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Wealth tax academic paper

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Bouleversee
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Re: Wealth tax academic paper

#366550

Postby Bouleversee » December 15th, 2020, 9:32 pm

A loss is only a loss when it's crystallised, as it would be by a tax which would be irrecoverable and might make you crystallise a loss to pay it, a double whammy.

Lootman
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Re: Wealth tax academic paper

#366574

Postby Lootman » December 15th, 2020, 11:05 pm

Bouleversee wrote:
firevlondon wrote:
Lootman wrote:"If I started screaming with anguish about paying a one-off £200k tax bill to the government I would come across as some sort of anti tax libertarian nutter. I am not that person."

I am that person. I would scream with anguish in that situation. That makes me a nutter?

I wonder if the author is so relaxed and positive about this idea only because, as he concludes, it will never happen and he wants to come across as "reasonable"?

That is my blog post... the context of my argument is important. My portfolio can, and has several months this year alone, move by well over £200k in a single month, either up or down - just via market movements. So a £200k one-off tax bill would not change my life any more than a bad month in the markets would. If I screamed with anguish every time my net worth fell by £200k in a month, I shouldn't be invested in the markets.

A loss is only a loss when it's crystallised, as it would be by a tax which would be irrecoverable and might make you crystallise a loss to pay it, a double whammy.

Yes an irreversible and actual total loss of £200K feels very different, and worse, than an unrealised loss or other normal market fluctuations of a similar amount. In fact if I am down £200K in the markets, which has happened a good few times, I often see it as an opportunity to invest more, and/or to liquidate some holdings and pay less CGT. So I don't see them the same way at all.

Moreover this tax would happen for 5 years as proposed, so the total take would be £1 million for someone with a £20 million net worth. So whilst that person would still have £19 million left, that isn't really the point at least from my perspective.

But I know what he means. I got to the point in my life where the daily fluctuation in the value of my portfolio exceeded what I got paid for a day's work. That told me that I should probably retire early and I did, nearly twenty years ago!

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Re: Wealth tax academic paper

#366636

Postby dealtn » December 16th, 2020, 9:09 am

Bouleversee wrote:A loss is only a loss when it's crystallised, as it would be by a tax which would be irrecoverable and might make you crystallise a loss to pay it, a double whammy.


We have a different view in that case. I would label that as a form of price anchoring and denial. For me a loss (or profit) is real whether crystalized or not.

NeilW
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Re: Wealth tax academic paper

#366662

Postby NeilW » December 16th, 2020, 10:01 am

scrumpyjack wrote:You don't need to lose 100% of the tax from many of those sort of guys to make excessive tax hikes completely unproductive.


Tax hikes are always unproductive if they are just moving money around, and of course what happens in the states in the USA is not applicable to the UK since we're a full currency zone. So you can't avoid it here. All you can do is find somebody else to take your place.

If the UK government wanted to reduce the deficit or the debt, they need to target what is causing it - people buying Gilts and holding bank reserves.

A tax of 1 in 4 Gilts held, payable in those Gilts would shrink the national debt. A tax on banks of 25% of reserves held would shrink the national debt similarly - and leave the banks to pass on the charge, as we do with interest rate rises.

But to what end? So that people have fewer savings. Why?

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Re: Wealth tax academic paper

#366691

Postby Gerry557 » December 16th, 2020, 11:18 am

My initial thoughts based on the headline having not read the thread yet or the paper.

Sounds good if you are poorer, ie if you don't have to pay. Tax is always better when someone else pays it and not me!

One offs soon become regular. Every time something is "needed" or "too expensive" or a "crisis" will be used to justify another one.

£1 million level soon gets dropped, next £900k then £800k etc. Even if it doesn't the old fiscal drag works wonders.

I can see granny in SE England struggling to fund it cos she has a £1m house in todays money (probably quite a few houses in that bracket ) that she paid £825 for when she was 22 but only has state pension as income.

There is probably a delay scheme ie you pay when your dead, we sell your house for you. No I'm not worried your kid was expecting to inherit somewhere to live, it's their problem unless they stump up the delayed cash. They can get a bank loan surely!

Hopefully this issues have been covered already by others and the plans have senseable work arounds

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Re: Wealth tax academic paper

#366732

Postby Dove21 » December 16th, 2020, 1:18 pm

Today's 'revolt' on housebuilding plans shows just how politically difficult a WT would be. It's also worth saying that the separate research study accompanying the recommendations - presumably to give some populist credibility - uses some highly dubious methodologies given the nature of the topic. More akin to something a cat food manufacturer might come up with.

Dove

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Re: Wealth tax academic paper

#366747

Postby dealtn » December 16th, 2020, 2:03 pm

NeilW wrote:
If the UK government wanted to reduce the deficit or the debt, they need to target what is causing it - people buying Gilts and holding bank reserves.



That's the problem with accounting identities, you can always choose which to see as the "cause". I suspect many would see the deficit, or debt, as being the result of (necessary) issuance of Gilts (to meet uncovered government expenditure), not the consequential buying of them.

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Re: Wealth tax academic paper

#366765

Postby Lootman » December 16th, 2020, 2:38 pm

dealtn wrote:
Bouleversee wrote:A loss is only a loss when it's crystallised, as it would be by a tax which would be irrecoverable and might make you crystallise a loss to pay it, a double whammy.

We have a different view in that case. I would label that as a form of price anchoring and denial. For me a loss (or profit) is real whether crystalized or not.

Depends. If you are professional money manager or trader then you are assessed on a mark-to-market basis. In that case the loss is "real" in the sense that your bonus will be affected if your valuation declines. The revenue from any management fee declines. Taxes may also be levied on mark-to-market gains even if you didn't sell anything. It's a big deal.

If you are a private investor then only realised gains and losses are tax events and so it is entirely reasonable for someone to ignore market fluctuations and be sanguine about a downturn. As an example in late March and early April the market was well down, and I was probably down at least £200K (*). I could have worried about that and felt a sense of loss. I could have felt panic. Or I could do what I actually did which was to add new money, as the tax year changed, which of course has worked out very well.

That said the fact that it did very well does not make me complacent either. After all there is no real gain unless I sell and it could go back down next year. As the author of the cited article said, if you can't handle a £200K fluctuation you probably should not be in the markets at all.

(*) The fact that I cannot tell you exactly how much I was down reflects the fact that it wasn't that interesting for me to know that.

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Re: Wealth tax academic paper

#366772

Postby NeilW » December 16th, 2020, 2:52 pm

dealtn wrote: I suspect many would see the deficit, or debt, as being the result of (necessary) issuance of Gilts (to meet uncovered government expenditure), not the consequential buying of them.


They would, but they would be wrong to view it that way. The Consolidated Fund runs intraday deficits, which the DMO endeavours to hoover up in the repo market.

The DMO annual review is very clear on the point:

Balances in central government accounts contained within the Exchequer pyramid are swept on a daily basis into the NLF and the DMA is required to offset the resultant NLF balance through its borrowing and lending in the money markets. The DMA is held at the Bank of England and a positive end-of-day balance must be maintained at all times; it cannot be overdrawn. Automatic transfers from the government Ways and Means (II) account at the Bank of England would offset any negative end-of-day balances, though it is an objective to minimise such transfers.


Nothing necessary about it. Entirely a matter of monetary policy coordination with the BoE. Government expenditure would be automatically allocated to HM Treasury's Ways and Means Account at the Bank of England by default. It's merely a DMO KPI (1.1) to avoid the Ways and Means, and the DMO undertakes cash management with a view to beating the policy rate it would otherwise get at the W&M (KPI 1.4)

Positive net interest after cost of funds has been recorded by virtue of funding the Exchequer’s daily cash needs in the wholesale money markets at rates that have been on average below the DMA’s internal cost of funds (Bank Rate) and from investing surpluses at market rates that were on average above this.


Everything would work perfectly fine without any Gilts issued at all. Banks would just end up with more reserves and those people who would prefer Gilts would end up retaining their Bank deposits. Bank deposits that if spent and spent again would create taxable transactions that would reduce the deficit.

NeilW

dealtn
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Re: Wealth tax academic paper

#366775

Postby dealtn » December 16th, 2020, 3:01 pm

Lootman wrote:
dealtn wrote:
Bouleversee wrote:A loss is only a loss when it's crystallised, as it would be by a tax which would be irrecoverable and might make you crystallise a loss to pay it, a double whammy.

We have a different view in that case. I would label that as a form of price anchoring and denial. For me a loss (or profit) is real whether crystalized or not.

Depends. If you are professional money manager or trader then you are assessed on a mark-to-market basis. In that case the loss is "real" in the sense that your bonus will be affected if your valuation declines. The revenue from any management fee declines. Taxes may also be levied on mark-to-market gains even if you didn't sell anything. It's a big deal.

If you are a private investor then only realised gains and losses are tax events and so it is entirely reasonable for someone to ignore market fluctuations and be sanguine about a downturn. As an example in late March and early April the market was well down, and I was probably down at least £200K (*). I could have worried about that and felt a sense of loss. I could have felt panic. Or I could do what I actually did which was to add new money, as the tax year changed, which of course has worked out very well.

That said the fact that it did very well does not make me complacent either. After all there is no real gain unless I sell and it could go back down next year. As the author of the cited article said, if you can't handle a £200K fluctuation you probably should not be in the markets at all.

(*) The fact that I cannot tell you exactly how much I was down reflects the fact that it wasn't that interesting for me to know that.


I think its entirely reasonable to ignore market fluctuations. Maybe its language, but that is separate, to me at least, from acknowledging the downward price movement behind that as a loss though. (And also as an opportunity!)

This isn't a tax driven thing at all for me in how I see things, but possibly as despite never having been a "professional money manager", I have been a "trader", as a label, professionally. It is entirely normal to see market moves as uncrystalized profits/losses. Life would have been so much easier if only crystalized profits/losses mattered!

I simply can't understand how some don't recognize price movements as changes in valuation recognisable as profit/loss.

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Re: Wealth tax academic paper

#366778

Postby dealtn » December 16th, 2020, 3:09 pm

NeilW wrote:
Everything would work perfectly fine without any Gilts issued at all. Banks would just end up with more reserves and those people who would prefer Gilts would end up retaining their Bank deposits. Bank deposits that if spent and spent again would create taxable transactions that would reduce the deficit.



Agreed, if Gilts didn't exist, and Bank reserves were the only means available, then that would be where excess government spending would show.

But your argument (I think) was that deficits were caused by the existence of (GIlts and) bank reserves. In fact it is the actions of governments in creating those (gilts and) bank reserves, through spending over and above their monies raised through taxation etc. that creates the deficit (and debt). The elimination of the (Gilts and) bank reserves would eliminate them, as you suggest.

The direction, and causation, is wrong in your explanation, not the accounting treatment of such.

Your answer provides your acknowledgement it seems when you state clearly, "the consolidated fund runs intraday deficits...". The deficit occurs at the start of the process, not the end.

Lootman
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Re: Wealth tax academic paper

#366783

Postby Lootman » December 16th, 2020, 3:13 pm

dealtn wrote:I simply can't understand how some don't recognize price movements as changes in valuation recognisable as profit/loss.

One thing that is certain is that valuation would matter more if we had a wealth tax, as you would lose 1% of that value each year. In that case one might actually welcome a market downturn.

But firevlondon was trying to make the point that a £200K tax bill would feel no different from a £200K drop in valuation, and I cannot support that view. For me it would feel very different.

Of course if he was really just trying to say that he is so rich that he wouldn't miss or notice £200K then I suspect that is exactly what the members of the Wealth Tax Commission want to hear. :D

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Re: Wealth tax academic paper

#366791

Postby NeilW » December 16th, 2020, 3:39 pm

dealtn wrote:But your argument (I think) was that deficits were caused by the existence of (GIlts and) bank reserves.


The deficit does start at the beginning of the process, since that is when the net financial saving is created. If I put £100 from the Consolidated Fund into your bank account and you hold onto it rather than spending it instantly, you are causing an increase in the deficit by your saving. Hold it long enough and the DMO will be in touch with the bank to repo the extra reserves. Hold it longer still and you may be able to get a Gilt on issue from the DMO as member of the authorised group (if they ever bring that facility back) which would eliminate the deposit, the repo and the corresponding reserves - but not the deficit.

If you spend it, then the £100 will be reduced by the taxable transactions between you and when the next person decides to pause the process and hold the remaining stock of money. And so on down the transaction chain.

It's the pauses that are the cause. So if you tax the pauses, you eliminate the cause - either by triggering taxable transactions or eliminating the excess savings. That's what all these wealth taxes, talk of negative rates and the like are trying to do. Start a 'spend it or lose it' expectation.

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Re: Wealth tax academic paper

#366813

Postby Lootman » December 16th, 2020, 5:00 pm

NeilW wrote:If you spend it, then the £100 will be reduced by the taxable transactions between you and when the next person decides to pause the process and hold the remaining stock of money. And so on down the transaction chain.

It's the pauses that are the cause. So if you tax the pauses, you eliminate the cause - either by triggering taxable transactions or eliminating the excess savings. That's what all these wealth taxes, talk of negative rates and the like are trying to do. Start a 'spend it or lose it' expectation.

Or a "spend it or lose it or gift it or stuff it under the mattress" expectation. A wealth tax is really an inducement to remove your wealth from the financial system and either offload it to related persons or hold it in some other (more anonymous and private) form. Maybe that is why Bitcoin and gold (although nor diamonds, oddly) have been doing so well, apart from a distrust of fiat currencies of course.

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Re: Wealth tax academic paper

#366820

Postby dealtn » December 16th, 2020, 5:27 pm

NeilW wrote:
dealtn wrote:But your argument (I think) was that deficits were caused by the existence of (GIlts and) bank reserves.


The deficit does start at the beginning of the process, since that is when the net financial saving is created.


Good that's clear.

NeilW wrote:
If the UK government wanted to reduce the deficit or the debt, they need to target what is causing it.


What is causing it (the net financial saving) is, as you describe,

NeilW wrote:
If I (the Government) put £100 from the Consolidated Fund into your bank account ...


Which is net Government spending, ie spending more than it raises.

Everything else follows, regardless of which branch of economics you follow. So, if the Government wanted to reduce the deficit, or debt, by targeting the cause of it, it needs to stop spending more than it brings in.

Of course, if it wants to reduce the deficit, or debt, by another means, or wishes to do so for another reason it has alternatives, such as the proposed Wealth Tax, or encouraging a series of inter-related private sector economic transactions, each of which it can apply a tax too. But that is different to targeting what is causing it. That is keeping what is causing it, and finding another way of dealing with it.

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Re: Wealth tax academic paper

#366858

Postby firevlondon » December 16th, 2020, 8:19 pm

Lootman wrote:But firevlondon was trying to make the point that a £200K tax bill would feel no different from a £200K drop in valuation, and I cannot support that view. For me it would feel very different.

Of course if he was really just trying to say that he is so rich that he wouldn't miss or notice £200K then I suspect that is exactly what the members of the Wealth Tax Commission want to hear. :D


I was trying to make the first point, namely that a drop in valuation is equivalent whether the taxman has caused it or it proves to be an ephemeral unrealised fleeting thing. There is probably some truth to the second point too. And if for me, then presumably also for somebody worth £20m having £1m taken (in five equal instalments of £200k each, over five years) from them. The reality is that 5 years on, it is hard to see how much of the change in net worth came from tax, or from market movements, or from other ins/outs.

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Re: Wealth tax academic paper

#366951

Postby 88V8 » December 17th, 2020, 10:06 am

I think this is more of an emotional thing.
The govt deciding to steal a chunk of one's money.

Yes, of course, it happens all the time.
But this would just be so blatant.

V8

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Re: Wealth tax academic paper

#366959

Postby Nimrod103 » December 17th, 2020, 10:31 am

firevlondon wrote:
Lootman wrote:But firevlondon was trying to make the point that a £200K tax bill would feel no different from a £200K drop in valuation, and I cannot support that view. For me it would feel very different.

Of course if he was really just trying to say that he is so rich that he wouldn't miss or notice £200K then I suspect that is exactly what the members of the Wealth Tax Commission want to hear. :D


I was trying to make the first point, namely that a drop in valuation is equivalent whether the taxman has caused it or it proves to be an ephemeral unrealised fleeting thing. There is probably some truth to the second point too. And if for me, then presumably also for somebody worth £20m having £1m taken (in five equal instalments of £200k each, over five years) from them. The reality is that 5 years on, it is hard to see how much of the change in net worth came from tax, or from market movements, or from other ins/outs.


There is a big difference.
If you lose £200k taken in tax, that is it, you will never see it again, and probably never see the benefit of it either.
If you lose £200k in adverse market moves, there is every likelihood that within a few years at most, you will see your share portfolio regain that amount, and more.

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Re: Wealth tax academic paper

#367431

Postby thebarns » December 18th, 2020, 2:59 pm

Bit late to the thread.....

But I did skim read the report when it came out.

Two points that did strike me

1) Having myself been involved for 30 years in professionally valuing businesses, whether companies, partnerships or sole traders, I know the process is fraught and incredibly subjective capable of significant swings in valuations among different valuers - I am a chartered accountant. So it would be a tortuous process.

2) The proper market valuation of defined benefit pensions (whether public or private sector) will be an eye opener if done properly. For years, these types of pensions have got away with ridiculously beneficial low valuations when taken in the context of looking at the Lifetime Pension Allowance, at one point being valued at a ludicrous 16 times multiple and even now the multiple of 20 is probably around half of what it should be. Why ? Because those that write the rules, the civil servants, would be amongst those hit hardest.

So if, as the Wealth Commission appears to suggest, these pensions are to be fairly valued, any person (whether public or private) retiring in their mid to late 50s will find their pensions being valued at a multiple of around 40-50 times the yearly income stream, depending on the exact nature of their guaranteed pension income stream.

As has been pointed out that will cause all sorts of issues for those with such pensions and rightly so, if those with defined contribution pensions are to be assessed based on the monetary value of their pension pots at a particular time which is very easy to establish.

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Re: Wealth tax academic paper

#367438

Postby scrumpyjack » December 18th, 2020, 3:14 pm

These are some of the reasons why a wealth tax has always been ruled out as completely impractical when it has been studied carefully by the Treasury for left wing Labour governments. The practical objections become even more overwhelming when the kerfuffle of setting all this up is purely for a one off tax. The thing that surprised me is that they had managed to get Gus O'Donnell involved in this. It is laughably tendentious and pompous for this lot of self appointed academics to call themselves the 'Wealth Tax Commission'.

Perhaps next Fox News could set up a 'Fair Tax Commission' stuffed with right wing economists arguing for a flat tax system? Rather reminds me of the Rory Bremner skit where a panel was reviewing some moral topic of the day. He said 'We have a carefully chosen representative studio audience to vote on the arguments'. The camera then panned to the audience - 100 Nuns!


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