeah, I must admit that I struggle with the who non-domiciled bit, which seems archaic and favours foreign born residents over native born ones. If you’re going to establish residence in the UK then you should pay tax the same as anyone else.

    It’s all very well saying “If we did that then the foreign born super-wealthy from Russian oligarchs to Saudi princes would go elsewhere and take their consumption with them”. Sure, that might well happen, but that just illustrates that once you take the non-domicile tax breaks away the standard tax rates for the super rich are too high compared with other place and should be reduced for all residents, not just the über-wealthy from foreign.

    Same goes for tax breaks for MP’s (self-employed status, allowances and expenses). Because they aren’t subject to the same rules and regulations as the majority they have no understanding of how damaging HM Treasury / HMRC pick-pocketing for PAYE, NI (both employees and employers), benefits taxation, etc. really are. In addition they get a special section of HMRC to deal with their issues, complaints, tax returns, etc.

    If we did away with special treatment in taxation like the above then they might be think twice before imposing draconian tax changes on the rest of us for which they personally are no longer exempt.

  13. @John Galt

    “It’s all very well saying “If we did that then the foreign born super-wealthy from Russian oligarchs to Saudi princes would go elsewhere and take their consumption with them”. Sure, that might well happen”

    Not Might, Has. Cyprus, Malta, Portugal and more changed their tax laws to encourage non-doms leaving UK to relocate there. GDP lost from exodus (25,000 last time I checked) is > x10 the tax raised

    Non-doms paid paid tax on any UK income

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