Stunned, appalled, shocked etc to see actual tax reform from a politician. This from Wes Streeting today. A thread on why capital gains tax is broken. It's too low AND too high. & why this is a good proposal.
The problem: it's too easy for people to convert income (taxed at top rate 45%) into capital gains (top rate 24%). The rate is too low. Unjust. Also distortive, 'cause an incentive to lock cash up in companies (looking to eventually make a capital gain). Bad for growth. Also the problem: long term investors get no allowance for inflation. Invest £100k in 2016 and get £150k back today, and that's a gain of only £10k after inflation. But you pay £12k tax on that £10k of "real" gain. Effective rate 120%. Disincentive to long term investment A sane tax system has the same rate of tax in income and capital but only taxes real gain. The argument was made best by noted communist Nigel Lawson in his 1988 Budget:
CenTax have done detailed numbers on this. You can boost long term investment AND raise significant sums from small number of wealthy people converting labour income into capital. See taxpolicy.org.uk I cringe a bit at "a wealth tax that works", but it's true. The Streeting proposal is less purist than CenTax's because it has a lower rate for entrepreneurs. That answers the criticism that the proposal would disincentivise entrepreneurship. I didn't agree with that (see my piece linked above) but I can see the argument. Streeting hasn't said what he'd do with the raised £. I suggested using half to cut basic rate income tax. That would be a brave thing for a Labour politician to do, but IMO the right thing at this moment. Spend the rest on e.g. defence. I think most people would agree. I look forward to a Labour leadership contest dominated by wonkish and well though-through tax policy ideas. If the Andy Burnham team want a plan to end the "cliff edges" that make people miserable, hurt the NHS and hit growth, they know how to find me. And as luck would have it, there's a whole series of tax policy suggestions we published in the run-up to the 2024 Budget. Oddly none were taken up. I'm going to be optimistic beyond all rationality and say that this is now the time: taxpolicy.org.uk