Tag: capital gains tax

An Australian Lesson about Capital Gains Tax Rates and Revenues

By
Alan Reynolds

A decade ago, amid much controversy, I persuaded the Australian government to cut the capital gains tax rate in half.

Stephen Kirchner, an economist from Australia’s leading think tank, the Center for Independent Studies, reviewed the results last November.

This a brief summary:

The introduction of capital gains tax discounts for individuals and funds as part of the 1999 Ralph business tax reforms has received a lot of bad press, but much of this commentary is ill-informed… .

Those who called for reform of Australia’s capital gains tax regime 10 years ago argued that the Ralph reforms would likely raise more revenue because of the increased incentive they provided for taxpayers to realise capital gains that would otherwise go untaxed. Supply-side economist Alan Reynolds predicted that the reforms would raise twice as much revenue in the long run. He was right. The capital gains tax share of Commonwealth tax revenue nearly doubled between the introduction of the Ralph reforms and 2006–07. In absolute terms, CGT revenue rose from $4.6 billion in 1998–99 to $17.3 billion in 2006–07. CGT revenue growth has been strongest among individuals, who received the larger discount of 50%, followed by funds, which received a 33% discount. The slowest CGT revenue growth has been from companies, which received no discount.

The data suggest that the Ralph CGT reforms have resulted in more tax revenue through increased realisations of capital gains. They have thus strengthened rather than weakened the ability of the tax system to serve equity objectives. The Ralph reforms demonstrate the basic supply-side insight that lower effective tax rates lead to faster growth in the tax base and tax revenue.

Topics: 
Government and Politics, Tax and Budget Policy

Hey, UK: Meet the New Boss, Same as the Old Boss

By
Daniel J. Mitchell

As the chart below indicates, the United Kingdom has a large budget deficit solely because government spending has increased to record levels (OECD data). Unfortunately, the new Tory-Liberal coalition government has decided that taxpayers should be punished for all the over-spending that occurred when the Labor government was in charge.

The Telegraph reports that the top capital gains rate will jump to 28 percent, up from 18 percent (the new government foolishly thinks this will result in more revenue). But the biggest change is that the value-added tax will increase to 20 percent. According to Business Week, the Chancellor of the Exchequer (the British equivalent of Treasury Secretary) actually bragged that the VAT increase was good since it would generate “13 billion pounds we don’t have to find from extra spending cuts.” Here are some further details from Business Week about the disappointing fiscal news from London.

British Chancellor of the Exchequer George Osborne increased the value-added tax rate to 20 percent from 17.5 percent in the first permanent change to the levy on sales of goods and services in almost two decades. “The years of debt and spending make this unavoidable,” Osborne told Parliament in London in his emergency budget today as he announced a package of spending cuts and tax increases to cut the U.K.’s record deficit. …“We understand that the budget deficit needs to be tackled but we think the focus needs to be cutting public spending over tax rises,” Krishan Rama, a spokesman for the industry lobby group, the British Retail Consortium, said in a telephone interview yesterday. …VAT has remained at 17.5 percent in every year except one since 1991, when John Major’s Conservative administration raised the rate from 15 percent to help plug a deficit.

The one tiny glimmer of good news from the budget is that the corporate tax rate is being reduced from 28 percent to 24 percent, which is probably a reflection of the strong and virtuous tax competition that is forcing greedy governments to lower tax rates in order to attract and/or retain business activity. There also is a two-year pay freeze for government bureaucrats, but this is hardly good news since a 30-percent pay cut is needed to bring compensation down to private sector levels.

Topics: 
Government and Politics, International Economics and Development, Tax and Budget Policy

Russia Scraps Capital Gains Tax

By
Daniel J. Mitchell

The former communists running Russia apparently understand tax policy better than the crowd in charge of U.S. tax policy. Not only does Russia have a 13 percent flat tax, but the government has just announced it will eliminate the capital gains tax (which shouldn’t exist in a pure flat tax anyhow).

Here’s a passage from the BBC report:

Russia will scrap capital gains tax on long-term direct investment from 2011, President Dmitry Medvedev has said. …Mr Medvedev told the St Petersburg International Economic Forum that long-term direct investment was “necessary for modernisation”. …Its oil revenues fund, which has been financing the deficit, is expected to end next year, and the government wants to attract more foreign investment to boost the economy.

Sounds like President Medvedev has watched my video explaining why there should be no capital gains tax. Now we just need to get American politicians to pay attention.

Topics: 
International Economics and Development, Tax and Budget Policy

England Is the New France

By
Daniel J. Mitchell

The chart below shows everything you need to know about why the United Kingdom is a fiscal disaster. Over the past 10 years, the burden of government spending has skyrocketed from 36.6 percent of GDP to more than 53 percent of GDP. Taxes, meanwhile, have remained largely unchanged, averaging about 40 percent of GDP.

Since the OECD numbers show that the fiscal crisis in the U.K. is solely the result of a bloated public sector, the obvious solution is … you guessed it, higher taxes.

David Cameron’s new coalition government has announced support for a higher capital gains tax and is signalling that this will be followed by an increase in the value-added tax.

There are some proposals to curtail the growth of spending, including some pay cuts for Prime Minster Cameron and other political figures, but I will be very surprised if those amount to more than window dressing. The United Kingdom, I fear, has gone past the point of no return in the journey toward becoming indistinguishable from the decrepit welfare states so common in the rest of Europe.

Topics: 
Health Care, International Economics and Development

The Capital Gains Tax Rate Should Be Zero

By
Daniel J. Mitchell

Every economic theory – even socialism and Marxism – agrees that saving and investment (a.k.a., capital formation) are a key to long-run growth and higher living standards. Yet the tax code penalizes with double taxation those who are willing to forgo current consumption to finance future prosperity. This new video, narrated by yours truly, explains why the capital gains tax should be abolished.

Unfortunately, Obama wants to go in the wrong direction. He wants to boost the official capital gains tax rate from 15 percent to 20 percent - and that is after imposing a back-door 3.8 percentage point increase in the tax rate as part of his government-run healthcare scheme.

The video concludes with six reasons why the tax should be abolished, including its negative impact on both jobs and competitiveness.

Topics: 
Government and Politics, International Economics and Development, Tax and Budget Policy

Maine’s Supply-Side Democrats

By
Daniel J. Mitchell

The class-warfare crowd in Washington wants bigger government and higher tax rates, so it’s a bit shocking to see that a group of Northeastern Democrats are slashing tax rates. Yet that is exactly what Maine’s politicians are doing. The Governor even makes the common-sense observation (that so far has escaped President Obama’s attention) that there won’t be any jobs without investors and entrepreneurs. The Wall Street Journal approves:

This month the Democratic legislature and Governor John Baldacci broke with Obamanomics and enacted a sweeping tax reform that is almost, but not quite, a flat tax. The new law junks the state’s graduated income tax structure with a top rate of 8.5% and replaces it with a simple 6.5% flat rate tax on almost everyone. Those with earnings above $250,000 will pay a surtax rate of 0.35%, for a 6.85% rate. Maine’s tax rate will fall to 20th from seventh highest among the states. To offset the lower rates and a larger family deduction, the plan cuts the state budget by some $300 million to $5.8 billion, closes tax loopholes and expands the 5% state sales tax to services that have been exempt, such as ski lift tickets. This is a big income tax cut, especially given that so many other states in the Northeast and East – Maryland, Massachusetts, New Jersey and New York – have been increasing rates. “We’re definitely going against the grain here,” Mr. Baldacci tells us. “We hope these lower tax rates will encourage and reward work, and that the lower capital gains tax [of 6.85%] brings more investment into the state.” …One question is how Democrats in Augusta were able to withstand the cries by interest groups of “tax cuts for the rich?” Mr. Baldacci’s snappy reply: “Without employers, you don’t have employees.” He adds: “The best social services program is a job.” Wise and timely advice for both Democrats and Republicans as the recession rolls on and budgets get squeezed.

Topics: 
Tax and Budget Policy

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