[Sloper]

The point with taxing residence (as we do for 99% of the people) is that you can't offshore your residence, also provided the differentials aren't massive between LA areas you won't precipitate movement by virtue of variations in CT value. (i.e. if the CT in trafford is £1500 pa I won't move to Salford where it is £1300)

Your concern about a person with low income living in an expensive house because the area is expensive (rather than it being palatial) is exactly the concern that led to the introduction of the Community Charge aka Poll Tax.

Another problem with the MT is that it introduces a fiscal cliif, i.e. property valued at £1.99m = taxed at the same as a property worth £350k, property at £2.05m taxed at x3 the rate of a property worth £1.99m, like it or not this will be perceived as massively unfair and the public distrust policies which are unfair in this regard as they fear that they too would soon be subject to the policy.

[Sasquatch]

Can the clever people of this parish indulge me in a thought experiment?

Let's assume that the current income tax situation (for PAYE workers) is about right. It's not vastly different from most other EU countries and wages reflect take home pay (IMHO) rather than gross pay. (i.e. if a company wants an employee of "X" experience in "Y" place, they have to pay "ZZZ"/ year to attract this person. If income tax was higher, then wages would probably rise to mirror this).

The previous assumption could be argued to death, but let's just take it as an fixed starting point.

This is a good starting point.

Now, society is never going to be truly "equal" that's communism and in most people's eyes this has been shown to be ... well ... slightly ineffective. Ahem.

False - Communism is not "equal".  True - Communism has been shown to be relatively ineffective.
This is actually a real sticking point for me in conversations about capitalism versus socialism, because people start mixing economic structure with political structure.  While they tend to be highly related, they are not the same.  As an American, I find it highly annoying that we view ourselves as the poster child for democracy, but in actuality we are a republic.  You guys are an actual democracy.  Sorry about the off-topic rant.

But, I don't think many people would argue that it is "fair" for the super rich, non PAYE earning, elite to get away with significantly less tax (as a percentage) than someone earning say £20,000, £50,000 etc. etc. And there's mechanisms like the non-dom rule that allow crazy rich foreigners to live in Mayfair for a paltry £30,000 a year with all their foreign wealth insulated.

This is why the concept of a "flat" tax is so appealing to many people.  It seems "fair" on the surface, but in reality it would be next to impossible to achieve.  to make it "fair" you'd have to eliminate every other form of taxation and change tax code to reflect no deductions/credits/etc. But back to your point, I'd agree that most people think the differentiation between capital gains type taxes vs. income or PAYE taxes is not really fair. 

So. Back to the original point.

Labour have proposed the popular sounding, but IMO flawed mansion tax - any accountant worth his salt should be able to fiddle around with ownership and valuations to dodge this. To me it's hot air and an attempt at vote winning, but will not really address the major issues. Simon Jenkins suggested just using more bands of Cooncil Tax but that ignores the fact that the money from (mainly London) should be redistributed to more needy areas, rather than in the already wealthy areas it would be raised.

Let's question "the fact that the money from (mainly London) should be redistributed to more needy areas, rather than in the already wealthy areas it would be raised."  I doubt everyone agrees with this, so it is not a "fact". I'd argue that there is a significant portion of the population that doesn't agree with redistribution. 

So how do we take a "fairer" cut of tax from the very wealthy?  Ideas? 

Also, how do we stop successive governments sidling up to like big businesses and allowing them to get away with tiny corporate tax bills? 

VAT, Fuel Duty etc, fag duty, booze duty etc. are regressive so I don't believe increasing those will result in redressing the balance.

Tax all income at the same rate wether it is capital gains, PAYE, inheritance, etc.  Then reduce corp income tax to offset a portion of the capital gains tax so that the incentive to start and own a business is not as greatly reduced. 

The devil is in the details, but the populace has to have a greater understanding of what is being discussed.

[Sloper]

We already have entrepreneurs tax relief on investing in start ups, I don't think that all major taxes should be equal as I think it's valid to have a staged income tax rate from 0% to 40%

[Sasquatch]

We already have entrepreneurs tax relief on investing in start ups, I don't think that all major taxes should be equal as I think it's valid to have a staged income tax rate from 0% to 40%

Wow.  I wasn't expecting that from you.

Tax all income at the same rate wether it is capital gains, PAYE, inheritance, etc.  Then reduce corp income tax to offset a portion of the capital gains tax so that the incentive to start and own a business is not as greatly reduced. 

Easy to read in either direction, but this was simply meaning that all income should be taxed at same rate(in answer to the question asked by Fultonius).  Not necessarily at the same rate across income ranges.  So if you are in the 40% bracket, then all of your income would be taxed at the 40% bracket, whether it was from dividends, capital gains, earned income, etc. 

[Sloper]

Yes, it's funny how prejudice an preconceptions affect one isn't it?

As per your suggestion that the rate is banded I seriously disagree.  For it to work you have to take all types of income as the same: this would be a serious barrier to saving for a pension as growth in the pension pot could take you across a boundary and thus result in a massive tax hike without any increase in income.

If you separate the types of income and tax them differently i.e. ROI from wage income then there's an incentive to avoid tax by shifting wages into equity and then taking a divi: so if you're on £100 below the 20/40 margin and get a £1000 pay rise you get clobbered, instead if you take £x worth of shares and get £1000 divi you remain on the 20% rate.

My view is that Adam Smith hit the nail on the head when he said that what you need are 'fair laws and easy taxes' which is why tax should be progressive but never oppressive. 

While there is much debate about 'the laffer curve' it is without doubt that if you tax at 99% people won't bother to 'work harder', innovate & etc, and if you tax at 1% the state cannot properly function: as such we're looking at what is the optimal tax rates which both properly fund the proper functions of the state and allows maximum freedom for individuals.

[Jaspersharpe]

We already have entrepreneurs tax relief on investing in start ups, I don't think that all major taxes should be equal as I think it's valid to have a staged income tax rate from 0% to 40%

Entrepreneurs relief is actually relief for business owners who sell all or part of their business and means that they only pay 10% on the capital gain rather then 18%/28%.

You're right though in that there is the EIS and SEIS whereby people investing in small businesses can get tax relief on the money they invest (30% or 50% depending on which scheme).

If you separate the types of income and tax them differently i.e. ROI from wage income then there's an incentive to avoid tax by shifting wages into equity and then taking a divi: so if you're on £100 below the 20/40 margin and get a £1000 pay rise you get clobbered, instead if you take £x worth of shares and get £1000 divi you remain on the 20% rate.

Not quite. You wouldn't get taxed on the x amount of shares (provided x was > £11k) as this would be a capital gain, but if you were immediately paid a dividend of £1k this would still take you into the higher rate band and therefore create a liability (albeit at 25% rather than 40%).

[Sloper]

We already have entrepreneurs tax relief on investing in start ups, I don't think that all major taxes should be equal as I think it's valid to have a staged income tax rate from 0% to 40%

Entrepreneurs relief is actually relief for business owners who sell all or part of their business and means that they only pay 10% on the capital gain rather then 18%/28%.

You're right though in that there is the EIS and SEIS whereby people investing in small businesses can get tax relief on the money they invest (30% or 50% depending on which scheme).

If you separate the types of income and tax them differently i.e. ROI from wage income then there's an incentive to avoid tax by shifting wages into equity and then taking a divi: so if you're on £100 below the 20/40 margin and get a £1000 pay rise you get clobbered, instead if you take £x worth of shares and get £1000 divi you remain on the 20% rate.

Not quite. You wouldn't get taxed on the x amount of shares (provided x was > £11k) as this would be a capital gain, but if you were immediately paid a dividend of £1k this would still take you into the higher rate band and therefore create a liability (albeit at 25% rather than 40%).

Thanks for the details re the EIS & etc

My point was modelled on the proposal from Sasquatch rather than an illustration of what's currently in effect.

[Stubbs]

A lot of the problem with this 1% stuff is that people don't realise who it's actually referring to. In income terms you are in the top 1% in the world if your net income is over about £25k, so it's not just Russian criminals by a long way.

Just to go back to this, on today they said the figure from the oxfam report for worldwide top 1% was assets of $800k

[Jaspersharpe]

Which again is hardly Abramovich levels and why I think a lot of the reporting on this is misleading.

[Sloper]

Absolutely, there was an interesting piece on R4 this morning which basically said inequality had reduced since 2002 due to the changes in China and one of the reasons poverty and inequality in India was so bad was a lack of capitalism (India followed from memory a Sino style socialist economic policy for a long time).

The other figure was the disparity of child mortality <5 in Nigeria in that it was 500% higher in poor areas than in the wealthiest, now call me a cynic (chorus etc chiz) but maybe this is due to the endemic corruption and tribal politics in Nigeria rather than the oligarchs and billionaires like Buffet, Gates and so on?

[Fultonius]

I think there's two different issues here though:

1. Local inequality (i.e. UK)
2. Worldwide inequality.

Ignoring the rest of the world, many people feel that the UK is becoming increasingly and detrimentally unequal.

With regard to worldwide inequality, then I agree, the vast majority of the developed world are pretty rich in comparison. I'm not convinced both types of inequality can be discussed at the same time, or, even less so solved by the same means.

[slackline]

http://blogs.channel4.com/factcheck/factcheck-inequality-worse/19925

[Sloper]

I think there's two different issues here though:

1. Local inequality (i.e. UK)
2. Worldwide inequality.

Ignoring the rest of the world, many people feel that the UK is becoming increasingly and detrimentally unequal.

With regard to worldwide inequality, then I agree, the vast majority of the developed world are pretty rich in comparison. I'm not convinced both types of inequality can be discussed at the same time, or, even less so solved by the same means.

the problem with the 'inequality' debate is that it ignores the qualification of comparators and also the causes of the inequality. For these reasons it is a pretty meaningless debate.

[Sasquatch]

As per your suggestion that the rate is banded I seriously disagree.  For it to work you have to take all types of income as the same: this would be a serious barrier to saving for a pension as growth in the pension pot could take you across a boundary and thus result in a massive tax hike without any increase in income.

I'm trying to understand this.  Perhaps it's different in the US, but we yanks only pay capital gains when we cash out on an investment or when we receive a dividend.  As such, I have control over when that income gets taxed and can plan for it so that I don't wander into the next bracket. Thus our pension pot only gets taxed when we pull it out (ignoring for now the "Roth IRA" retirement accounts)

If you separate the types of income and tax them differently i.e. ROI from wage income then there's an incentive to avoid tax by shifting wages into equity and then taking a divi: so if you're on £100 below the 20/40 margin and get a £1000 pay rise you get clobbered, instead if you take £x worth of shares and get £1000 divi you remain on the 20% rate.

So this is where I disagree.  Why should someone pay less tax on your income because part of it is divi vs. someone who makes all of it in wages?  I think someone who makes 150K in wages should pay the same tax as someone who makes 150K in Divi. 

I'm not sure how it sits in the UK, but here in the US, the progressive side of taxation only hits the portion of your income above that line.  i.e. if the tax rate is 15% below 100K and 35% above 100K, and you make 150K, then you pay 15% on the first 100k, then 35% on the remaining 50K for a total of 32.5K in taxes and a "real" rate of 25% despite being in the "35%" bracket. So in your example, only £900 would get taxed at the 40% rate.  Does it not work this way in the UK?

My view is that Adam Smith hit the nail on the head when he said that what you need are 'fair laws and easy taxes' which is why tax should be progressive but never oppressive. 

I fully agree, hence why I think getting rid of most loopholes and equaling taxation on all income types.  Income is income regardless of source.

While there is much debate about 'the laffer curve' it is without doubt that if you tax at 99% people won't bother to 'work harder', innovate & etc, and if you tax at 1% the state cannot properly function: as such we're looking at what is the optimal tax rates which both properly fund the proper functions of the state and allows maximum freedom for individuals.

Agreed. But there is both the question of optimal rates and also of tax structure.  In the US, the current tax rate/structure is blatantly skewed towards screwing the working middle class and helping the rich. 

[Stubbs]

Which again is hardly Abramovich levels and why I think a lot of the reporting on this is misleading.

yes yes I agree, just wanted to get that on the record, although if yo look at the figures for the US in terms of the 1% there it's still quite astounding.

[Sloper]

As per your suggestion that the rate is banded I seriously disagree.  For it to work you have to take all types of income as the same: this would be a serious barrier to saving for a pension as growth in the pension pot could take you across a boundary and thus result in a massive tax hike without any increase in income.

I'm trying to understand this.  Perhaps it's different in the US, but we yanks only pay capital gains when we cash out on an investment or when we receive a dividend.  As such, I have control over when that income gets taxed and can plan for it so that I don't wander into the next bracket. Thus our pension pot only gets taxed when we pull it out (ignoring for now the "Roth IRA" retirement accounts)

If you separate the types of income and tax them differently i.e. ROI from wage income then there's an incentive to avoid tax by shifting wages into equity and then taking a divi: so if you're on £100 below the 20/40 margin and get a £1000 pay rise you get clobbered, instead if you take £x worth of shares and get £1000 divi you remain on the 20% rate.

So this is where I disagree.  Why should someone pay less tax on your income because part of it is divi vs. someone who makes all of it in wages?  I think someone who makes 150K in wages should pay the same tax as someone who makes 150K in Divi. 

I'm not sure how it sits in the UK, but here in the US, the progressive side of taxation only hits the portion of your income above that line.  i.e. if the tax rate is 15% below 100K and 35% above 100K, and you make 150K, then you pay 15% on the first 100k, then 35% on the remaining 50K for a total of 32.5K in taxes and a "real" rate of 25% despite being in the "35%" bracket. So in your example, only £900 would get taxed at the 40% rate.  Does it not work this way in the UK?

My view is that Adam Smith hit the nail on the head when he said that what you need are 'fair laws and easy taxes' which is why tax should be progressive but never oppressive. 

I fully agree, hence why I think getting rid of most loopholes and equaling taxation on all income types.  Income is income regardless of source.

While there is much debate about 'the laffer curve' it is without doubt that if you tax at 99% people won't bother to 'work harder', innovate & etc, and if you tax at 1% the state cannot properly function: as such we're looking at what is the optimal tax rates which both properly fund the proper functions of the state and allows maximum freedom for individuals.

Agreed. But there is both the question of optimal rates and also of tax structure.  In the US, the current tax rate/structure is blatantly skewed towards screwing the working middle class and helping the rich.

I'm sure the system in the US is very different.

In the UK (and I'm shure Jasper will step in if I'm wrong) all tax payers have a capital gains tax allowance of about £11k per year after which you pay (I think) 40% regardless as to whether you're a 0% or 45% income tax payer.

I think I may have misunderstood your proposal, I though you were saying that once you went over the threshold then everything i.e. including earnings below the change point would be taxed at the higher rate, but I think I got that wrong.

As to why we pay lower rates on divi than paid income I'm not sure (Blondie) but I can imagien that in theory it's to do with the risk and also social good that investments produce and hence the discounted rate.

I'd say it was impossible to close loopholes entirely but we've seen more progress in the last 5 years in the UK than probably in the last 50.

[Jaspersharpe]

Well dividends are paid out of profit after corporation tax so basically 20% (or more) has already been paid on the income before it's been distributed. In simple terms, that's why you only pay further (personal) tax on dividends if they take you into the higher rate bands, and it's a sliding scale like everything else (so over £150k you pay 37.5%).

CGT - you're right Sloper, it's £11K allowance for everyone but then the tax rate is 18% for basic rate taxpayers and 28% for higher rate (sliding scale again). This was brought in to simplify the system as the tax rate used to be higher but you got indexation on the original cost of the asset depending on how long you had owned it.

Well, some say it was to simplify the system, others that it was to help the wealthy who are more likely to make large, quick gains on assets (shares, property etc) as opposed to most people who are only likely to encounter CGT in exceptional circumstances and where assets have been owned for longer periods. I couldn't possibly comment.

[psychomansam]

http://voxpoliticalonline.com/2015/01/21/unemployment-figures-are-a-sanction-based-stitch-up-research-shows/ 

It strikes me that the current government are just taking advantage of a long tradition of inadequate reporting of figures for unemployment - by aggressively and heartlessly skewing the figures even more.

Happy Thursday.

[Sasquatch]

I'm sure the system in the US is very different.

In the UK (and I'm shure Jasper will step in if I'm wrong) all tax payers have a capital gains tax allowance of about £11k per year after which you pay (I think) 40% regardless as to whether you're a 0% or 45% income tax payer.

I think I may have misunderstood your proposal, I though you were saying that once you went over the threshold then everything i.e. including earnings below the change point would be taxed at the higher rate, but I think I got that wrong.

As to why we pay lower rates on divi than paid income I'm not sure (Blondie) but I can imagien that in theory it's to do with the risk and also social good that investments produce and hence the discounted rate.

I'd say it was impossible to close loopholes entirely but we've seen more progress in the last 5 years in the UK than probably in the last 50.

That would be nice and means my view is mostly a moot point in the UK.  In the US, if you earn over 250K you pay about 20% capital gains tax, instead of the stand 39.6% income tax.  So in the US, there's an exceptionally strong tax incentive towards div and capital gains if you makes significant amounts of money.  Hence why Warren Buffet claimed to pay a 14% tax rate.

Good to hear you've been more successful at closing loopholes.  I haven't seen it in the US, but then I don't have a strong historical perspective either. 

[Sloper]

http://voxpoliticalonline.com/2015/01/21/unemployment-figures-are-a-sanction-based-stitch-up-research-shows/ 

It strikes me that the current government are just taking advantage of a long tradition of inadequate reporting of figures for unemployment - by aggressively and heartlessly skewing the figures even more.

Happy Thursday.

Ahh the usual fuckwit lefty drivel from our own Dave Spart, have you anything to contribute other than being a legitimate target for abuse?

PS congratulations on your engagement.

[Sloper]

I'm sure the system in the US is very different.

In the UK (and I'm shure Jasper will step in if I'm wrong) all tax payers have a capital gains tax allowance of about £11k per year after which you pay (I think) 40% regardless as to whether you're a 0% or 45% income tax payer.

I think I may have misunderstood your proposal, I though you were saying that once you went over the threshold then everything i.e. including earnings below the change point would be taxed at the higher rate, but I think I got that wrong.

As to why we pay lower rates on divi than paid income I'm not sure (Blondie) but I can imagien that in theory it's to do with the risk and also social good that investments produce and hence the discounted rate.

I'd say it was impossible to close loopholes entirely but we've seen more progress in the last 5 years in the UK than probably in the last 50.

That would be nice and means my view is mostly a moot point in the UK.  In the US, if you earn over 250K you pay about 20% capital gains tax, instead of the stand 39.6% income tax.  So in the US, there's an exceptionally strong tax incentive towards div and capital gains if you makes significant amounts of money.  Hence why Warren Buffet claimed to pay a 14% tax rate.

Good to hear you've been more successful at closing loopholes.  I haven't seen it in the US, but then I don't have a strong historical perspective either.

Therein lies one of the great problems with tax in a modern world in that differentials create inequality but as tax is a sovereign issue while we have sovereign jurisdictions there can be such vast disparities for example Delaware has an enormous % of US companies domiciled there.

Personally I blame German romantic philosophy from the early 19th C as the root of many of the problems we see today: it is sadly however never a theory debated well by politicians. 

[psychomansam]

http://voxpoliticalonline.com/2015/01/21/unemployment-figures-are-a-sanction-based-stitch-up-research-shows/ 

It strikes me that the current government are just taking advantage of a long tradition of inadequate reporting of figures for unemployment - by aggressively and heartlessly skewing the figures even more.

Happy Thursday.

Ahh the usual fuckwit lefty drivel from our own Dave Spart, have you anything to contribute other than being a legitimate target for abuse?

PS congratulations on your engagement.

The usual quality debate being presented here I see. Allow me to reciprocate a little more on your level:

"Blessed are you, Hashem, King of the Universe, for not having made me a Gentile."

"Blessed are you, Hashem, King of the Universe, for not having made me a slave."

"Blessed are you, Hashem, King of the Universe, for not having made me a woman."

"And most of all, thank you god for not making me an egotistical right wing codpiece"


cheers and whatnot

[Stu Littlefair]

The more I think about that paper the more I think Sloper is right; some force is causing both slow growth and suppression of wages for the poorest. Thus growing inequality and poor growth are linked but not causally.

That force might be worsening standards of education or the lack of well paid industrial jobs, I don't know.

[tomtom]

stu - I really don't understand this - what do you mean by some force?

[Sloper]

The more I think about that paper the more I think Sloper is right; some force is causing both slow growth and suppression of wages for the poorest. Thus growing inequality and poor growth are linked but not causally.

That force might be worsening standards of education or the lack of well paid industrial jobs, I don't know.

More worryingly I'm begining to understand astrophysics

One of the factors is undoubtably the rise in globalisation: manufacturing that used to be in the west is now in Asia and moving to Africa as the costs in Asia increase and as such the sort of jobs that were available in the west are now much less numerous.

This can be considered as creative destruction / disruption and in reality not significant as mature post industrial economies have the capacity to diversify and develop in ways that less mature industrial countries don't.

As alluded to in the OECD paper the lag and elasticity is often due to poorest is due to lack of education and also a lack of economic flexibility: this coupled with corruption prevents the developments which allow the poorest to take the step to the next quantum level.

As for education, standards have fallen in the UK but what I think is more important is the cultural status of education: think of all the phrases such as 'he's too clever by half' or the school yard insults (maybe a generational thing) 'swot' and that culturally we do not celebrate education.  This in part might be that historically a child could leave school at 16 with no qualifiactions on the Friday and walk into a reasonably well paid job on the Monday.

Generally as well, for large parts of society education is not seen as a vital part of life and the means of a better life. If you compare this to the 'tiger mother' syndrome or the meme in many immigrant communities where gen 1, manual labour, gen 2 teacher, gen 3 doctor lawyer etc then you can see a gulf which if anything is widening.

In other parts of the world you have the complication of corruption: what's the point in trying hard if you're from the wrong tribe, can't pay the bribe and so on the the motivation to study must surely be diminished.