UK General Election 2015

[Starter]

I ask the question of who it's more ethical to extract taxation from - those who actually work for a living, or those who live off of the work of others?

In principle, all the income derived from dividends, interest and rent, all comes from the real work of people who actually do work. Despite what the financial sector would like to have us believe, their income comes about by the condensation of capital to the existing pile.
When bankers and financial institutions get paid millions and derive millions in profit, where did the actual work come from to derive that profit?

That's a pretty socialist, almost communist, point of view. The "actual work" was performed by the retirees during their working years. They then used part of their wages to invest in various things thereby providing capital to start new business or expand existing business. They now live partially on the results of that investment. Had they not invested there would have been less opportunity for business to start and/or expand resulting in fewer job opportunities for those following them.

Your argument would pretty much assure that no one would invest for the future if the government were to take substantial portions of it for taxes. I can't think of one government or society of any size which has been successful over any real time frame with that model - absent military force to keep people in line (North Korea).

[Jag_Warrior]

I ask the question of who it's more ethical to extract taxation from - those who actually work for a living, or those who live off of the work of others?

In principle, all the income derived from dividends, interest and rent, all comes from the real work of people who actually do work. Despite what the financial sector would like to have us believe, their income comes about by the condensation of capital to the existing pile.
When bankers and financial institutions get paid millions and derive millions in profit, where did the actual work come from to derive that profit?

When one imposes onerous taxes on one economic class or another, in order to arrive at a "socially beneficial" result (however you want to define that), it's important to carefully consider any potential, unintended consequences. With the Affordable Care Act, Americans and our clueless politicians are now learning ALL ABOUT unintended consequences. One example, if you tax providers of capital too heavily, while you might benefit the working class short term, what work will they perform when the "capital class" (we'll call them) reduces capital availability or moves it elsewhere? I collect rents from buildings and houses I've built or bought in years past. Yes, the rent is paid by those who work. But I paid workers to build the houses and buildings. Without my capital, the contractors would have had fewer jobs and the tenants would have had fewer housing options. And I'm just a teeny, tiny player - plus I work too. I have no (practical) off-shore options, as the real money men do. With our globalized economies, moving capital from high tax environments to lower tax environments isn't all that hard for those who (truly) have the means.

We're on a racing board. Think about how many F1 drivers take up residence in Switzerland or Monaco once they start getting the fat paychecks. Having a convoluted tax system, as we have in the U.S. (that rewards those at the very top, gives pat-on-the-head credits to those at the very bottom and squeezes those in the great middle), is not working very well. We now have the lowest labor participation rate since the early 1970's. Our society is as broken as our tax system.

But to your point, I agree that allowing private equity managers to categorize their incomes as "carried interest" and be taxed at a low rate in the U.S., when it's really salary income, not much different than what I get in salary and bonuses, is indeed unfair and laughable. There is unfairness in various countries' tax systems that needs to be addressed. But I believe that in addressing that, and working to find solutions, one has to be careful not to toss the baby out with the dirty bath water.

[Rollo]

The "actual work" was performed by the retirees during their working years. They then used part of their wages to invest in various things thereby providing capital to start new business or expand existing business. They now live partially on the results of that investment.

That explains the chunk of capital which was built up, but it certainly does not explain where the money which pays for the rewards of that capital comes from now.

Had they not invested there would have been less opportunity for business to start and/or expand resulting in fewer job opportunities for those following them.

I live in a nation where 10 of the top 20 companies by market capitalisation are financial institutions, 7 of them are dirt farmers, 2 are supermarkets and the last of the 20 is a telco.
Capital is accumulating faster to existing chunks of capital than wages growth which has pretty well much been going backwards in real terms.

Your argument would pretty much assure that no one would invest for the future if the government were to take substantial portions of it for taxes. I can't think of one government or society of any size which has been successful over any real time frame with that model - absent military force to keep people in line (North Korea).

I reject your fantasy and replace it with history.

During the biggest period of prolonged economic growth the world has yet seen from 1945-1975, the United States had top marginal rates of 70% and greater (including 92% for tax years 1952 and 1953)?

The United States GDP in 1945 was $202m in 1975 it was $1,689m; which is an average of 7.33% for 30 years. That's never been heard of in the history of the world before or since.

That's a pretty socialist, almost communist, point of view.

Socialism! Argh, run for the hills!

Nevermind the fact that also during the period of 1945-1975 the world's single biggest piece of public infrastructure was started, The Dwight D. Eisenhower National System of Interstate and Defense Highways.
Without that, I bet that the United States would cease to function the way it does.

[Starter]

That explains the chunk of capital which was built up, but it certainly does not explain where the money which pays for the rewards of that capital comes from now.

That's a straw man argument.

I reject your fantasy and replace it with history.

During the biggest period of prolonged economic growth the world has yet seen from 1945-1975, the United States had top marginal rates of 70% and greater (including 92% for tax years 1952 and 1953)?

The United States GDP in 1945 was $202m in 1975 it was $1,689m; which is an average of 7.33% for 30 years. That's never been heard of in the history of the world before or since.

A false comparison. True that those rates were for the top incomes, but they did not apply to the vast majority of people who invested for the future through savings. mutual funds, and stocks,

Socialism! Argh, run for the hills!

Dern tootin. It'll be the death of ya.

[Lousada]

Not sure how it would work there, but here that proposal would be devastating to retired people. For many, income from interest and dividends, from investments acquired over their working life, represent a substantial portion of their total income.

Where I live (not Britain) the income you put in your pensionfund is tax exempt. Then when you retire the income you receive from the pension fund is taxed as regular income.

[Starter]

Where I live (not Britain) the income you put in your pensionfund is tax exempt. Then when you retire the income you receive from the pension fund is taxed as regular income.

And if that "regular rate" is 50% or higher? Which prompted my original post in this thread.

[Brown, Jon Brow]

And if that "regular rate" is 50% or higher? Which prompted my original post in this thread.

Well if you're in the financial position where your income will put you into the 50% tax rate (45% is the highest here) then you're hardly going to find it 'devastating' as you posted earlier.

[Malbec]

When one imposes onerous taxes on one economic class or another, in order to arrive at a "socially beneficial" result (however you want to define that), it's important to carefully consider any potential, unintended consequences. With the Affordable Care Act, Americans and our clueless politicians are now learning ALL ABOUT unintended consequences. One example, if you tax providers of capital too heavily, while you might benefit the working class short term, what work will they perform when the "capital class" (we'll call them) reduces capital availability or moves it elsewhere? I collect rents from buildings and houses I've built or bought in years past. Yes, the rent is paid by those who work. But I paid workers to build the houses and buildings. Without my capital, the contractors would have had fewer jobs and the tenants would have had fewer housing options. And I'm just a teeny, tiny player - plus I work too. I have no (practical) off-shore options, as the real money men do. With our globalized economies, moving capital from high tax environments to lower tax environments isn't all that hard for those who (truly) have the means.

While I agree with you in principle the political scene in the UK is almost entirely dominated by the need to cater for the international super-rich. They're attracted to London by some structural factors that I do not have a problem with, EU membership, relatively lax employment regulations, a good cultural and social scene for entertainment. On top of that however successive UK governments of all persuasions have wooed them with minimal taxation if they qualify for non-domicile status.

The argument for doing so is exactly as you've sketched out. Its wealth, it could go elsewhere so best attract it to London where some of it will trickle down.

The problem is that I see few benefits for the normal Londoner. These people do not spend that much time in the capital (otherwise they'd stop being non-doms and have to pay as much tax if not more than their cleaner) and thus while they have a massive impact on raising property prices they do not contribute much to economic activity in the city through personal expenditure. The rising property prices are strangling the city to the extent that a couple with normal jobs like policing, teaching or nursing cannot afford to even dream of owning their own property. Those that cannot afford to buy their own property are stuck paying rent that can increase by 5-10% per year ensuring they cannot save for a deposit.

We've turned London and some other parts of the UK into an extremely efficient distillation device to siphon wealth off from the poor and give it to the wealthy. Most of the Tory policies in their manifesto are clearly written to worsen this situation, forcing councils to sell off more of their housing stock to investors and potential landlords and reducing supply of cheap housing for those in dire need of it. Those close to retirement now have the freedom to liquidate their pension funds and use the money on other things. Whilst IMO this will result in a few people wasting their pensions on frivolous purchases it will also result in many people putting the money on the one thing guaranteed to generate instant returns, you've guessed it, property.

If you're under 30 and living in the UK without wealthy parents then the state is doing all it can to pull the ladders up so you cannot work towards achieving a quality of life that matches your parents, let alone exceeds them. Everything from higher education, accommodation or childcare that young people need has become and will become even more scarce and expensive.

I am in one of the highest tax brackets and a few % extra will hit me in the pocket but the sacrifices I will have to make if that happened can very safely be filed under the title 'first world problems'. I certainly cannot say the same for those out of work or those in the lowest income brackets who will be squeezed hard until their pips squeek by the Tories. We know from leaks that they will target the disabled, young parents, the working poor. In a way its not their fault of course, the easy welfare cuts have already been made and further cuts would always be painful. It is however IMO negligent to make those cuts whilst specifically excluding measures to increase tax income on the higher tax brackets (or anywhere else for that matter).

[Starter]

Well if you're in the financial position where your income will put you into the 50% tax rate (45% is the highest here) then you're hardly going to find it 'devastating' as you posted earlier.

My original post was in response to Rollo's:

The best solution would be to set a rate on passive income (such as dividends, rents and bonuses) at something like 50%, which would change the nature of capital flows. Then have government directly employ more people, which would have effects on labour markets.

There was no mention of any graduation of that rate based on income, just a straight 50% on all passive income. When you are not extremely wealthy and you are retired, that said income is a substantial portion of your living income and therefore can indeed be devastating.

[Rollo]

That's a straw man argument.

Is it?

If I deposit $5000 in the bank, they then lend out that money to people who then pay their debt to the bank with interest. That interest doesn't magically fall out of the sky, it's paid back with money gained from real work.
Ultimately, ALL money is derived from real work or the production of goods and services. That's pretty well much what the definition of money is, a medium of exchange which allows people to store and trade goods and services.

If you think that it is a a straw man argument, then please explain where you think that the money generated to pay for interest comes from.