Even before they are realised?! You have already stated that you don't believe selling an item at market value should be taxed, so your system must involve paying tax continuously as the asset increases in value (not just at the end when it is sold).
That goes against your "ability to pay" requirement, unless you require "(illiquid)asset-rich, cash-poor" people to continually sell their assets to pay the tax. Is *that* fair??
"Fred" wrote
Of course.
As an (*important*) aside - it is just as an increase in value of someone's principal home is "as much of an increase in net assets" - would your system also tax those increases (ie remove the current exemption) ?
"Fred" wrote
Because the asset hasn't been sold yet.
"Fred" wrote
Not necessarily - but then I'm not the one with your strange ideas about tax!
"Fred" wrote
How would you factor those in?
"Fred" wrote
Hold on - which is it? They live "mostly off the legacies of their parent's estates", - or - "on the backs of the other half of the population" ?
If they are actually living mostly off their parents estates, then they aren't taking anything from the "other half of the population" !
When the tax should be levied is another matter, As I've said I'm fairly fixed on the principle of "ability to pay" but more flexible on the machinery of collection - I don't profess to be an economist.
One way around this is to have a lifetime tax-account with a balancing payment made when you pop your clogs.
Sorry, it's a simple matter of fact that if you have an asset which has increased in market value then your ability to raise cash to pay a tax bill has increased - therefore you should have an increased tax liability. How the tax liability is dealt with is a different matter - see above.
I hardly think that basing taxation on ability to pay is strange. Or are you perhaps taking issue on my inclusion of gifts, inheritances and appreciations as contributions to ability to pay?
But if you're happy enough for council tax to ignore earnings then I find it hard to understand your apparent focus on earnings for general taxation.
I'd probably leave that to the receipt side of the equation - gosh, it's fun being the chancellor ;-)
You missed the conjunction - "and hence" - this implies that the two are equivalent and therefore not exclusive.
We can test your assertion that the two are distinct (and therefore that the loafers aren't actually dependent on the workers) by considering what would happen if the workers were suddenly taken out of the equation. Suddenly the loafers have no one to provide the goods and services that they've been enjoying. This includes those services provided mostly by the taxation system to which they don't contribute proportionately - taking into account their lifestyle.. They have a drastic reduction in standard of living - they may even have to work for a living.
Now consider taking the loafers out of the equation. Suddenly the property/land market is freed up and the workers can start to pay realistic prices for their accommodation. What's more there are now fewer loafers and their dependants taking net money out of general taxation. A win-win situation for the workers.
Whichever way you look at it therefore your assertion that those living off their parents' legacies are not dependent entirely on the working population (living off their backs to use my deliberately emotive phrase) is seen to be wrong.
see above.
I really though we'd moved on from 14th century feudalism and 19th capitalism to a more dynamic economy based on skills and entrepreneurship. The worst thing about this whole property bubble is that it could push us back to an economy which is based primarily on the arbitrary distribution of fixed-assets such as land and property. That's just not the sort of economy that appeals to me - sorry. I know that New Labour favour the a skills and entrepreneurship based economy as I do, but after Howard's remarks on unfair taxes I have my doubts about the Tories.
And yes, I realise that the economy is nowhere near as simple as I've painted. But I think that considering extremes in this way can help to shed some light on the issue.
Fred
... and no, it wouldn't be safe to assume that I don't have a significant investment in property.
Not a bad idea as long as the pendulum swings both ways. IE 2001, 2002,
2003 pay supertax. 2004 get sick business goes bust, get personal income tax back.
Have a bad year, dont earn enough to use all your allowances, build up credit card debts which roll on into the next year? Fairy Snuff, Roll your "Balance of allowances " forward into the next hopefully better year. Pay less tax, take more home, use it to settle your debts. Seems fine to me.
No it isn't speaking from bitter experience, bankers base credit decisions on income not assets.
I don't think so. Ability to pay begs the question "Why" ability to pay is low in some instances. Often the answer is either fecklesness or profligacy. Food for adults, for instance, is not sold on an "Ability to Pay" basis is that strange?
Income tax I will accept but that's it. If indirect taxes paid out of taxed income are also income dependant then we'll never know where the hell we are. A similar situation currrently exists with Pension Tax Credits. Anyone retiring with a personal pension fund of less than £80,000 will see no benefit from it. So who in their right mind will do it. That money could more usefully be spent on cruising the Med or contributing to Joshua Tetley's retirement fund. It would fund approximately total 3 cruises/year + 5 pints every Friday night for 40 years.
I'll drink to that.
[ Snip ]
No, skills are only valuable whilst they are flavour of the month. Say the first ten years in the life of technology. When skilled people are scarce and there are benefits in the technology that the country can profitably exploit. 20 years later the tecnology is no longer "Rocket Science" and the Colleges have turned out literally millions of cheaply educated low grade technicians who nevertheless can do the routine tram driving by rote quite adequately. It's happened to Electronics, and it's happened to IT. Both of which were recently described by a government spokeswoman as "Simple manual skills".
She should be given a hundredweight of sand, a drum of crude oil and 10 days to build a laptop from first principles using simple manual skills.
You mean the likes of Eccleston, Dyson, Sugar, and Sinclair? LOL
What about John Bloom of washing machine fame? Dr. Emil Savundra of car insurance infamy? Robert Maxwell? (who needs no introduction.)
I haven't included any so-called entrepreneurs who made a bomb out of deregulation and privatisation which like demutualisation of the ins cos. was a one off exercise.
Nonesense Two people who have the same income (from all and every souce) and similar liabilites (dependents etc) have the same ability to pay.
Ensuring that both retain sufficient of that income to meet their tax liability is a matter for the tax collection system. Or are you wanting some sort of nanny state which tells us exactly how we must dispose of our income?
Rubbish. Consider three different people, all with the same "income" (using your definitions) :-
(A) Salary 25,000pa (no other income) - with 15,000 savings; (B) Salary 25,000pa (no other income) - with Nil savings; (C) Increase in house value 25,000pa (no other income) - with Nil savings.
You believe that these three have *equal* "ability to pay" ?!!
Since I'm proposing that monies attract a tax liability only as they enter into you possession and not after then the above are equivalent. Of course the differing sources of income might require different collection mechanisms and timescales but the principle is that total income (minus liabilities) determines tax liability.
If we look at the big picture over a person's lifetime then the only thing that determines their ability to contribute to the national tax bill is how much flows into their coffers. Whether you blow your income on the horses or save it under the bed really makes no difference to how much you were able to pay.
Now you can go round in circles arguing that savings gives you the ability to pay more tax if you like. However since I've already expressly said that I don't favour taxing savings per se then you'll excuse me if I don't join you.
But we've come a long (and not very fruitful) way from my original request for a reasoned argument for taxing inheritances more favourably than earned income - an argument based on fairness rather than self-interest. There's still not even the faintest whiff of such an argument.
Hmmm, so perhaps our tax bill should be based on our credit-rating. Perhaps there's some merit in that - leave it to the market to determine our ability to pay.
Perhaps in an ideal world we'd all pay a capitation charge. Unfortuntely the current level would be so high that most people couldn't (not to mention wouldn't) pay it. So we have to find an alternative which takes some account of personal circumstances and the fairest method to me seems ability to pay.
I couldn't agree with you more. The idea that someone who saves 80k is in the same position as someone who didn't put anything aside is disgraceful. There might just be some justification for today's generation of penesioners but not those retiring in 10 years or more. Christ, I mean haven't these people been reading the papers?
The other major problem is final salary pensions - especially public service ones. They look like they could contribute another 10p in the tax or so eventually. We've got a timebomb ticking away with expectations running way way beyond reality.
And one of the downside of democracy is that once you've got 51% of the voters (ie as little as 20% of the population) living of some form of welfare or employed in the public sector then you've got a government dedicated to increasing that welfare and governemtn spending - ie more tax.
I have some sympathy with you on this. But leaving aside the need to keep government light, I do think it's best to leave salaries to the market, even if it does produce some crazy results - Footballers frx.
No I wasn't particularly thinking of these people.
So, in the case of the "houses/other illiquid assets" increasing in value - do *you* count that as "enter[ing] into you[r] possession" (A) at the time of the increase in value, or (B) when the house/asset is sold?
If (A) at the time of increase in value (continuously, pre-sale) - then the increase in value certainly does *not* give "ability to pay".
The "ability to pay" only arises at (B) when the asset has been sold (at the inflated price) - and you have already stated that you would *not* tax "sales at market value" (Ronald's second-hand car example) ...
"Fred" wrote
There is. I mentioned earlier (you conveniently appear to have forgotten to reply to this), about CGT exemption on your main house. This is quite similar (in a way) to IHT treatment. I asked you before if you would remove this CGT exemption on people's main homes, and therefore tax those gains too - would you care to answer that question now?
Someone earning mega-bucks, never in any need of credit, will simply ensure that their credit rating is shot by always paying everything late. No tax payable on the mega-bucks earned, so even more money to spend so even less need for the credit (which they now can't get!) !!
It's not something I have a fixed view on, but I imagine it would be easier to base tax liability on an actual sale - or rather, the profit (after inflation etc) from that sale.
I don't see the similarity - unless you're proposing an individual yearly IHT.
So what would you say to someone who bought their current house many years ago (for say 20,000), and now needs to move for work?
They are currently living in a certain-sized house that fits the family, and now costs (say) 150,000. They need to move to a similar-sized house to be able to fit the family in. So any new house would also cost around
150,000. Under the current system, they need to find money to pay for stamp duty (land tax), solicitor's fees, estate agent's fees, surveyor's fees, moving costs etc - which may stretch them to the limit. Now you'd also like to charge them (150,000 - 20,000) x 40% = 52,000 CGT as well? How on earth will they afford to move?
As you clearly illustrate, not only would such a tax help to keep general taxation down, it would also help to keep the crazy property bubble in check. Lower general taxation plus improved economic stability - what more do you want?
OK, so in reality you couldn't just introduce CGT on main residences tomorrow - you'd need to taper it in, in the way MIRAS was tapered out. But remember, house price appreciation doesn't produce any real goods and services it just shifts ownership (unfairly imo) of the existing national assets from one section of society to another. There seems little reason why the taxation system should be encouraging such a distortion.
Anyway, I have commitments now that mean I can't continue with this thread.
Quite possibly *NOT* - the lower level of supply of houses (because people don't sell & move, because they can't afford to) but similar level of demand would tend to increase prices still further ...
"Fred" wrote
Where do you get economic stability? People who want to work, but cannot simply because there is lower mobility (they can't move to where the work is, because they need a similar-sized house to live in but cannot afford the CGT to move!).
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