Asset price inflation alone does not constitute income
Spud’s now insisting that capital gains tax must have an indexation allowance.
Odd he left that out of his taxing everybody into penury report, eh?
Asset price inflation alone does not constitute income
Spud’s now insisting that capital gains tax must have an indexation allowance.
Odd he left that out of his taxing everybody into penury report, eh?
“capital gains tax must have an indexation allowance” Quite right, too.
But what does it mean? Has he come into some money?
I was thinking one of his assets has inflated values.
Without knowing the context in which he’s written the statement, it is entirely correct. Income is money. Asset price is illusion. It’s either based on previous trades in similar assets, in which both buyer & seller were satisfied in the trade, so that price no longer exists. Or it’s based on market prices which by definitions are bids & offers that haven’t been successful. So all one can say about assets prices is that they are indeterminate. Try selling it & see.
But since he seems to incapable of understand either money or value in the first place, heaven knows what context he’s using it in..
Tim, given Murphy is the human personification of evil, I won’t say ‘in fairness to him’ but where is the indexation proposal in that post?
The ‘glossary’ section of his blog is a useful source of bullshit of course. I note the three types of ‘capital maintenance’ which exist in his theories
“but where is the indexation proposal in that post?”
If inflationary rises in asset values are not real income then we shouldn’t tax them because they’re not real income. Which means that we must have indexation so we don’t tax not real incomes arising from mere inflation.
That word “shouldn’t” is doing a lot of work, and whilst I agree with you, why not? Not all current taxes are income taxes. VAT and other transaction taxes like stamp duty, for a start. IHT: inheritance is not income.
I can’t see how you’re gong to tax them anyway. For instance, how much value is there in the FTSE 100? Precisely zero. The value is out in the FTSE 100 companies producing their earnings. The stock market is where entitlements to those future earnings are traded. The earnings themselves don’t exist yet. So the only way you can extract value from a FTSE 100 share is to sell it to a willing buyer. And it’s from the buyer the money would come. That’s real not imaginary money.
So the FTSE value presumes willing buyers. But that’s based on the current tax regime. Tax unrealised capital gains & you change the whole ballgame. To pay the tax, inevitably holders of shares will be required to sell a proportion of them to raise the money. Who are they going to sell them to when other shareholders with unrealised capital gains are selling shares to raise tax money.? You want to see the FTSE 100 crash & burn, that’s the way to do it.
It’s the problem with accountants, actuaries & all the other clever cvnts. They think all the numbers they cleverly produce on paper are real money. They’re not. The majority of it doesn’t even exist in the present.
Applies to everything else. The value of a property is its future utility value. Its current real value what you could earn by renting it out. The future utility value is imaginary. Pure opinion & opinions can change. Especially if you fuck with the tax regime.
So the FTSE value presumes willing buyers.
Truedat. If it were not true the FTSE would not crash if people were suddenly unwilling to buy.
Which is why the correct response to some bureaucratic cunt who pins a made-up value on your asset is to say: “You think it’s worth that? You fucking buy it for that amount, then. Right now. In cash.”
I also seem to recall that a certain king couldn’t flog his kingdom for the price of a horse. Anything is only worth what someone is prepared to pay for it right there and then.
Indeed. And if money is used to buy your asset, that money cannot be used elsewhere. So because your asset was bought, something else was not bought. Just because you’re a accountant, you don’t get to count money twice or three times or more, just because that’s how it appears on your book-keeping..
It’s the same with the spending end of tax revenue. Tax is used to buy goods & services. so those goods & services are not available for others to buy them..
Ah, but if you acknowledge that the FTSE 100 isn’t real money, that makes it harder to fulminate against “billionaires”, because that billion is calculated from the share price x number of shares. And that’s a projection based on selling all those shares at once, for that price.
Which we all know can’t happen because the price will move.
Yeah. It’s the same as Beyoncé’s billion. How much of that is projected future revenue stream estimated at present value? But what the actual revenue stream will be, if at all, is with the birds. How much actual spendable money does Beyoncé have now? Whole other thing. Might even be a negative number.
And that’s a projection based on selling all those shares at once, for that price.
And the price would be zero because there wouldn’t be buyers for that number of shares. Nobody is going to buy shares they know they can’t sell. QED the value of the FTSE 100 is zero.
I’ve often thought exactly the same about the LVTers. They all seem to think that house prices would be exactly the same after an LVT is imposed as before. Which of course they wouldn’t, in the medium to long run. What would happen is that house prices would adjust to reflect the distribution of incomes that can afford certain LVTs. If there are 100 people who can afford an LVT of £1m/yr there will be 100 properties in the country whose capital value generates an LVT of £1m. And so on down the entire income scale. You won’t be able to buy a house with capital any more, because you’ll need an income to match. No point inheriting the family home and using that capital to buy yourself a bigger/nicer house, unless your income can also rise to match the higher LVT bill.
So the long term result of LVT is house prices being squashed into a far narrower band than they are today, with less cheap houses at the bottom and less very expensive ones at the top.
I still haven’t had explained to me how it is possible to tax an illiquid asset. You can only tax liquidity, i.e. money, so that illiquid asset (or part of it) has to be made liquid to pay the tax, either by generating that liquidity or being sold.
James Dyson has something to say about that. A perfect case study. Why should we assume that if he’s forced to sell, the Dyson empire’s new owners and their management would be as effective as Dyson and his son at innovating valuable new products people want to buy?
https://archive.ph/QS87y
Speaking to BBC Radio 4’s Today Programme, Sir James said he would be unable to pay that amount of tax on the engineering company’s assets.
“You have to pay a 20 per cent inheritance tax. Actually it’s 40 per cent because you have to take a dividend, if you could, to pay the 20 per cent,” he added. “What it means is you’d have to sell the business. And who wants to start a family business if you can’t leave it to your children, if it can’t carry on in the same ethos to which it started.”
He added: “Companies are valued on a multiple of their earnings. So if you’re paying 40 per cent of a multiple of your earnings, that’s billions in my case.
And here’s the killer quote:
“We haven’t got billions of cash. You know, we don’t have it – so you have to sell the business to pay it. But a company has no value. There’s no assets that you can sell. Its value is a multiple of its profits, so it’s paper money. You simply don’t have that money.”
They’d be taxed by creation of a “deemed disposal” rule. You own the taxable thing and at the relevant point in time its estimated market value is higher than the price you paid for it, so you are liable for tax on the difference. Remember, tax doesn’t have to be fair or reasonable.
You’re talking about what he would like to & Norman’s saying that’s impossible. Here’s why he’s correct.
What’s the definition of money? A token of value used to facilitate commerce. So let’s concentrate on the value side of that & ignore the token. The token’s those meaningless bits of paper or their electronic equivalent the government produces. The value is created by the production of goods or services & destroyed in their consumption. We are all both producers & consumers. That’s the wages you receive for your job. The value travels from producer to consumer & the tokens of value travel in the other direction. So the total of value in an economy is the total of value of its commerce. That is an economy. There is nothing else. And that is all happening in the present
Assets are not part of commerce. For book-keeping purposes assets get valued in money. But what’s the actual value of an asset in the present? It’s utility value in the present. For a share that would be the dividend it pays, for a property, the rent it might attract. The rest of its book-keeping value is its utility value in the future or the income stream it may produce.
So let’s look at an asset that increased in value since it was purchased. It still has exactly the same value in the present. The book-keeping value is an opinion on its future utility value. It is not real money exchangeable for goods & services. It’s just numbers. There’s nothing of value in the now there. So if you tax it, where’s the value of those tokens of value (the money) supposed to come from? There’s only the tokens of value circulating in commerce. There’s no actual value been created in the present.
You can just about get away with it with a CGT on realised profits because there’s sufficient surplus value been created in commerce to exchange tokens of value for the asset being sold. Buyers are deferring current consumption for future consumption & sellers receiving tokens of value for current consumption.. The books balance in the present. But that’s a very small proportion of total assets. Trying to tax all asset value increases? What you’re trying to do is move future value backwards in time to now & turn it into something exchangeable for goods & services. Turn meaningless book-keeping figures into real tokens of value. But the value circulating in commerce in the now is what it is. That’s all there is. Where’s all the extra value supposed to come from?
Macroeconomics isn’t even slightly related to micro. It simply allocates the tokens of value produced by commerce to its preferred consumers. There’s no actual creation of value going on at all. You do too much of that, you’ll fuck the micro. Remove the incentive to produce to the point where producers don’t bother to produce.
You’re confusing whether it’s possible with whether it’s a good idea. It is certainly possible. The state can demand tax from anyone at any time for any or no reason and seize their goods (or imprison them etc) if they refuse to pay. It’s possible to assign a value to anything for tax purposes even if that value is unrealistic (e.g. as seen with council tax).
If you truly think that money is meaningless bits of paper, I’ll be happy to take any of these useless things you have spare.
The actual value of an asset, like the actual value of anything else, does not exist. Only the value to a particular person at a particular instant in time. It is not directly observable, but we can infer limits on value based on behaviour. If you buy a bar of chocolate for 50p and eat it, we can assume its value to you was greater than 50p at that time, just as we can assume its value to the shopkeeper at the moment you bought it was less than 50p. We can also guess, based on offered and accepted prices, a vague, abstract value across typical people. The same is true for anything, even assets used in commerce, such as a shop.
And the vaue of a share is not based on its dividend, as can be easily seen with Amazon, which does not pay a dividend yet its shares are traded at a high price.
CGT is essentially just a tax on inflation… Suits governments completely.
Tim
I’d agree that’s the implication but this is someone who can’t put two thoughts together on paper without contradicting himself.
He plans a base rate of tax of 99% for Neoliberals and others he considers fascistic, as well as total confiscation of all assets beyond that which he deems it necessary you hold, so in the case of any assets of yours agnostic to value he considers to be surplus your tax rate would be total.
Perhaps he’s referring to unrealized gains being different from realized ones? If you had £25k basis in a stock with a current MV of £100k you have £75 in potential income. If you sell, it’s taxable, if you hold it, it’s not. Ditto with appreciation on a home.
Or is it clear elsewhere that he’s strictly referring to inflation?
M’kay.
But Gamecock appreciates cashing in some assets every year (RMD) yet the principal still goes up year over year. He planned to spend it down in retirement, but can’t seem to spend enough (!).
Er, PM me for help. Happy New Year.
A down market might take care of that, especially if your IRA values on Dec 31 were from an up year and you calculate your RMD for the following year but the market goes down.
Frankly, those stupid RMDs are generating income that I don’t really need.
Er, as above. Happy New Year!
Maybe someone has pointed out that the price (as distinct from value) of “his” house in Ely has gone up so that he should be paying tax in excess of his “earned” income?
Certainly possible. It’s always about some way that he expects to benefit from whatever madcap scheme it is today. Taxing other people’s wealth is fine, his, well, not so much.
James Dyson’s companies – family owned – make an excellent case study. I’d like to know what proportion of Dyson’s total activities find their way to the government as tax.
This would include his personal taxes, corporation tax, taxes on inputs, income tax and NI his employees pay, all the various other taxes including VAT his employees pay out of their residual salaries, the VAT his retail customers pay, and no doubt loads of other stuff I haven’t thought of.
I betcha it’s close to 90% of his turnover. Possibly more. So much for “tax the rich”.
In the Radio 4 interview he mentioned the cash amount of taxes paid, £200million per year in the writeup, so you just need to find a denominator to get the proportion. The VAT value would probably give the revenue figure – £100m VAT gives £600m of sales, a net of £500m income.
Yes, but I’m also considering the downstream stuff, the taxes his employees and customers pay, etc., all of which are paid as a direct result of Dyson’s activities. If he wasn’t active, making and selling those products and paying the input costs, those taxes wouldn’t be paid (although equivalents would).
I reckon nearly all monetised economic activity ends up as tax. There must have been studies, and numbers.
Norman
On LinkedIn a Polanski supporter said that because Dyson has outsourced his manufacture to ‘tax havens’ he should lose his British passport and all his assets should be nationalised. Sadly Murphy’s influence is being felt everywhere. As the great Bloke in Spain says – this is Murphy’s world – we just live in it!!
I’ve had that argument on a sailing forum I used to use a number of times. It’s impossible to get these people to understand that he couldn’t manufacture here at a price that people would buy, so not only would there be no manufacturing we’d lose all those skilled jobs involved in engineering, design, production management, marketing etc.
These same people are then happy to talk about the subsidised green jobs that are created by buying foreign solar panels and wind turbines.
Dyson also explained that the planning system made it impossible to build factories in the UK, so he went to Singapore – where the wages are HIGHER! – where he could build a factory in less time than it takes in the UK to get the forms from the planning department.
BiND
‘It’s impossible to get these people to understand’
You could leave it at that- which is why franchise reform – specifically – the introduction of plural votes for people in employment and in the private sector- needs to be introduced. That also alongside a socialist tax rising to 15% of assets confiscated. This kind of crap isn’t free and we need to stop.
@ Norman
Attacking James Dyson *is* “tax the rich” – he is rich because he has designed stuff that his engineering specialists can manufacture at a price that people are happy, not just willing, to pay. He is a benefactor to humanity because Dyson vacuum cleaners work better than the Hoovers* they replaced and the service stations etc that buy his hand-dryers are preferable to those that do not. As a side-effect he is rich – IMHO he deserves to be, but some envious people hate to observe the well-deserved success of others and want tio drag them down to their own level.
*In the 30s the Hoovers were a great improvement on the dustpan-and-brush, so I am not decrying the Hoover.
That’s my point. If you consider the total value that man has generated, making him “rich”, apart from a few quid left in his and his employees’ pockets I reckon nearly all of it ends up as tax. That which doesn’t is the plant the companies use to make the products, and the consumer surplus the products themselves represent.
People see a few quid and some shiny-shiny, and assume that “the rich” have counting houses stuffed with doubloons (or Krugerrands) that can be taxed away to pay for all the shiny-shiny “the many not the few” want. Dyson’s right. It doesn’t exist, except on paper.
Electroluxes were available in the 1930s, and were better than Hoovers.