The Institute For Fiscal Studies' Proposed Reform Of Capital Gains Is A Long Way From The Reforms We Need - Richard Murphy

8th October 2024

The Institute for Fiscal Studies issued a new report on the reform of capital gains tax yesterday, some parts of which are welcome.

Firstly, they suggested that the reform of capital gains tax is important whether or not it raises additional revenue because the existing system is unfair in itself. This is a welcome development because it recognises that tax is not all about revenue raising, if it is about that at all.

Secondly, as they made clear throughout the report, there are no good reasons why capital gains tax is charged at less than income when it comes to passive sources of return on investment, i.e. those that result from saving.

Thirdly, and as importantly, they also make clear that there is no good reason why the return to work should be taxed differently if some of it gave rise to earned income and other parts gave rise to capital gains. Both, they suggest, should be taxed at the same rate to remove distortions in the tax system.

Fourthly, they propose that the exemption from capital gains tax on death should be removed, which I welcome.

Fifthly, they challenge the claim made by HM Treasury that increasing capital gains tax rates by 10% would reduce revenues. I agree with that challenge. HM Treasury has never shown its workings that support this calculation, and the assumption that it is true is just that: it is nothing more than a guess based upon the existence of the Laffer curve, and that is unjustified.

That's the good news. Then comes the almost inevitable neoliberal nonsense that shows the complete lack of understanding that organisations like the IFS have of taxation when much of what they say is based on the archly neoliberal Mirrless report of a decade or so ago, of which I was deeply critical at the time and ever since.

Read the full article HERE

Let's hope the chancellor Rachel Reeves reads this to get any changes right and not a fudge that puts fairness in the back seat.