TAXING THE RICH ?

[Phil Perry]

John Redwood MP, a very intelligent man in my personal view. . . has a daily blog post and a lot of what he posts is rarely if ever, covered by the Mainstream media as being a bit boring. But I don't think so. The machinations of day to day Government can be very complex and I guess the media don't think that people in general are nterested in anything other than trivia, or scandalous headlines about celebrities knocking off each others' Wives etc. . .

 

Here is ONE of his daily posts, as a 'Taster' on the above subject which are thought provoking. . . ( To ME anyhow,. . .I have to be provoked most severely, to even get UP in the mornings. . .)

 

Who are the Rich?

 

Posted: 11 Apr 2017 10:06 PM PDT

 

If we are going to develop a better approach to taxing the better off, we first have to decide who is better off. One of the most difficult issues which tax policy has to face is the relationship between capital assets and income. How do we feel about people who are asset rich but income poor, or people who are income rich but capital poor?

 

Let us look at some difficult examples.

 

Mrs Hardup is a widow living in a one bedroom flat in what is now Chelsea – it used to be Fulham. She lives on a state pension, with no savings or private pensions to top up what the state provides. She and her husband bought the flat in the 1960s when it was much cheaper, and paid off the mortgage. Doing that got in the way of other savings. The flat is worth £1.2 million today.

 

Mrs Lucky lives in a Council bungalow on her state pension, but has recently won £1.2 million on the lottery. She has so far put it into cautious investments. She might live for another 20 years, so she could draw down and spend more than £60,000 a year depending on how well she invests the money. Alternatively she could buy herself a property, remove the rent bill and pay herself a bit less.

 

Mrs Hardup decides to sell her Chelsea flat, move and buy a small detached property near her daughter in Bolton for £200,00, leaving her £1 million to invest to provide her with an income well above the national average.

 

Mr Feckless retires early, sells his £1.5m southern counties executive house, buys a £500,000 smaller property, and spends three years on expensive cruises, buying luxury cars and other consumption, using up much of his spare £1m.

 

Mr Prudent retires with a good pension of £35,000 a year, and continues living in his £1.5m southern executive home. He is surprised by the choices of his former neighbour, Mr Feckless.

 

Mr Whirlwind is in the prime of life and earns £150,000 a year. His income has risen quickly recently, and he has been too busy to get round to buying a home of his own. He pays a lot out in rent for the smart new property he has recently taken on, eats out most days and takes expensive holidays. He has few assets.

 

Do we have views on which of these, if any, is rich? Do people have moral preferences over who should pay more? Should we tax income more, because it is available to be paid to the government as it comes in? Should we tax assets more, to make people reorganise their assets?

 

 

[Jerry_Atrick]

It's a very good question, but it does depend on the priorities of the day.. For example, in the good ol' days of feudalism*, the property market could be said to have been pretty stagnant as it was customary that the tenants in chief* would pass on their hiers and the heirs had to hold it no matter how financially crippling. So some form of tax (probabte??) was created on passing of title* which forced those who were financially hamstrung to sell their properties this opening up the property market.

 

If the priority of the government of the day is to achieve some outcome, taxes are an effective measure (look how many less plastic supermarket bags are used because, out of my £200 shop, I don't want to fork out 50p for the 10 bags I will need to carry them home**). So, if they want to get people saving and building up assets to keep a roof over their head in retirement, they may decide to up the VAT on luxury or discretionary items and reduce stamp duty, etc. etc. If they want to get the widows out of their 7 bedroom Holland Park mansions which were outer suburban estates when they bought them, then introduce a land tax for properties over £xm , etc. There was an article in The Age the other day that the tinkering the UK has done with stamp duty (buying a second home, stamp duty will be very expensive) to suppress buy to let demand and it worked - until the foreign investors decided to take advantage of a fall in the £ and market at the same time.

 

Re Mrs Lucky - I would take the question a step further (welfare here is much better than what was in Aus at the time I left).. Mrs Lucky has 5 kids and lives in a council house receiving her benefits as she is officially single Her boyfriend lives in the house as well and earns 20K a year, but as they are not married and he stays with his mates 3 days a week watching footy and having a whale of a time, Mrs (well, Miss) Lucky gets the full welfare. Combined, they take home as much as someone earning £40k+ a year, get all the welfare benefits, etc.... And neither pay tax as hers is welfare and he makes cash in hand....

 

I am not kidding... this is more common than people think. Or Mr. Lucky - lives in a 4 bedroom house paid for by the council since he was married to his wife and they had three kids. The kids have grown up and the wife has left him. He still lives in the same house paid for largely courtesy of the council while a battered mother of three children (or whatever the circumstances of real people in need) have to wait for a suitable council house to come available. And the guvmint decided to pay for his law degree (but he doesn't practice).. Mr Lucky lives - My wife's friend met him and had a short relationship with him.

 

* I am not sure if it is feudalism as the situation was covered in property law I did 18 years ago.. but the general gist of whatever age it applies to occurred.

 

** I don't spend £200 on the weekly shop - the missus does

 

 

[facthunter]

Retirement villages? What grievous crime would one have committed to deserve that ? Lot of money being made there. Think I'd rather die. Nev

 

 

[Jerry_Atrick]

Retirement villages certainly make their money - but like all walks of life, there are some good-uns and some bad-uns. About 25 yrs ago ex's mother left ex's father . She was a housewife all her life and had a problematic back and had been under the knife a couple of times. While waiting for settlement, she lived with us (and was less trouble than the ex, I might add). It was clear she was going to need assisted living, so we looked at different retirement villages. There were certainly some shiesters out there but we settled on one in Eltham (outer east Melbourne) that was established a while, had an entry pemium, weekly charge that was reasonable, and exit premium (both entry and exit premiums were reasonable). For that, she got 24 hour on call support,pleasant leafy surroundings, decent sized common room and well organised social activities, probably better appointed villa than many other out there and the residents all had a smile on their faces (as long as they took their daily pills, I suppose). She was very happy there...

 

 

[Marty_d]

Rich is always the income just above yours.

 

But seriously - re the property thing - we have just the same over here. Couple buys a house in Sydney for $70,000 forty years ago, now it's worth over a million. Are they rich? Family home is currently exempt from the assets test when it comes to pensions, so they can live in their million dollar house until they die and then the kids get it.

 

I think there's a case for inheritance tax, when the value of the asset goes up by more than a certain percentage - in other words, a capital gains tax applied on death. We don't want to lever old folks out of the family home, so why not let them stay there until they die then tax the hell out of the asset before the dependents get it. Of course, then the kids will pressure the folks to move before they die... there's always a down side!

 

 

[Jerry_Atrick]

I think there's more of a case on governments spending our money wisely and properly hold those to account who intentionally or negligently (maybe gross negligently) botch things up in the same way company directors can be held accountable. That may result in our hard earned $/£ going a bit further... Too easy to say lets just tax more and keep the wasteful and sometimes shameful practices going.

 

 

[Old Koreelah]

Foreigners find it amazing that Australia's tax system rewards people for making a loss on their investments.

 

Negative gearing has become a monster, a means for Baby Boomers to get richer at the expense of the next generation.

 

No government has the balls to touch this new Sacred Cow. As a nation we invest in the world's largest houses, while sunrise industries are starved of funds.

 

 

[Jerry_Atrick]

I am not so sure it is different to here. We rented our flat out here and the interest was offsettable against my total income - which is sort of how negative gearing works as I understand. In addition, the depcreciation allowances were more generous here. I just think they have a specific name for it in Aus..

 

Although, that was 10 years ago.. and I may have had a dodgy accountant...

 

 

[Phil Perry]

Jerry said : ** I don't spend £200 on the weekly shop - the missus does.

 

 

Blimey mate, We don't spend that on a Monthly shop !! . . . must be why I'm so emaciated. . .

 

 

 

[Jerry_Atrick]

Jerry said : ** I don't spend £200 on the weekly shop - the missus does. 

 

Blimey mate, We don't spend that on a Monthly shop !! . . . must be why I'm so emaciated. . .

 

It's all the Aussie wine she buys

 

 

[facthunter]

Don't know why she would do that. We keep the best stuff. Nev

 

 

[Jerry_Atrick]

Don't we know it! But, it is still better than most others at the relevant price points.... And the anti-freeze in European wines gives her a headache!

 

Although NZ whites are creeping into the shopping basket...

 

 

[facthunter]

Wine prices here have been quite low. Returns from winegrape growing vineyards haven't been too good for the growers probably since about 2003. I got out of it in 1998 anticipating reduced demand and lower prices for grapes due to oversupply. I expect better returns are starting to happen by now as China and India are realising it's good stuff and they have the money to buy it. Tasmania is producing plenty of high class whites and they can sell all they make at the moment for high prices. Nev

 

 

[Jerry_Atrick]

I was in the business for a short period and got out a year earlier - but not though any foresight - Ol' Blighty called. When I arrived here, I was spoiled for choice in Aussie wines - even picked up a few Grange's @ less that you could buy them in Aus (OK - don't groan - they aren't that bad for the money compared to others). But good Yarra Valley, Barossa Valley, Coonawarra, Margaret River and hunter valley wines could be had at reasonable prices. Occasionally saw Heathcoate, Mornington Peninulsa wines as well; And we still get Campbells Muscat from Rutherglen. But lately, it's all the bottom end stuff - even at the better supermarkets. A couple of bottle shop chains have gone bust, too. Majestic - a wine retailing chain does some reasonable stuff, but aint cheap for what it is.. There is a small wine shop out the back of a nursery here that does some real boutique wines, but @ £35/bottle, it is a luxury. Some real whacky labels though...

 

 

[bexrbetter]

. I expect better returns are starting to happen by now as China is realising it's good stuff and they have the money to buy it.

Nah, Xi Jin Ping's heavy crackdown on gifts and especially big restaurant dinners has put a stop to that here, many a wine shop and distributor has gone under last year.

 

I'm not a wine connoisseur, but it's painful to watch a Chinese drink wine, they fill a big glass and skull it to prove what men they are.

 

 

[facthunter]

Maybe, but some must be sophisticated. (Hoping) They used to add coke to wine as we (some) would to scotch. I don't add coke to anything or ever drink it. Pity you are not a wine connoisseur. (appreciator). Good is OK .Bad (plonk) is just bad. There's such a variation. Nev

 

 

[Yenn]

I never wanted to be a conny sewer of wines. If I could only appreciate good wine I would soon be broke. I did once try a Browns wine, couldn't find anything else in Dunnedoo on News Years eve. It was awful. Years later i met John Brown of Brown Brothers and mentioned it to him. His comment was that Browns was an embarassment. Not everyone seemed to realise that they were in no way connected. In fact if you want a good drop you won't go wrong with Brown Bros and I think Browns have folded.

 

 

[facthunter]

I don't mean being a wine snob. Wine is not like Fanta.. Some will have deteriorated due cork faults.( Now twist top, so better) or being kept too long or not a good drop in the first place due poor growing conditions and bad management of moulds and crop vigour etc . Some varieties you may not particularly like. You can't expect extra quality without an extra cost being part of it. Nev