Yeah this is a really great illustration.
I think itās very important to bear in mind that changing the breakdown of taxation and the size of total taxation are two different topics. I know the scope of this thread is about increasing total taxation, but you could equalise income tax, dividend tax and capital gains tax while keeping total taxation the same.
I think if you equalised them you would actually raise more tax so you actually manage to produce a fairer taxation system and a greater tax take.
I mean look at the EIS scheme. That is a case of losses being socialised and gains being privatised. It is a great scheme for the individual but does it produce a fairer societyā¦ probably not.
yes and no.
The rates are too imbalanced, but there needs to be imbalance. Starting businesses are risky activities, founders invest their time for potentially nothing and face the loss of whatever capital they invest. Businesses create jobs and if successful pay corporation tax, business rates etc. For these reasons societies need to encourage such risk taking.
Individuals access those jobs providing labour for a defined payment, with very little risk. Individuals benefit from someone elseās risk and the structures that society provides. It is fair that they should shoulder a higher relative burden.
A business owner makes more money than an employee and that should be the case. What Iām saying is the tax burden on that income should be similar if not the same. An employee earning Ā£100,000 is not worth Ā£1 million (ie they cannot sell themselves for that much) but a business owner with a business making Ā£100,000 could sell their business for Ā£1 million. There is already a difference in outcomes and that is because of the risk involved.
I am not a fan of the EIS scheme and agree with this summary.
However I do understand the counter argument. The UK is falling behind the rest of the western world in many areas, and those that it was a champion of (eg financial services) are being eroded.
These scheme could have been better run to avoid it just being a tax deduction for investing in overpriced startups, but something had, and still has to do done.
I donāt think so.
For example. The business owner has all his assets tied up in the business and draws a minimal wage as he keeps trying to grow the business. The employee receives Ā£100k for 5 years. Amazon enters in year 5 and destroys the market. The business is worthless and collapses. The employee has received Ā£500k over that time while the business owner has nothing. You canāt just look at the upside as setting up and running a business is not that easy.
This is more complex, but not false.
To buy a business you are buying the perpetuity of cashflows. Ā£100k discounted ad infinitum.
An employee could say that I would work for an employer forever if they paid me Ā£1m upfront rather than an annual salary. Its not normal, but it is is not wrong. The question is why would they want to, and forgo any upside and flexibility.
An analogy is the purchase price of a football player being a consideration of the value of that player over the term of a contract. A personal bank loan would similarly discount the future earnings of a person to determine their āworthā or ability to repay a loan over time.
I actually think people should think more in terms of their value or worth for planning purposes. This may help them make decisions around where does this trajectory get me in life and am I happy with this, or do I need to make changes now while I have time.
The first paragraph is full of assumptions. I know plenty of business owners who own multiple business, invest nothing in them as they are mature and live off the cash flows.
Think whatās get lost in these discussions is what function we are optimizing for?
What is the governmentās role? And what is the benchmark? Itās impossible to please everyone at the same time. FT is perfect example.
Of course it is. Itās hyperbole to illustrate a point. As is your subjective statement about successful companies. I have worked in startup world and similarly have seen hundreds of companies that failed.
What is more factual is that 20% of businesses fail in the first year and 60% in the first 3 years. This is the real risk of starting a business.
https://dcincubator.co.uk/blog/60-of-new-businesses-fail-in-the-first-3-years-heres-why/
Relevant to this topic is update from Treasury Select Committee.
"ā¦, both Johnson and Brewer said tax increases should not happen for at least another 18 months.
āWeāre not very clear about where the economy is going to go but we are pretty clear itās going to be weak for some period,ā Johnson said. āI certainly donāt think we should be looking at tax rises this year and quite honestly I think Iād be surprised if we see significant tax rises next year.
āIf we do need higher taxes, then weāre probably looking at bringing them in two to three years hence.ā
Brewer said: āIf anything, the government should be spending more now to support the recovery.
āWe should not expect to see tax rises happening in the next year.ā
Neither of them are economists so what both are saying does not really hold up. You can implement tax rises and spending increases at the same time. The two are not mutually exclusive. As long as the end result is expansionary the economy should grow faster. If you also redistribute income to those with a higher MPC and raise this income from those with a lower MPC this expansionary nature is compounded.
Actually they both are economists, and very well respected ones at that.
Paul Johnson, director at the Institute for Fiscal Studies (IFS)
Mike Brewer, chief economist and deputy chief executive at the Resolution Foundation
They were facing parliamentās Treasury Select Committee today.
I assumed we were talking about Boris Johnson so that is of course my bad. My analysis still stands though. You do not need to have either or. With low interest rates fuelling asset price rises it seems an even more appropriate time to be raising the taxes on capital gains in line with income.
I think the problem here is we are always drawn back to the emotive area of business start ups which then paints people arguing for tax rises as anti new businesses. I am more concerned with the fact that people who already own vast amounts of shares (on the secondary market) are able to take advantage of the large price rises due, in part, to the record low interest rates without paying an equivalent amount of tax compared to someone who worked. This means people who already own wealth are going to be able to get ahead faster than those who are still earning and trying to build their own wealth. This fields inequality and we know that less equal countries tend to perform worse over time.
US is the highest ranked developed country in terms of income inequality and the top performing economyā¦
Depends on what you optimise for.
Top performing? Or largest? Those arenāt the two same things.
There are a few points to unpack:
People who already own vast amounts of shares may have already paid tax on the capital when it was received as income. In fact some will continue to pay income tax on their earnings while investing and paying CGT. The number of people who only receive large sums of money as capital gains is not that large in the UK (excluding pension funds and retirees).
The current stimulus is having an unequal impact of different asset classes. To remedy this CGT needs to move from one rate for all to account for such differences, while encouraging the ārightā sort of risk taking.
More equal societies perform better and are happier societies. That said the UK has never been an equal society in the way we consider Scandinavian models. The difference in the US is that wealth is worshipped and discussed, whereas in the UK it is hidden away in secrecy, but it is there.
4
Donāt disagree but technology has levelled this playing field somewhat How many tech millionaires and billionaires are there that have come from nothing. Same in biotech industry etc. Its not old money that has raised SF property prices sky high.
Both. If you are willing to cite any developed economy except countries like Monaco, Switzerland and oil economies I am willing to listen. Even China has been growing slower in terms of absolute value per capita.
How do you support the argument that the US is the top performing global economy?