To think now is not the right time for tax cuts

[jm9138]

So Hunt wants to cut NI having already cut it last Autumn. The total costs of these cuts will be £13.5 bn. To put that in perspective, this would more than cover the £9bn real terms cut in the education budget since 2010 and with the total NHS dentistry bill being £3bn he could double that and cover the education budget fall with £1.5bn left. Maybe with that he could, I don’t know, fund some private operations to reduce some of the NHS waiting times. AIBU to think that maybe there are other things to focus on now than tax cuts?

I think if you add CGT to peoples houses it would be unpopular and there is a danger that people would just sit tight in their properties until the politics change and the decision is reversed.

There are a lot of people making vast untaxed income from housing however.

I'm all for giving more money to education but I also don't want to pay more tax and would happily accept a tax cut. The less money we have coming in the less we spend so the less VAT etc government gets.

Maybe they need to redraw the entire budget around core priorities and what is left funds the benefit state. Pensions is an area that should be cut, we pay into a private pension to actually fund our retirement yet we also pay NI for a state pensions we don't need

The other problem with capital gains tax is that normally when people sell a house they need to buy another. If you have to pay a large chunk of the price increase on tax you will not be able to afford a new house of comparable value which doesn’t seem fair. (Especially when you also factor in stamp duty which means you have that to some extent already)

Yes but then everyone will have less to spend on the house and so everyone will have to lower the price they want. It should balance out.

There are no Pareto solutions to any tax changes really. Anything we change will likely make some people worse off. But that does not mean that those changes are wrong to do.

I think a redrawing of priorities is a good idea and I think people could engage with. Just to be clear though - my OP was not about raising taxes but rather if the choice is between cutting taxes now or targeted spending on public services that are crippled where I think the priority should be.

Indeed. In the same way that scrapping stamp duty would mean that people have more money in their house purchasing budget so prices would rise accordingly, hence we would need to increase council tax at the same time as scrapping stamp duty to not only make up for the cost of scrappage, but also to dampen any resulting house price increases

@LiquoriceAllsorts2 ,

you are right that we don’t want to reduce liquidity, but if we reduced stamp duty a lot and added CGT, it might be neutral.

They could also make it deferrable if you couldn’t afford it (so it just got paid when you eventually traded down). If you also had an annual property tax, people would also trade down when they no longer needed a big family house.

The issue is that housing is a really economically inefficient investment, as well as the societal implications of amount of empty housing stock etc. The UK is pretty unique in the way we see ownership of residential property and it does need addressing.

It won’t balance out though as everyone bought houses at different points so the amount that will need paying for cgt will vary massively by person

But why will that matter? So one person bought a house for £20k 20 years ago and it is now worth £500k. Another bought the neighbouring identical house for £400k also years ago and it is now worth £500k. They both sell on the same day and let's assume that they both have paid off their mortgage.

The person who bought the £20k house ended up with £480k of capital gain and with a 25% CGT (to keep the maths easy) would pay £120k CGT and have £380k left. The person next door you are will have a £25k CGT and so have £475K left. They both go to buy identical houses that cost £800k.

On the face of it this seems unfair, except when you work out that the person who bought the original home for £20k 20 years ago will have paid, for the two houses they have owned up to that point and less any capital gain and tax, £440k whilst the person next door who admitted had a much smaller CGT bill has had to pay £725k. And they both have owned for all intents and purposes the same property.

So no it really is not unfair. If you have done well on the property market you will still be in a better place than others who have not faired so well.

Ok but they sell a house worth 500k and with the proceeds can only buy one worth 375k so effectively they have to reduce their standard of living.
it won’t incentivize anyone to downsize.

Well that is true if they did not manage to save any of the £380k less for the original house than the person next door paid.

I would not pretend that there would not be issues with CGT on houses. For some people they would be. But I would take that for being able to lower taxes on actual earned income and lower house prices overall. Things can be better without being perfect.

I have never quite got why British people seem to be so much more upset about taxes on unearned income then taxes on earned income.

This is part of the reason the proposed NI cut is progressive and refreshing.

I think the big issue is that tax on earned income, i.e. workers, is higher.

It's counter intuitive that people working, producing things, etc., are taxed higher than people with passive income.

Back in the 70s, it was the opposite with eye wateringly high extra taxed on "unearned" income.

I think it should be the same. If someone earns £50k from wages, they should be paying the same tax (all taxes) as someone with income of £50k from pensions, property letting, interest/dividends, etc.

The rich have used it as a convenient loophole for years to avoid paying tax and the low earners don't realise it is happening, so all you get is the outrage of the rich and not the protests of the poor.

Not sure it should be the same for passive and earned income. I think there is quite a strong economic and moral argument that passive income should be taxed more. Having said that, there is no argument that it should be lower for passive income and making it equal would at least be a start.

Twickenham

Throughout my working life of 40 years I paid NI which was understood then to ensure that I received unemployment benefit if I lost my job (which was unlikely) to pay for the NHS and to ensure that I was eligible for the state pension.

This was all valid and understandable.

Since then so many 'workers' get NI credits and UC is far more generous than Unemployment benefit that its meaning has been eroded since if someone has not paid the required years or none at all they get pension credit anyway.

Good for you - you don't need the state pension (which is potentially taxable if you have other income in retirement) but not everyone has good private pensions.

It should be scrapped and added to tax so everyone pays more - including the wealthy 6 figure earners.

My borough gets less from central govt because it is a wealthy area. So I guess most people pay full or close to full council tax. And people in areas where less pay c tax rely more on c govt?

Absolutely not when our debt has increased so much in last 5 years.

Passive income and active income is a bit of a false distinction. They should be taxed the same, which means paying CGT at one’s top rate of income tax.

If you have saved and invested, you have made those investments out of taxed income, so to tax the earnings on that at a punitive rate is unfair. Also, if you run a business, you shouldn’t care what element you draw as salary and what as dividends.