The UK should rationalize its tax system with reforms that would treat income derived from wealth (e.g. capital gains from stock holdings) the same as income derived from work, argues Shreya Nanda in an op-ed for CapX. While it will hardly be popular with rich folk, the proposed reform from the IPPR would increase revenues and share tax burdens more evenly across society, Nanda argues.
- Currently, income derived from wealth is taxed substantially more lightly than income derived from work. Thus Nanda notes that “someone who makes £100,000 in capital gains will pay about £14,000 in tax, while someone who makes the same amount in earnings will pay £33,000, or closer to £40,000 once employer National Insurance contributions are taken into account.”
- The proposed tax reform would also cut down on opportunities for tax avoidance, for example by preventing the wealthy from shifting income earned from work to their capital gains. Currently these dodges are costing hundreds of millions of pounds in lost tax revenue.
- Nanda also claims that equalizing taxes on capital gains will help level the playing between smaller firms and corporate giants that have come to exercise near-monopoly or cartel-like power across the developed world, as well as between big landowners and landlords and smalltime holders.
- Nanda argues: “We want to encourage not capital gains on assets in winner-takes-all markets but capital gains on the firms and investments which genuinely make us all better off.”