Tax Income and Investments at the Same Rate

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July 13th 2020
Tax Week 15
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Tax Income and Investments at the Same Rate

Solve income inequality by taxing wealth at sames rates as income says Think-tank IPPR.

Current rates of capital gains are set at 10-18 percent or 18-28 percent, but these vary depending upon the type of gain. The lower rates are for non-property relation gains. The marginal tax band of the taxpayer is used to decide which of the rates to apply. Importantly the rates are lower than those levied on income. Income taxes in UK (apart from Scotland) are 20/40/45 percent. Now think-tank, IPPR says that these rates should be equalised.

In an effort to simplify taxation, decrease income inequality and increase tax revenue for the public purse the think-tank proposes capital gains taxes to be set at the same rates as income taxes. It goes further to remove the annual exempt amount from capital gains too - a £12,000 tax-free allowance for capital gains in tax year 2019.

IPPR states that the policy to level the rates for employment income and capital gains was last put in place by Nigel Lawson, Chancellor of the Thatcher led Conservatives during the 1980's. Until 2008 higher rate capital gains were taxed at 40 percent but now this is only a max of 28 percent. The top rate of income tax now is 60 percent higher than the top rate of capital gains.

Putting rates at parity would increase tax revenue to the tune of £105 billion over five years.

The proposal is essentially part of a move to gather all sources of income, be it from wealth (capital gains (property, art, other investments), dividends, savings) or from employment, and tax it under one banner. The system would still be progressive so rates would increase the higher the total income gets.

If implemented it is thought that 80 percent of taxpayers will see a tax cut. Vast amounts of land is owned by very few people - an increase of capital gains would target these people. The income tax system will not see further increases to top rates of tax with the additional revenue coming from sources of income that are currently easy for tax avoiders to exploit. During George Osbourne's reign as Chancellor he argued that raising the top rate of tax leads to more avoidance.

John McDonnell, the Labour Shadow Chancellor has already proposed to reset the capital gains rates to pre-2008 levels.

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