Paying for the pandemic

[yorkshirelad1]

[Hope this is the right forum for this: it is, after all, taxes....Mods: feel free to move as applicable]

Paying for the pandemic

Some readers here will have seen the FT article “Wealth tax: FT Money readers are divided” (FT Money, Sat 17 Oct 2020) on wealth taxes following their survey a couple of weeks ago.

Article via Google: https://www.google.com/search?&q=site:ft.com+wealth+tax+money+readers+are+divided

My own view on a wealth tax would be a sadness at creating yet another tax subsystem, that will probably cost millions (mostly in “consultants”) to set up, and end up costing n times more than initially budgeted, probably be launched late (one day before the filing deadline?) and fraught with errors and with the dedicated website overloaded initially in a rush to file before the deadline the same day due to release delays, and not be properly thought through (cynic?).

I’d be very much in favour of using an existing tax subsystem that is already in place (reduced setup costs, if nothing else)

That got me to thinking what the alternatives might be

• a “covid19” additional band on income tax (above the “additional rate”): which would satisfy the view that those with stronger shoulders should be the ones to pay, and has few setup costs
• a “covid19" additional item on council tax on highest bands: (council tax already in existence)
• increase CGT or IHT
• a new wealth tax (in whatever shape or form, comprehensively discussed in the FT article, probably a percentage on a band of assets)
• No additional tax at all
• “Growth not taxes”
• Something else

So, dear Lemons, here is a short survey for you to “click and select”, to see what Lemons think.
(I've stipulated 2 options as I felt allowing 1 was limiting, so wanted to permit a second option to be selected)

Feel free to add comments to the thread in the normal way as well.

[Wizard]

I voted something else, that something else would be a cut in the level of State pension and an immediate introduction of means testing with only those that need the State pension continuing to receive it. By need I mean for food, heating, not to maintain the lifestyle many pensions want to have. Older citizens have been the overwhelming beneficiaries of the actions taken to fight Covid, so they should be digging very deep to help pay the cost and not just leaving it to others.

[Dod101]

I voted something else, that something else would be a cut in the level of State pension and an immediate introduction of means testing with only those that need the State pension continuing to receive it. By need I mean for food, heating, not to maintain the lifestyle many pensions want to have. Older citizens have been the overwhelming beneficiaries of the actions taken to fight Covid, so they should be digging very deep to help pay the cost and not just leaving it to others.

I would be one of those directly affected by your proposals and would resent what you are proposing although I could live perfectly well without a State pension. That is not the point though. I suspect that most beneficiaries of the State Pension could not live without it. But just how do you think I have benefited by the actions taken to fight Covid? If you mean by locking us up that has not cost the State much. Your proposals are way off beam and anyway are politically impossible. Next proposal?

I think a removal of one of the triple locks would be a good idea, but in any case the State pension is taxed. Let's remove the winter fuel allowance and Gordon Brown's silly Christmas bonus though.

Dod

[monabri]

I voted "somethin else". Send the bill to China..along with claims from the rest of the World. Why should anyone in the UK ( or anywhere else) pay for mistakes made in China?

[AsleepInYorkshire]

I would be one of those directly affected by your proposals and would resent what you are proposing although I could live perfectly well without a State pension. That is not the point though. I suspect that most beneficiaries of the State Pension could not live without it. But just how do you think I have benefited by the actions taken to fight Covid? If you mean by locking us up that has not cost the State much. Your proposals are way off beam and anyway are politically impossible. Next proposal?

I think a removal of one of the triple locks would be a good idea, but in any case the State pension is taxed. Let's remove the winter fuel allowance and Gordon Brown's silly Christmas bonus though.

Dod

If the going gets tough we will arrange for relief drops of alcohol. But please don't ask us to drop on a Tuesday. That's domino's night.

We had a local referendum to see if we should turn the local breweries into hand gel factories. No one turned up. We now have an embarrassment of undrunk alcohol in small hand gel bottles. We've flown several shipments a day over HMRC buildings across the country as payment in lieu for the VAT. Strangely enough they haven't worked out they need to drink the stuff

Just paint a very large red cross at the bottom of your garden and keep your head low.

AiY

[Wizard]

I voted something else, that something else would be a cut in the level of State pension and an immediate introduction of means testing with only those that need the State pension continuing to receive it. By need I mean for food, heating, not to maintain the lifestyle many pensions want to have. Older citizens have been the overwhelming beneficiaries of the actions taken to fight Covid, so they should be digging very deep to help pay the cost and not just leaving it to others.

I would be one of those directly affected by your proposals and would resent what you are proposing although I could live perfectly well without a State pension. That is not the point though. I suspect that most beneficiaries of the State Pension could not live without it. But just how do you think I have benefited by the actions taken to fight Covid? If you mean by locking us up that has not cost the State much. Your proposals are way off beam and anyway are politically impossible. Next proposal?

I think a removal of one of the triple locks would be a good idea, but in any case the State pension is taxed. Let's remove the winter fuel allowance and Gordon Brown's silly Christmas bonus though.

Dod

My bold.

Without wishing to put too fine a point on it, deaths from Covid were disproportionately amongst over 60s, so by locking down the country and reducing the death toll from Covid more over 60s were saved from dying from Covid than any other age group. More granualat cuts, over 70s, over 80s, etc. are more material.

Yet most solutions for paying the enormous bill for the actions taken seem aimed at the youngest who will be paying for it through their taxes long after we are both dead even though the chances of them being killed by Covid were minute. So why are my proposals "way off beam"? You make the statement but make no effort to justify it.

[Gengulphus]

My "Something else" is something I'm quite surprised you didn't list: increase income tax rates in all existing bands, without adding any extra bands. It's just as easily done as reducing income tax rates in all existing bands has been in the past, and it makes it a widely shared burden as this really ought to be. Note I'm not saying that the percentage point increases should be the same across all bands - it's reasonable to ask the wealthy to pay more - but there should be an increase for anyone whose income is high enough that they're currently required to pay tax at all. Basically, IMHO as far as possible "we're all in this together" should be accompanied by "we all pay for this together".

Anything that targets only the wealthy is very likely to cause resentment and a determination to avoid it - and the wealthy do have access to all sorts of avoidance techniques, up to and including taking themselves and their assets out of the Chancellor's reach... And many of the measures that target only the wealthy are so easily avoidable that they really ought to be regarded as voluntary taxes - e.g. CGT can mostly be avoided simply by not realising gains, higher bands of income tax by all sorts of techniques to shift income to being unrealised capital gains, IHT is notorious for being avoidable if one takes the trouble to do enough advance planning. As a result, 'stronger shoulders should bear heavier burdens' is a principle that can reasonably be used, but only up to the point where the stronger shoulders regard it as reasonably fair - and at least IMHO that point falls well short of the 'stronger shoulders should bear all the burden' of measures like an above-additional income tax band, CGT increases, or any wealth tax I've thought of that can be expected to raise more than its collection and compliance costs.

Gengulphus

[Spet0789]

I voted something else, that something else would be a cut in the level of State pension and an immediate introduction of means testing with only those that need the State pension continuing to receive it. By need I mean for food, heating, not to maintain the lifestyle many pensions want to have. Older citizens have been the overwhelming beneficiaries of the actions taken to fight Covid, so they should be digging very deep to help pay the cost and not just leaving it to others.

I would be one of those directly affected by your proposals and would resent what you are proposing although I could live perfectly well without a State pension. That is not the point though. I suspect that most beneficiaries of the State Pension could not live without it. But just how do you think I have benefited by the actions taken to fight Covid? If you mean by locking us up that has not cost the State much. Your proposals are way off beam and anyway are politically impossible. Next proposal?

I think a removal of one of the triple locks would be a good idea, but in any case the State pension is taxed. Let's remove the winter fuel allowance and Gordon Brown's silly Christmas bonus though.

Dod

My bold.

Without wishing to put too fine a point on it, deaths from Covid were disproportionately amongst over 60s, so by locking down the country and reducing the death toll from Covid more over 60s were saved from dying from Covid than any other age group. More granualat cuts, over 70s, over 80s, etc. are more material.

Yet most solutions for paying the enormous bill for the actions taken seem aimed at the youngest who will be paying for it through their taxes long after we are both dead even though the chances of them being killed by Covid were minute. So why are my proposals "way off beam"? You make the statement but make no effort to justify it.

Completely agree with this.

As a pretty accurate approximation, only those over 60 are at risk of COVID.

Those of working age have sacrificed their prosperity (current and future) to save the lives of the over 60s, also the wealthiest cohort of our society.

The state pension (by far the largest benefit) should be made fully means-tested for the next decade. Furthermore, a one-off levy of 25%, deferrable until sale or death, should be applied to the capital gain on primary residences (with a look back to capture those who downsized in the past 10 years).

Job done, with no deterrent for work or investments.

[AsleepInYorkshire]

If I could be allowed a small rebuttal to the suggestion that the elderly should be made to go through means testing for their state pensions. Would the means testing be applied to those who have had the illness and died from it? Would it be applied to those had the illness and survived it? Or would it be applied to anyone over a certain age?

Would you also consider charging individuals who have had the illness and survived who were not of pensionable age. If I may quote an example please. Should we consider taking an additional deduction from Boris Johnsons salary for the next four years?

We could of course just ask all those over the age of 60 to gather their face masks and prepare to work down the salt mines for a year, feed them salt and dripping twice a day and provide two litres of water for drinking and bathing.

AiY

[monabri]

Any savings would be xxxxxx up against the wall by incompetent governments present and future ( whatever flavour).

Why should pensioners pay? They didn't cause " the pandemic" .

By the way, my state pension is 8 years away!

[NeilW]

Paying for the pandemic

Sigh.

It pays for itself.

What we have at the moment is a great deal of saving. Those savings get stored up as Gilt purchases - which are savings instruments.

When those savings are finally spent, they cause taxation and income, which is also taxed. That income is spent, which is taxed and becomes further income which is taxed. And so on, like a stone skipping across a pond.

Do the maths for that and you'll find the tax generated by spending the savings precisely matches the savings. It pays for itself - for any positive tax rate.

There is no need to raise taxes until you run out of unemployed people to service spending from savings, and then you are doing it to head off inflation.

Remember they don't use Sterling anywhere else and therefore it all goes around in a big circle. Quite literally the aggregate total never leaves the reserve accounts at the Bank of England.

[Wizard]

If I could be allowed a small rebuttal to the suggestion that the elderly should be made to go through means testing for their state pensions. Would the means testing be applied to those who have had the illness and died from it? Would it be applied to those had the illness and survived it? Or would it be applied to anyone over a certain age?

Would you also consider charging individuals who have had the illness and survived who were not of pensionable age. If I may quote an example please. Should we consider taking an additional deduction from Boris Johnsons salary for the next four years?

We could of course just ask all those over the age of 60 to gather their face masks and prepare to work down the salt mines for a year, feed them salt and dripping twice a day and provide two litres of water for drinking and bathing.

AiY

Those who have died are not receiving a pension, so no means testing there. For everyone else, whether they have had it or not then yes, means testing would apply. Those below pensionable age will no doubt incur higher taxes as a result of the actions to limit the impact of Covid, my suggestion is about the older generation contributing as well, why would that be so unreasonable?

[Dod101]

Wizard
No one has paid a cent for me, I can assure you. Your views I, on the whole, agree with, but here you are 'way off beam. I think you may well find that most of the over 60s, 70s or however you define the ancients who do not matter, were in care homes which, in the first wave, were almost entirely neglected, and not only that but had old folks from hospitals foisted upon them with no testing or anything to ensure that they were not transmitting the virus to the homes. The care homes thus produced an enormous number of deaths from the first wave in the stats.

Most elderly people that I know (sadly I am one of them) kept themselves either to themselves or took exercise where they might as well have been with themselves and at no cost to anyone.

It is outrageous and totally politically unacceptable to suggest that the older generation pay for the cost of Covid or even a disproportionate cost.

I have no problem with making the State pension means tested but it then throws up a huge amount of other stuff into the melting pot and I doubt that younger folks would end up any better off. We are in this together as was the original mantra. To try to say this one or that one was better served by it, what on earth is going on with society today?

Dod

[Spet0789]

Wizard
No one has paid a cent for me, I can assure you. Your views I, on the whole, agree with, but here you are 'way off beam. I think you may well find that most of the over 60s, 70s or however you define the ancients who do not matter, were in care homes which, in the first wave, were almost entirely neglected, and not only that but had old folks from hospitals foisted upon them with no testing or anything to ensure that they were not transmitting the virus to the homes. The care homes thus produced an enormous number of deaths from the first wave in the stats.

Most elderly people that I know (sadly I am one of them) kept themselves either to themselves or took exercise where they might as well have been with themselves and at no cost to anyone.

It is outrageous and totally politically unacceptable to suggest that the older generation pay for the cost of Covid or even a disproportionate cost.

I have no problem with making the State pension means tested but it then throws up a huge amount of other stuff into the melting pot and I doubt that younger folks would end up any better off. We are in this together as was the original mantra. To try to say this one or that one was better served by it, what on earth is going on with society today?

Dod

You’re missing the point. It’s not about what the old did in the pandemic. The point is that the young took a huge economic hit (future taxes, job losses) to protect the old.

[scrumpyjack]

This is a once in one hundred year event so over 100 years the extra cost is not large. Inflation and growth will erode the extra borrowings. Anyway much of it was not borrowed, it was printed.

A wealth tax is impractical and Labour many decades thought about it and looked into it when in government and decided against it for that reason.

If any tax is to rise it should be VAT. It is not easy to avoid, it means everyone pays something and it is not 'regressive' as most basics (food, rent, childrens clothing etc) are zero rated or have a low rate (energy 5%).

Combine that with a major attack on public sector waste and putting their pensions on the same basis as the rest of us.

[NeilW]

Anyway much of it was not borrowed, it was printed

You'll find it was all "borrowed" in precisely the same way as all other government spending is "borrowed" - by issuing Gilts and Treasury Bills under the full matching rule policy. In other words the "borrowing" is the accounting counterparty of entities saving in Gilts, in the same way your bank "borrows" from you when you open a savings account with a £20 note.

The numbers at the DMO are very clear. There's even two KPIs at the DMO requiring the match.

Now adding reserves to the system and then draining them again is how the UK monetary system has worked for generations. So either it is all printed all the time, or it its all borrowed all the time depending upon how you want to define those words.

If you raise taxes, then what you are doing is taxing the productive economy to protect those who panicked and saved a lot. If you want to confiscate something shouldn't it be from those whose excess savings is the root cause cause of the alleged problem?

Therefore a 100% wealth tax on Gilt and Sterling savings would certainly solve the problem - as well as guaranteeing the government's budget would always balance in the future since everybody would have to spend all the Sterling they earned as soon as they got it to avoid the tax.

[Dod101]

You’re missing the point. It’s not about what the old did in the pandemic. The point is that the young took a huge economic hit (future taxes, job losses) to protect the old.

I get the point exactly. I do not recall when the pandemic hit that anyone said we need to protect the most vulnerable who are the old and thus we will shut down the economy for a few months. In fact they did the very opposite and exposed the most vulnerable who were relatively safe in care homes and introduced patients from hospitals without any testing of them.

I do not feel grateful to the State which apparently 'saved' me. The comments are outrageous and patronising, and I have said all I will on that matter.

Unless you believe in the weird economics of NeilW, we will need to raise taxes all round. As I have said, certainly take a look at the State pension, especially the triple lock, but it is such a politically hot potato that no one will want to do much with it. I would think that many pensioners who can afford it would not be averse to some sort of means test if that became essential.

To answer Snorvey, if the State pension were to be means tested, I suspect only a relatively small number of current pensioners would be affected and it would scarcely make a dent in the debts run up. I expect it is unlikely to happen anyway.

Dod

[Wizard]

Wizard
No one has paid a cent for me, I can assure you. Your views I, on the whole, agree with, but here you are 'way off beam. I think you may well find that most of the over 60s, 70s or however you define the ancients who do not matter, were in care homes which, in the first wave, were almost entirely neglected, and not only that but had old folks from hospitals foisted upon them with no testing or anything to ensure that they were not transmitting the virus to the homes. The care homes thus produced an enormous number of deaths from the first wave in the stats.

Most elderly people that I know (sadly I am one of them) kept themselves either to themselves or took exercise where they might as well have been with themselves and at no cost to anyone.

It is outrageous and totally politically unacceptable to suggest that the older generation pay for the cost of Covid or even a disproportionate cost.

I have no problem with making the State pension means tested but it then throws up a huge amount of other stuff into the melting pot and I doubt that younger folks would end up any better off. We are in this together as was the original mantra. To try to say this one or that one was better served by it, what on earth is going on with society today?

Dod

Given the high degree of respect I have for most of what you say, I am very flattered that you think we agree on many things.

You say that "...I think you may well find that most of the over 60s, 70s or however you define the ancients who do not matter, were in care homes...". First, I have never said anyone in any age group does not matter. Second, based on ONS statistics you are just plain wrong in your claim. I have drawn the following figures from two reports from the ONS, the first covers deaths in April and May the second from March 2nd to 12th June this year, which covers a large proportion of Covid-19 deaths:
https://www.ons.gov.uk/releases/deathsinvolvingcovid19englandandwalesmay2020

https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/deaths/articles/deathsinvolvingcovid19inthecaresectorenglandandwales/deathsoccurringupto12june2020andregisteredupto20june2020provisional

In the first link it states at the very start that "There were 46,687 deaths involving coronavirus (COVID-19)...". Further on in the report in Figure 9 it shows the breakdown by age for England and Wales, over 90% of deaths were in the age ranges above 65. That suggests more than 42,000 deaths amongst the over 65s involving Covid-19.

In the second link, which in addition to the first covers all of March and nearly two weeks of June, the total deaths amongst care home residents involving Covid-19 was 19,394 (this includes deaths actually in the care home and of care home residents in hospitals). Of these about 3,000 were "suspected" to involve Covid-19 by the doctor issuing the death certificate, but were not confirmed.

So over a longer sample period the number of deaths in care homes was still less than half the number of total deaths amonst over 65s measured in the shorter period. So, to say "...most of the over 60s, 70s or however you define the ancients who do not matter, were in care homes..." is wrong. Most deaths amongst over 65s were actually amongst people who did not live in care homes.

As Spet has pointed out, the point is not that elderly people did things to help prevent the spread of Covid-19. The point is that younger people did at least as much, though I personally believe made much more significant sacrafices in order to help stop elderly people dying from Covid-19.

If the death rate from Covid-19 had been at the same level per 100,000 for all age ranges as it was for under 65s there would have been no lock-down, indeed we would not have noticed it in the statistics. It is the death rate in the over 65s that resulted in the need to take children out of school for 3 months, for tens of thousands (of often young people) to lose their jobs, etc., etc. Yet the burden of paying for the actions taken will fall most heavily on the younger sections of society, simply because they will be paying for it for much longer. That is why I think there should be specific action taken for the older members of society to contribute disproportionately now.

It won't happen, but it does not change the fact I think it should.

[Dod101]

Well Wizard and Spet, we will just have to agree to disagree on this one. Turkeys do not vote for Christmas.

Dod

[scrumpyjack]

One could argue til the cows come home about this but the reality is that no third party owns the gilts. They have simply been issued by one arm of the state to another arm of the state and as I understand it much of it now does not even go through the process of being subscribed for and then repurchased. As HMG and the BoE are all part of the state the reality is that the state does not owe this ‘borrowing’ to any third party, so it is hard to see how it could default on it or why the economy needs to be ruined by extra taxes to pay it back in the short term. In the long term it will be evaporated by inflation and growth in nominal GDP, as has always been the case.

So far as the need for international 'confidence' being a reason for paying it back, what matters is how our state finances compare with other countries, rather than looking at ours in a vacuum. I haven't heard of other western countries proposing hair shirt short term tax increase measures to deal with their massive deficits, but perhaps I missed something.