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Weekend reading: Revolting taxes

All hail John Redwood! Nicknamed ‘The Vulcan’ for his resemblance to a certain pointy-eared space elf, the MP for Wokingham is arguing against the Capital Gains Tax [1] rise.

Good for Spock. Clumsy attempts by Liberal Democrats in line for a gold-plated, six-figure pension to judge what’s ‘fair’ with respect to investing cut little ice with me. I doubt most of them have ever risked more than the £10 they put into the ‘How Long Will Vince Cable Last?’ office sweepstake.

What’s fair about a small investor saving some of his after-tax income and risking it in the stock market rather than spending it – only for the Government to claim another 40% if he succeeds and not want to know if he fails?

I appreciate the motivation to reign in the private equity Mr Creosotes of yesteryear who made millions without risking their own money, not to mention bankers paid bonuses [2] in options or similar to avoid income tax.

But creating a system that clobbers the little guy while trying to ensnare these Macavitys is like reintroducing the death penalty to cut short the odd serial killer.

Here’s some commentary on the tax revolt from around the web.

From John Redwood’s letter to the government, also on his blog [3]:

I suggest that you tax gains of under one year as income. […] Longer term gains should be taxed at lower rates. If you taxed two year gains at 30% and three year gains at 20%, higher rates than the current one, you could tax gains of four years or more at 10%. I would myself go further and offer no capital gains after five years.

From Ian Cowie on The Telegraph [4]:

Small investors will be hardest hit by any reduction in the Capital Gains Tax allowance and only trivial sums of extra revenue would be raised, according to HM Revenue & Customs’ own statistics.

These show that more than half or 53 per cent of all the people who paid CGT in 2008 – the last year for which HMRC has published figures – did so on gains of less than £25,000; a sum equivalent to the national average wage.

From Edmund Conway, also on The Telegraph [5]:

At the very least, excessively high taxes deter people from working harder, or investing more.

This was the point Art Laffer made when he invented the Laffer Curve in the 1980s – updating Colbert’s point and convincing a generation of politicians, including Margaret Thatcher and Ronald Reagan, of the wisdom of low taxes.

It is the point the Adam Smith Institute is making today: it believes that raising capital gains tax would actually reduce the overall revenue the Government receives rather than increasing it.

Such was the experience of the US and Australia when they attempted to lift the CGT rate.

From CityWire [6]:

Adrian Boulding, pensions strategy director at Legal and General, said there was ‘a whiff of retrospection about this change.’

‘The Lib Dems say the rate is too low but when the Treasury lowered the headline rate from 40% to 18% they also removed taper relief and indexation and the combined effect was an increase in tax take,’ he said.

‘If I could do two things to the policy it would be to reintroduce indexation and preserve the annual exemption. I think that would help protect those with long term investments.’

From The Motley Fool [7]:

I Predict A Capital Gains Tax Riot

Stand up and be counted, you mild-mannered investors of England! (And Scotland, Wales and Northern Ireland, naturally). Alternatively, do what Redwood suggests and write a tough letter to your MP [8].

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