Big tax hikes are being planned to offset the covid 19 aftermath.
What are everyone’s thoughts?
Economically a disaster to raise taxes at this time without an equally large increase in government spending. Redistribution of funds to those with higher MPC is good economics but I fear there will no redistribution.
As the BoE owns £750 billion of our £2 trillion national debt I do not understand what the panic is about.
That being said, I am a big supporter of capital gains tax being in line with income tax.
I’d second this in its entirety. Especially the last part of taxing every income equally.
Not a surprise whatsoever, but it’s extremely complex and I’d avoid being drawn into immediate media hysteria without something more concrete.
As said by Steve Barclay, there needs to be an appropriate, and delicate balance because while tax hikes on the face of it may seem like a good way to recoup money, the impact it has on businesses and individuals, and therefore the economy itself is enormous. A 20% corporate rate tax increase would lead to more redundancies, businesses going bust, requirements for loans/bailouts etc. So it’s significantly more complex than just “upping taxes”.
Must have been a quiet day at Bloomberg - seems to be a news report about news reports.
Not the smartest thing to do with Brexit around the corner. With rates at historic lows, better to allow inflation to eat away at the debt over time and focus on rebuilding the economy which can later pay off the debt.
Re taxes - the rich won’t pay, the poor can’t pay so the middle class will get screwed. I don’t agree with equalisation of capital and income taxes as it doesn’t equate for the different risk profiles. The economy needs capital to flow through to allow businesses to grow. As you increase the risk of the investment and the taxation of any gains, you decrease the incentive of investors to invest.
I think the talk was an increase to 24%, not a 20% increase.
As tax is paid from net income and employees are part of the cost structure that leads to income, how does an increase in corporation tax lead to redundancies? Lower dividends, lower reinvestment of retained earnings - I get, but not the redundancies part
4% of 20% is 20%? So it is a 20% increase? I appreciate the rate is actually 19% but the point still stands it is roughly a 20% increase.
I’m a big fan of aligning income tax, capital gains and dividend tax. One allowance and the same scaling rates - it would be way simpler if these were the same.
I do think we will see a land value tax soon as well, which I’m also a fa off.
Inheritance is the biggest one though, we are about to go through the biggest period of wealth transfer ever and inheritance tax seems to be the least painful way to overall raise income and reduce inequality. I honestly don’t understand why this is so politically unpopular, it’s crazy to me. Most of the population aren’t even big beneficiaries and they hate the idea of inheritance tax.
I honestly don’t care about corporation tax because corporations aren’t people. As long as the profits are taxed fairly through compensation, capital gains and dividends when they get to people then I don’t even see why a corporation tax is needed. (I realise a big reason is to incentivise future investment over short term profit)
Interesting. You must therefore also support capital gains taxing of your own home? Otherwise everyone would invest more into their own homes as it would be significantly more tax efficient than most other asset classes.
The issue with taxing everything the same is that not all incomes are the same. You already pay income tax when you earn money, so is it just to pay an equal rate of tax when you invest money that has already been taxed and then taxing it a further time after you die? Disincentivizing investment is not a good thing, as most economies realise. Hard to find other countries with any inheritance tax, this is very much a UK thing.
IMO we should care about companies paying tax. They consume scarce resources and have access to society and infrastructures to generate their returns. ie they don’t make profits in isolation.
Further if they are global, then the shareholders would be taxed in a different jurisdiction to the one that bears the costs. Think about the costs to UK high street of Amazon, the cost of unemployment benefits we all pay for when those workers are displaced and the amount of tax that the UK collects from Amazon. Those savings come at a hidden cost.
I’m not sure why you would make that leap considering a single home is already an exemption in many taxes. I don’t see people investing more in their homes as a particular issue (in fact it’s arguably a good thing) and a land value tax would mean buying significantly greater land-value homes wouldn’t be significantly advantaged. I’m not completely against removing the home exemption, but I don’t think it’s necessary.
I don’t want to brag, but it was actually quite easy for me.
I don’t think the number of countries to have implemented a tax is a good metric for its effectiveness. When you consider the nearly universal regard for LVT and then compare that to how few countries have actually it implemented the argument that good taxes are more broadly adopted breaks down.
Right but might point is that those profits aren’t relevant until they reach a person. You do make a fair point about the different domiciles of the owners and where they pay tax and that’s my biggest concern with removing corporation tax at the moment. I think in the future with better international cooperation it may be possible though.
It’s roughly a 20-25% increase because the rate is currently 19, and the article speculates it going to 24.
In terms of potential redundancies, companies will naturally begin to cost-cut, restructure and maximise profits. On your point about net profit, 24% of 1.5m is more than 19% of 1m, for example, so of course staff costs come into the question. There’s also potential impact on growth (new jobs) as companies invest less and perhaps decide to look at opening or expanding in other, more tax-friendly, territories.
Wouldn’t an increase in corporation tax incentivise companies to invest more not less (to reduce their tax bill)
Oversize investing in your primary residence is a rational economic decision making in an environment when you are significantly taxed on everything else. Many I know have taken out huge mortgages for that exact reason, buying houses beyond their needs because it is tax efficient to do so, and they believed in house price inflation.
People see property as low risk and it generates a utility value. The returns from other asset classes would have to account for the additional risk + the 40-45% tax differential in that environment. In effect it would be raising the effective cost of capital for companies, which has follow on effects on taxes, employment etc.
Buying and holding an oversized property is not very efficient if it drains the investment pool. Further it artificially inflates property prices for no real economic gain, and prices additional new entrants out of the market. An LVT would have to be politically unacceptably high to compensate for the 40/45% tax incentive pushing the other way, but yes it is do-able.
Yeah, OK exaggeration.
But sure there is IHT in the US, but it kicks in at $11m or $22m for couples, so for most people it doesn’t exist.
Japan has 55% IHT but it kicks in at something like $6mio. The real rate starts at 10% before exemptions.
Those listed are the top rates, not the rates of the average person and not before all the exemptions or pre death wealth transfers.
Also you’re only at #20 or thereabouts out of 194 countries in the world before you hit 0%.
Right, but my main point was that I don’t believe that there is a strong relationship between how good a tax is and its adoption rate.
Yes. The holly grail.
Problem is that countries are also nationalistic with regard to their industries and revenue streams. Look at current China / US spat. Look at UK holdout on state aid in brexit negotiations. I think the US prefers that its companies manage their affairs in this way than paying more UK tax. The companies park all their funds in offshore tax havens and wait for an amnesty to bring back on shore. It’s an old game that keeps on being played, but they’re never going to compensate the UK where ever the funds ultimately end up in the US.
Yes if you only had domestic companies servicing domestic markets I agree it would work, but the world has been going in the opposite direction (despite what Trump is trying to do).
Agree that companies need to be paying taxes in the actual region and company where the user resides. From a digital perspective that regulation would be simple but our government and MPs are weak and wont do it. Too much cronyism and lobbying.
Twitter paid less tax last year than someone on £140k a year.
Amazon, Google, Facebook all exploit the loopholes. If you close it down simply and effectively then there would be billions more coming in that could be used. Google paid more in fines in the EU then they did in Tax.
Problem is governments only think about their own 5 year term and not the long term future as it is not in their own interest.
While I would prefer taxes didn’t increase, just on corporation tax - it has gone down substantially over recent years to 19% now which is one of the lowest in the OECD.
However, before someone argues to increase it, worth nothing that in most countries a higher notional rate is offset by greater allowances than in the UK.
As for inheritance tax, everyone should be better off if they just abolished it - as if you’re rich, you can easily avoid it and the tax hasn’t kept up with changes in house prices.
That strikes me as more of an argument to fix it rather than abolish it. Unfortunately touching inheritance tax is politically problematic (for reasons I don’t understand, but presumably because of headlines like “if you vote for these guys they will literally steal from your dead gran!”) so no one wants to make any change.