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Impact of covid19 on taxation. (inc wealth taxes)

including Budgets
Lootman
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Re: Impact of covid19 on taxation. (inc wealth taxes)

#310078

Postby Lootman » May 19th, 2020, 8:54 pm

johnhemming wrote:The economic outcome of lockdown is not yet clear. Potentially we could bounce back a long way, but if we dont the possible outcomes include a much more challenging problem than from 2008. Hence any changes are potentially more severe than many of the relatively peripheral changes we have seen.

Agreed. I dispute the premise of the original question. We never repaid the extra debt from 2007-2009. We merely decided to live with perpetually higher deficits. So why not do that again, especially since interest rates are near zero?

The three choices are higher taxes, which as dod notes will kill the economy. Or bring back austerity and slash spending. Or ignore it and float the deficit higher and then inflate away its real value. I go for the latter two.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#310140

Postby johnhemming » May 20th, 2020, 8:01 am

Lootman wrote:We never repaid the extra debt from 2007-2009. We merely decided to live with perpetually higher deficits.

Firstly we did repay a lot of the debt (particularly the debt raised to bail out the banks on which we made a small profit outwith the RBS investment/nationalisation.

Secondly, the deficits were gradually coming down until 2020.

Thirdly austerity was the maintenance of spending in real terms whilst the economy grew to clear the deficit. It was talked up as being particularly severe on the public finances, but in fact was not massively different to what Alistair Darling would have done in the end at least up to 2015.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#310151

Postby dealtn » May 20th, 2020, 8:42 am

johnhemming wrote:Firstly we did repay a lot of the debt (particularly the debt raised to bail out the banks on which we made a small profit outwith the RBS investment/nationalisation.



I think that was the Banks repaying that debt, provided by the government, and yes that did make a small profit.

There has been net borrowing, and a budget deficit every year since the "financial crisis". Any debts paid off as gilts matured have been replaced by more debts, they haven't been paid off in the conventional sense. Only if you measure debt as a percentage of GDP can you get some reassurance that the quantum of debt is falling, but that is quite different to repaying debt.

A young person in his first job earning £24k a year taking out a £12k loan to buy a car might be compared with an older individual earning say £96k a year with a £48k mortgage. Their debt ratios are the same, but the latter has more debt. Despite this most people would rather be the 2nd person, and most would think he had a better debt position too.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#310163

Postby JohnB » May 20th, 2020, 9:05 am

The problem with accepting ever higher levels of debt is that it makes you less able to weather the next storm. Brown chose to not pay down debt in the 2000s, Osborne was taking a responsible view with austerity, and of course that was unpopular with those affected. The argument that debt is fine with low interest rates and the expectation the economy will always grow could be challenged if we have to curb consumption to handle climate change.

I didn't regard this government as fiscally responsible before the crisis, and suspect they will kick the can down the road, but if they do turn on a segment of the population with higher taxes, protest won't help with such a unassailable majority.

A lot depends on how other counties respond to their debt problems. If they tax, we can, if they don't we can't because capital and jobs will take flight. I think the US will take on the debt, and we will follow them, as we are trying to decouple from the EU.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#310174

Postby johnhemming » May 20th, 2020, 9:28 am

dealtn wrote:I think that was the Banks repaying that debt, provided by the government, and yes that did make a small profit.

The government, however, borrowed the money to (loan)/(invest in) the banks. Hence as part of treasury management it reduced the amount of debt held by the government. When I last checked this there was a small profit apart from the investment in RBS on which question the fat lady has not yet sung.


dealtn wrote:There has been net borrowing, and a budget deficit every year since the "financial crisis". Any debts paid off as gilts matured have been replaced by more debts, they haven't been paid off in the conventional sense. Only if you measure debt as a percentage of GDP can you get some reassurance that the quantum of debt is falling, but that is quite different to repaying debt.

Apart from the debt borrowed to refinance the banks.

There also has been quite a bit of QE prestidigitation.
Last edited by johnhemming on May 20th, 2020, 9:30 am, edited 1 time in total.

Nimrod103
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Re: Impact of covid19 on taxation. (inc wealth taxes)

#310175

Postby Nimrod103 » May 20th, 2020, 9:29 am

JohnB wrote:The problem with accepting ever higher levels of debt is that it makes you less able to weather the next storm. Brown chose to not pay down debt in the 2000s, Osborne was taking a responsible view with austerity, and of course that was unpopular with those affected. The argument that debt is fine with low interest rates and the expectation the economy will always grow could be challenged if we have to curb consumption to handle climate change.

I didn't regard this government as fiscally responsible before the crisis, and suspect they will kick the can down the road, but if they do turn on a segment of the population with higher taxes, protest won't help with such a unassailable majority.

A lot depends on how other counties respond to their debt problems. If they tax, we can, if they don't we can't because capital and jobs will take flight. I think the US will take on the debt, and we will follow them, as we are trying to decouple from the EU.


The problem with being fiscally responsible, is that it does not buy electoral popularity. and leads to being voted out of office. The replacement incoming Govt can then fritter away all those savings on hairbrained schemes. That is what happened to the Tory Govt which fell in 1997. The idiotic Kenneth Clark as Chancellor was so virtuous, he bequeathed a prudently run economy to a far from prudent Gordon Brown. In doing so Kenneth Clark lost the Tories any influence for a generation.

At least a large debt overhang will constrain any future Govt (of whatever colour) to behave itself.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#310186

Postby JohnB » May 20th, 2020, 9:47 am

The Tragedy of the House of Commons

johnhemming
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Re: Impact of covid19 on taxation. (inc wealth taxes)

#310209

Postby johnhemming » May 20th, 2020, 10:45 am

Nimrod103 wrote: far from prudent Gordon Brown.

Gordon Brown was prudent for the first parliament and possibly as far as 2002.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#310222

Postby Nimrod103 » May 20th, 2020, 11:23 am

johnhemming wrote:
Nimrod103 wrote: far from prudent Gordon Brown.

Gordon Brown was prudent for the first parliament and possibly as far as 2002.


That as may be, but essentially he was spending the wealth accumulated by Kenneth Clarke after White Wednesday. That way he bought popularity for Blair and financed an illegal war. If Clarke had not amassed that wealth because of his austere policies, the Tories might have been in with a better chance in 1997. Instead, they fell to a landslide which was blamed on their economic mismanagement in 1992.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#310232

Postby johnhemming » May 20th, 2020, 12:04 pm

Wealth is the wrong word. He managed to get the government's books into a state where they could increase spending in real terms without doing economic damage. However, in around 2002 Gordon Brown pushed spending up at a faster rate than fitted with the economy.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#310237

Postby Nimrod103 » May 20th, 2020, 12:20 pm

johnhemming wrote:Wealth is the wrong word. He managed to get the government's books into a state where they could increase spending in real terms without doing economic damage. However, in around 2002 Gordon Brown pushed spending up at a faster rate than fitted with the economy.


You are right that no country has real wealth (as in a chest full of gold, and we certainly didn't have any of that left after Gordon Brown sold it at the market bottom). But Clarke and the civil servants of the Treasury imposed austerity, thus improving the economy, just in time to hand it all over to Brown. There is that famous comment when the Treasury mandarins made an opening presentation to Brown saying how good the economy was as a result of all the austerity, and Brown said 'What do you want for it, a bloody medal?'

ursaminortaur
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Re: Impact of covid19 on taxation. (inc wealth taxes)

#310380

Postby ursaminortaur » May 20th, 2020, 6:58 pm

JohnB wrote:The problem with accepting ever higher levels of debt is that it makes you less able to weather the next storm. Brown chose to not pay down debt in the 2000s, Osborne was taking a responsible view with austerity, and of course that was unpopular with those affected. The argument that debt is fine with low interest rates and the expectation the economy will always grow could be challenged if we have to curb consumption to handle climate change.

I didn't regard this government as fiscally responsible before the crisis, and suspect they will kick the can down the road, but if they do turn on a segment of the population with higher taxes, protest won't help with such a unassailable majority.

A lot depends on how other counties respond to their debt problems. If they tax, we can, if they don't we can't because capital and jobs will take flight. I think the US will take on the debt, and we will follow them, as we are trying to decouple from the EU.


Actually Brown as chancellor did pay down debt in the early 2000's. Brown and John Major being the only chancellors since 1970 to have had budget surpluses (Major in 1988 and 1989 and Brown in 1998 to 2001 inclusive). Of course both Conservatives and Labour after those brief years of surpluses had deficits thereafter which more than wiped out the surpluses and meant that the national debt had increased by the time they left office.

https://www.theguardian.com/news/datablog/2010/oct/18/deficit-debt-government-borrowing-data#data

As to low interest rates the Government has just managed to sell £3.8bn of three-year gilts at a negative yield meaning that buyers are paying for the privilege of lending to the UK government.

https://www.ft.com/content/3d576f71-6833-4a55-8b8c-f4abfb0ca172

UK sells negative-yielding government bonds for first time
.
.
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The UK sold £3.8bn of three-year gilts at a yield of minus 0.003 per cent, according to the Debt Management Office. The slightly negative yield suggests investors who hold the debt to maturity will get back less than they paid, when accounting for regular interest payments and the return of principal.

The UK sold a one-month bill at a negative yield in 2016, but this represents the first time it has sold a conventional longer term bond at yield below zero.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#326268

Postby VanishingPint » July 15th, 2020, 10:25 am

I note with interest that the Chancellor is reported to be "reviewing" CGT with a view to raising taxes.

It seems likely targets include taxation of your PPR (home) and reducing or scrapping the CGT allowance, making it more difficult to sell shares without facing significant losses to the tax man.

The coming budgets could be a game changer in terms of wealth taxation, VCT or EIS taxation, pensions tax relief, and CGT. And this from a Conservative Chancellor.

I'm starting to think that capital flight may just be the least worst option. Get it abroad and into a separate legal entity before Rishi raids it.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#326317

Postby Adamski » July 15th, 2020, 12:58 pm

VanishingPint wrote:I note with interest that the Chancellor is reported to be "reviewing" CGT with a view to raising taxes.


Capital gains I remember them pre-Covid :lol: Must be for those here that hold Tesla, Shopify or SMT.

I can't see Rishi taxing people's homes; would be too unpopular politically. Taxes on your primary home, ISAs or pensions would be seen as an attack on the middle classes. They could tinker with CGT but don't think this would raise enough to plug the budget blackhole.

I suspect this is more to try and reduce distortions in the UK tax system which is seen as too bias towards capital gains over income. So makes sense for us to keep on maximising amounts into ISAs and Pensions.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#326335

Postby Lootman » July 15th, 2020, 2:01 pm

Adamski wrote:this is more to try and reduce distortions in the UK tax system which is seen as too bias towards capital gains over income.

Every other country whose tax system I have looked at (which is a few, but not many) tax capital gains more lightly than normal income. Some countries do not tax capital gains at all. I have never encountered a country that taxes them more harshly than income. I've always assumed the reasons are as follows:

1) Part of any capital gain is due to inflation, so the real gain is less than the nominal gain, particularly for assets held for a long time.

2) The government wishes to encourage people to risk their capital to help businesses and the economy grow, which in turn boosts the tax take anyway.

3) If capital gains were taxed at income tax rates, up to 45%, then people would be more likely to find ways to evade or avoid the tax. Unlike normal income, pensions, interest and dividends, capital gains are not easily reportable to the taxman by a third party. Rather the taxman relies on individuals volunteering information about transactions, cost bases and sales proceeds which may otherwise never be known.

Lastly any move to tax gains like income would lead to a massive dumping of shares and property to enjoy the current maximum 20% CGT rates. That would cause severe dislocations unless there was some kind of transition or grace period, or else some element of grandfathering so that the new rate only applies to newly acquired assets.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#326337

Postby scrumpyjack » July 15th, 2020, 2:14 pm

Lootman wrote:
Adamski wrote:this is more to try and reduce distortions in the UK tax system which is seen as too bias towards capital gains over income.

Every other country whose tax system I have looked at (which is a few, but not many) tax capital gains more lightly than normal income. Some countries do not tax capital gains at all. I have never encountered a country that taxes them more harshly than income. I've always assumed the reasons are as follows:

1) Part of any capital gain is due to inflation, so the real gain is less than the nominal gain, particularly for assets held for a long time.

2) The government wishes to encourage people to risk their capital to help businesses and the economy grow, which in turn boosts the tax take anyway.

3) If capital gains were taxed at income tax rates, up to 45%, then people would be more likely to find ways to evade or avoid the tax. Unlike normal income, pensions, interest and dividends, capital gains are not easily reportable to the taxman by a third party. Rather the taxman relies on individuals volunteering information about transactions, cost bases and sales proceeds which may otherwise never be known.

Lastly any move to tax gains like income would lead to a massive dumping of shares and property to enjoy the current maximum 20% CGT rates. That would cause severe dislocations unless there was some kind of transition or grace period, or else some element of grandfathering so that the new rate only applies to newly acquired assets.


Don't forget that the CGT rate can be changed DURING the tax year. this has happened before so that sales before the increase in CGT was announced were taxed at the previous lower rate and gains after at the new higher rate announced by the then chancellor, (23 June 2010). If he plans to increase the rates I expect he will make the increased rate applicable from the date of the announcement.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#326380

Postby Lootman » July 15th, 2020, 4:46 pm

scrumpyjack wrote:
Lootman wrote:
Adamski wrote:this is more to try and reduce distortions in the UK tax system which is seen as too bias towards capital gains over income.

Every other country whose tax system I have looked at (which is a few, but not many) tax capital gains more lightly than normal income. Some countries do not tax capital gains at all. I have never encountered a country that taxes them more harshly than income. I've always assumed the reasons are as follows:

1) Part of any capital gain is due to inflation, so the real gain is less than the nominal gain, particularly for assets held for a long time.

2) The government wishes to encourage people to risk their capital to help businesses and the economy grow, which in turn boosts the tax take anyway.

3) If capital gains were taxed at income tax rates, up to 45%, then people would be more likely to find ways to evade or avoid the tax. Unlike normal income, pensions, interest and dividends, capital gains are not easily reportable to the taxman by a third party. Rather the taxman relies on individuals volunteering information about transactions, cost bases and sales proceeds which may otherwise never be known.

Lastly any move to tax gains like income would lead to a massive dumping of shares and property to enjoy the current maximum 20% CGT rates. That would cause severe dislocations unless there was some kind of transition or grace period, or else some element of grandfathering so that the new rate only applies to newly acquired assets.

Don't forget that the CGT rate can be changed DURING the tax year. this has happened before so that sales before the increase in CGT was announced were taxed at the previous lower rate and gains after at the new higher rate announced by the then chancellor, (23 June 2010). If he plans to increase the rates I expect he will make the increased rate applicable from the date of the announcement.

Yes that is a risk. But the date to which such a change would be backdated is not today but rather when the review ends and the change is announced. So there is still a window of opportunity between now and then to offload everything at 20% tax and start over. I am tempted since I do not believe that CGT rates will ever be lower than now.

In fact for the last few years I have been voluntarily taking a CGT liability in order to whittle down my reservoir of unrealised capital gains. Prior to a few years ago I was religious about always staying with the annual CGT-free allowance. Not any more.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#326402

Postby scrumpyjack » July 15th, 2020, 5:53 pm

Of course this may be part of Rishi's plan to increase the CGT tax take immediately. Thinking higher rates are coming, many investors (like Lootman and me!) may decide to realise gains at the current rate, thereby increasing the tax take for this year.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#326403

Postby JohnB » July 15th, 2020, 5:57 pm

A problem trying to collect CGT revenue is that if you increase the rate, people dispose of their low gain assets first and hold back their higher gains until the tax regime improves. So you get less than you hoped. And after a market correction the gains are much reduced anyway, so its not good for a quick raid.

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Re: Impact of covid19 on taxation. (inc wealth taxes)

#326407

Postby Lootman » July 15th, 2020, 6:18 pm

scrumpyjack wrote:Of course this may be part of Rishi's plan to increase the CGT tax take immediately. Thinking higher rates are coming, many investors (like Lootman and me!) may decide to realise gains at the current rate, thereby increasing the tax take for this year.

If that was his plan then maybe he should announce a lower CGT rate until, say, the end of 2020-2021, to flush out sales and gains. And then have a rate of 25% starting on 6th April, 2021.

JohnB wrote:A problem trying to collect CGT revenue is that if you increase the rate, people dispose of their low gain assets first and hold back their higher gains until the tax regime improves. So you get less than you hoped. And after a market correction the gains are much reduced anyway, so its not good for a quick raid.

Or hold back the gains until death, when the CGT liability is wiped out. Although IHT depending on the situation.


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