Labour tax policy

[MrTTTT]

Originally Posted by GRiM ReeFer

I'm against a CGT because it is interference in the market, inteference creates volatility and uncertainty, we commonly know this as a bubble,

Isn't it the market itself that is volatile and uncertain. (Hence the need for interference). Besides, bubbles have existed long before the state apparatus had the capacity to regulate (and supposedly 'create bubbles').

[Golden Teapot]

Originally Posted by Charismo'

GT, I was considering a single earner not a single income family.

I realise this. It's not really valid to do this though unless you're deliberately trying to mislead people. The reason for this is that by far the most common taxable scenario for high income earners in the UK is an income splitting one.

If you like you're comparing every high income earner in NZ against almost no high income earners in the UK and then claiming things look okay. If you make the comparison using almost every high income earner on both sides then the assessment shows that NZ looks terrible.

labour lie like this absolutely deliberately. Surely you're not like them?

Also, if you're going to pick countries that are not remotely like NZ to undertake comparisons with then why not choose ones with very little tax rather than ones with lots? Or be balanced and pick a range for comparison?

[Golden Teapot]

Originally Posted by fidgit

He's like an evil Steve Jobs (in his turn of phrase at least)

Oh read nothing into this other than I'm tickling three or four people who post here in a way that they can't resist.

[MrTTTT]

You're not as extraordinary as you think you are.

[[LvN]N3misiS]

If we are going to tax married couples on combined income where its advantageous to them, shouldnt we tax every married couple on combined income the so-called "marriage penalty" tax.

[Golden Teapot]

Does anywhere in the world do this?

[Charismo']

Originally Posted by Golden Teapot

I realise this. It's not really valid to do this though unless you're deliberately trying to mislead people. The reason for this is that by far the most common taxable scenario for high income earners in the UK is an income splitting one.

If you like you're comparing every high income earner in NZ against almost no high income earners in the UK and then claiming things look okay. If you make the comparison using almost every high income earner on both sides then the assessment shows that NZ looks terrible.

labour lie like this absolutely deliberately. Surely you're not like them?

Also, if you're going to pick countries that are not remotely like NZ to undertake comparisons with then why not choose ones with very little tax rather than ones with lots? Or be balanced and pick a range for comparison?

I disagree with this. It is fair to compare single earners because not everybody gets married. Simple.

I also either mentioned or implied that I was comparing NZ with western countries (not just UK). If you compare us with *most* western european countries you will find we have very low tax, even if we had 39% tax > 150k, and especially if you use the euro as a comparison which normally sits around 0.5 NZD. I don't care enough to find all of the numbers for you, that's normally your job, isn't it?

The UK was simply used because I have the numbers in my head. However as you *should* know most of europe has similar tax levels.

Asking whether I am "like" those people at Labour? I don't think I am "like" anybody, I simply look at their policies. I could vote for Labour if I decided they looked okay.

I dislike political divides on religious grounds (you seem rather religious).

[Golden Teapot]

Didn't you basically give two explicit examples? One was an extremely unusual country (in terms of the society that their tax is supporting) and for the other you explored the tax calculation in a manner that applies only in the minority of cases. It's almost like you're comparing the worst case scenario overseas against the best case scenario here.

If income splitting were introduced in NZ then I imagine you'll agree that the legislation would comply with the Human Rights Act too? I know it doesn't have to but it would be ever so difficult to enact legislation in this space unless it did given our parliamentary system. That being the case then wouldn't virtually everyone potentially affected by the maximum income threshold be entitled to claim they were married for tax purposes?

What's the case in the UK in regards to this type of thing?

Why didn't you choose Canada for the opposing side of your argument? You stood a chance of getting somewhere had you done that.

[Golden Teapot]

Originally Posted by Charismo'

I don't care enough to find all of the numbers for you, that's normally your job, isn't it?

Nope - why on earth would you think it is?

[The Edge]

Originally Posted by Golden Teapot

What's the case in the UK in regards to this type of thing?

You should know that, you *are* British

[Golden Teapot]

Well technically - but I've not been there for more than three decades.

[Charismo']

GT what would be very interesting to hear from you is what your view is on how the tax system should be structured and why.

And then also why you feel the NZ tax system should differ so greatly from other countries (give a couple of examples).

Your position is basically not known (to me at least) right now and it would be helpful to understand that.

[fixed_truth]

There was an article the other day on Pundit comparing top tax rates.

http://www.pundit.co.nz/content/tax-...s-for-a-change

[Lightspeed]

Originally Posted by Golden Teapot

Oh read nothing into this other than I'm tickling three or four people who post here in a way that they can't resist.

He says this as if he hasn't put at least one potential ticklee on his ignore list.

[Golden Teapot]

Originally Posted by Charismo'

GT what would be very interesting to hear from you is what your view is on how the tax system should be structured and why.

And then also why you feel the NZ tax system should differ so greatly from other countries (give a couple of examples).

You're predicating a type of response I wouldn't make and so I'm left unable to answer. Well I guess I could answer but out of principle I won't.

[Charismo']

Originally Posted by Golden Teapot

You're predicating a type of response I wouldn't make and so I'm left unable to answer. Well I guess I could answer but out of principle I won't.

That´s a shame as I would have found your ideas interesting. It´s not always about winning a debate; there is, contrary to popular opinion on this forum, always a chance to learn something.

[Golden Teapot]

Well you have to start with an open question if you want me to play. I mean that second clause of yours gives the game away don't you think?

[Charismo']

They look like a couple of fairly open questions to me .

"GT what would be very interesting to hear from you is what your view is on how the tax system should be structured and why.

And then also why you feel the NZ tax system should differ so greatly from other countries (give a couple of examples)."

I don't think that either of those are herding you into any particular response.

It could be disappointing to realise that you are simply trolling as one of your earlier comments seems to suggest. Trolling/tickling, same thing!

But, I'm losing interest as I don't like to debate without the other party being willing to table their own viewpoints.

[Golden Teapot]

The second question isn't open. But lets not have you waste a page of this thread on this.

[Lightspeed]

Here's an open question: why are you such a cock?

[crocos]

Originally Posted by Golden Teapot

The second question isn't open. But lets not have you waste a page of this thread on this.

I'm going to agree that it's not an open question when taken at face value, as it implies that you think NZ's tax system should differ from other countries.

I would suggest that it was intended however as an invitation to explain how you think the tax system should be structured in terms of how it differs from existing systems... Unless of course you think the current system is fine?

[xor]

Originally Posted by Lightspeed

Here's an open question: why are you such a cock?

This coming from you?

[Lightspeed]

Thanks for the quote.

[CCS]

Originally Posted by Lightspeed

Here's an open question: why are you such a cock?

DRANK'D!


And it's only mid-afternoon :/

[cyc]

A smart tax would be a land tax on residential or investment properties of substantial value, e.g. say a million dollars. They can go and exclude farms if they like. However, it seems to me the advantage of such a tax would be that it's relatively harder to avoid than the CGT that Labour is proposing and there will be more certainty as to how much tax will be collected in the short to medium term.

In the ideal world, such a tax might discourage people from pouring excessive capital into homes/residential investment, without hitting the supply of so called family homes excessively. Even if wealthier people aren't discouraged from building and buying "palaces", the tax base at least grows.

[Juju]

Originally Posted by cyc

e.g. say a million dollars.

..."And in other news today, houses in the $999,999 - $1,150,000 price bracket disappear off the market."

[cyc]

Originally Posted by Juju

..."And in other news today, houses in the $999,999 - $1,150,000 price bracket disappear off the market."

Won't work. Land taxes are charged based on official council valuations.

[Golden Teapot]

Originally Posted by crocos

I would suggest that it was intended however as an invitation to explain how you think the tax system should be structured in terms of how it differs from existing systems... Unless of course you think the current system is fine?

I did test whether this was the case with my first reply. It's not and so there's not point going further.

[Charismo']

Perhaps I phrased it incorrectly then. It was indeed an invitation, and yes I did imply that I think you believe the NZ tax system should differ from other western countries.

I don't think it's unfair to assume you do think it should be different, given most of your comments in this thread.

Is that an incorrect assumption?

It's interesting that you attempt to bog down the discussion with semantics. You are fully aware of what the intent of the questions was yet you choose to use an argument that they weren't "open" enough for you to respond.

Why don't you rephrase the questions in a way that you would find appropriate, and then answer them?

[Golden Teapot]

Originally Posted by Charismo'

Is that an incorrect assumption?

Yep.

But at least we're down to the question applying to only Western countries - it was all countries earlier and I'll be honest and reveal I've no idea what happens in Togo or other places I'd personally have difficulty pointing out on a map beyond vaguely what continent they fall within.

If you really want to know:

1. Income tax on a progressive basis with a moderate top rate under 40%.
2. The option of income sharing to achieve somewhat similar outcomes on a family basis.
3. CGT at the top tax rate on all appreciating assets plus a bit more to allow for tax having been normally deferred.
4. Death/gift duties on appreciating assets to achieve an effect like the CGT.

And most importantly everyone pays according to the formula with no nonsense tolerated.

So, not very radical I'm afraid.

[CCS]

Originally Posted by Golden Teapot

3. CGT at the top tax rate on all appreciating assets plus a bit more to allow for tax having been normally deferred.

I'm no tax academic and I've not really been paying too much attention to the whole CGT thing.

Why tax at the top rate? If you've only made a small profit on the sale of the asset, isn't the top tax rate a bit much? Why not apply progressive tax on capital gains?

[Charismo']

Originally Posted by CCS

I'm no tax academic and I've not really been paying too much attention to the whole CGT thing.

Why tax at the top rate? If you've only made a small profit on the sale of the asset, isn't the top tax rate a bit much? Why not apply progressive tax on capital gains?

Because if you don't, you just supply a different vehicle for people to avoid paying the top tax bracket on income.

I.e. you can focus your attention on your appreciating property portfolio (let's say, working on improvements), and assuming you turn a very tidy profit on this kind of activity you could end up paying less tax than you would have on plain income tax.

In other words you need to consider the individual's (or couple's) total income including capital gains to obtain a full view of how much they should be taxed.

I am kind of getting into a segue now but it raises the question of whether or not capital gains should be tied with personal income, however I think it would be far too complicated to do this in a fair way. The simpler option from an administrative perspective is just to tax it at the top tax bracket - it's not perfect but it works.

[CCS]

Originally Posted by Charismo'

Because if you don't, you just supply a different vehicle for people to avoid paying the top tax bracket on income.

I.e. you can focus your attention on your appreciating property portfolio (let's say, working on improvements), and assuming you turn a very tidy profit on this kind of activity you could end up paying less tax than you would have on plain income tax.

If all capital gains were taxed at a flat low rate then I'd be with you. But surely if it's tiered and the tiers/brackets are set reasonably, then I'm not convinced that it would be advantageous to concentrate on property. The more money you put into property in order to get a higher sale price is to risk going into a higher capital gains tax bracket.

[Charismo']

Yes - but as I noted, using brackets with CGT would be a nightmare. Especially since they may not fall neatly into a given tax year and given their interaction with the individual's other income.

I started thinking a bit more about this and the following case study probably illustrates the complexities. Consider two people:

1) Person 1: earns 250,000 NZD per year purely on capital gains (has no PAYE tax)
2) Person 2: earns 250,000 NZD per year working a full time job and paying PAYE

Then to complicate things:

Clearly it is unfair on person 1 to charge CGT at the top rate (person 2 would pay less tax due to the bracketed system).

What if person 1 earned nothing in the past 5 years and all of a sudden earned 500,000? Do you then look at the tax brackets allowed for the past 5 years and retrospectively tax them based on this? How would you test this, and how would you police this?

I'm not sure how it is in New Zealand but are losses on capital tax deductable?

What if a person earns based on a mixture of capital gains and personal income?

Yes - you could theoretically address most of this by tying personal income and capital gains together and trying to work out an effective tax bill but imagine the work this would cause for IRD. The complexity in my opinion kills it which is why I think a plain top tax bracket CGT is the way to go.

Although the hypothetical person 1) above might get a bit screwed by this I think there are not many people who don't have some measure of personal income combined with capital gains and therefore you could view their capital gains as being part of their top tax bracket anyway.

[CCS]

Originally Posted by Charismo'

Yes - but as I noted, using brackets with CGT would be a nightmare. Especially since they may not fall neatly into a given tax year and given their interaction with the individual's other income.

I'm not sure what you mean when you say that they (wht is they? CGT?) may not fall neatly into a given tax year. All the capital gains you have made in a financial year, you declare on your tax return and are taxed appropriately.

I started thinking a bit more about this and the following case study probably illustrates the complexities. Consider two people:

1) Person 1: earns 250,000 NZD per year purely on capital gains (has no PAYE tax)
2) Person 2: earns 250,000 NZD per year working a full time job and paying PAYE

Then to complicate things:

Clearly it is unfair on person 1 to charge CGT at the top rate (person 2 would pay less tax due to the bracketed system).

Person 2 would only pay less tax if $250,000 was not in the highest tax bracket. Currently, $250,000 is in the top tax bracket (afaik). For it to be unfair to person 1, the tax brackets and their respective tax rates would have to be significantly different from income tax brackets. If we're to say (at least hypothetically) that a capital gain could be considered income, why not set capital gains tax tiers at the exact same as income tax tiers?

What if person 1 earned nothing in the past 5 years and all of a sudden earned 500,000? Do you then look at the tax brackets allowed for the past 5 years and retrospectively tax them based on this? How would you test this, and how would you police this?

Of course not. Why would they? They would get taxed for the financial year in which they earned that money.

What if a person earns based on a mixture of capital gains and personal income?

I'm not certain why this would be a problem. As I said, I'm not a tax academic. Maybe you can explain this to me? My understanding is that currently people already can earn taxable money from a variety of means other than personal income or capital gains.

Yes - you could theoretically address most of this by tying personal income and capital gains together and trying to work out an effective tax bill but imagine the work this would cause for IRD. The complexity in my opinion kills it which is why I think a plain top tax bracket CGT is the way to go.

I rather get the impression that IRD thrives on making the tax system complicated. I suspect adding further complication wouldn't be too much of a fuss for them.


Anyway, I'm not sure we totally understand each other. I'd rather hear GT's explanation.

[EvilLumpy]

Originally Posted by CCS

Person 2 would only pay less tax if $250,000 was not in the highest tax bracket. Currently, $250,000 is in the top tax bracket (afaik). For it to be unfair to person 1, the tax brackets and their respective tax rates would have to be significantly different from income tax brackets.

I may not understand you correctly, but it sounds like you don't understand how the tax brackets really work:

Income up to $14000 taxed at 10.5%
Income over $14000 up to $48000 taxed at 17.5%
Income over $48000 up to $70000 taxed at 30%
Remaining income taxed at 33%

This means Person 2 would pay $73,420.00 in tax, while Person 1 would pay $82,500 (i.e. the whole lot at the top rate of 33%).

Unless I missed something...

[CCS]

That's actually exactly why I'm asking if it would not be fairer to tax capital gains in brackets rather than at the top tax rate. The reason I'm confused is because charismo is - to be honest - doing a piss poor job of outlining his thinking. Your explanation makes much more sense and matches what I was thinking.

[Charismo']

You're confused because it's complicated.

In the case of someone earning 500,000 nzd in one year but his property appreciated over the course of 5 years, how can you use a bracketed tax system?

He _realises_ the 500,000 gain in one year but it appreciated over a 5 year period. If we use a bracket system then he gets taxed for the most part at 33% (everything over 70,000 NZD which means he pays 33% tax on 430,000 NZD). Rather close to just having a flat 33% CGT all along in this example, but at the expense of a whole lot of added complexity and cost for IRD and hence the tax payer.

Think about what happens if you actually consider him to have "earned" that 500,000 over the whole course of the 5 years (for instance, average it ie 100,000 per year), and mix it up with his normal personal income. Would you just add the two numbers together and _then_ use a bracket system? Certainly this is the fairest way to do it to get the full benefit of a bracketed system? How complex would that be?

I rather get the impression that IRD thrives on making the tax system complicated. I suspect adding further complication wouldn't be too much of a fuss for them.

They might thrive as a department but we suffer as tax payers, both for lost taxes due to too much complexity and because of inefficiency in the department.

I apologise for the rather murky posts now. There are basically 2 things I am trying to communicate:

1) It's too complex and costly to implement anything else other than a flat rate CGT
2) Setting CGT lower than top tax rate introduces a way to avoid the top tax rate

[CCS]

Originally Posted by Charismo'

You're confused because it's complicated.

In the case of someone earning 500,000 nzd in one year but his property appreciated over the course of 5 years, how can you use a bracketed tax system?

As I've been at pains to explain - I'm not a tax academic. So answering my initial questions with more questions is not helpful. I'm not looking for a pissing match over whose idea is bestest - you'll have noticed that I'm asking questions rather than offering an opinion.

He _realises_ the 500,000 gain in one year but it appreciated over a 5 year period.

Let's separate this from a bracketed tax system. Surely you are taxed based on the difference between purchase price and sale price at the time of sale. I'm not sure why the time over which this increase has appreciated comes into it. Even with a single tax rate at the top bracket, why would a cgt take into account the time over which it has appreciated? Maybe you can explain that.

If we use a bracket system then he gets taxed for the most part at 33% (everything over 70,000 NZD which means he pays 33% tax on 430,000 NZD). Rather close to just having a flat 33% CGT all along in this example, but at the expense of a whole lot of added complexity and cost for IRD and hence the tax payer.

Sure, in your example of $500,000 then most of it is taxed at 33%. But let's go back to my original question:

If you've only made a small profit on the sale of the asset, isn't the top tax rate a bit much?

Suppose you've sold a house and made less than $14,000 profit. If it was you salary, you'd be taxed at 10.5%. But at a flat cgt rate of 33% you're getting taxed a lot more. Now, I get that the purpose of having a high flat tax rate on capital gains may well be to discourage people investing in property; that was part of my question to GT - to understand his reasoning.

But what I'm getting at is if it's a bracketed tax system, let's say the same rates and brackets as income tax. Make a profit of $14,000 on a house - pay 10.5% tax. Make a profit of $32,000 - get taxed at 10.5% on the first $14,000, 17.5% on the remainder. So it's more equitable, right? Sure, if the intention is to discourage property investment then, by all means - wallop a high flat tax rate on a capital gain. However, taxing progressively on a capital gain would still be a disincentive to invest in property whilst taxing at (arguably) a fairer rate. Again, if the intention behind a capital gains tax is to reap a substantial return then by all means, slap a high flat tax rate on - which is where we go once again back to my question to GT regarding his reasoning behind taxing flat rather than progressive.

1) It's too complex and costly to implement anything else other than a flat rate CGT

Surely that is only the case if you're also calculating the time over which that asset has appreciated. If you're taxing purely on the amount of profit made on the asset at the same rate as income then it's no more complicated than taxing your yearly income from salary, no?

2) Setting CGT lower than top tax rate introduces a way to avoid the top tax rate

I'm uncertain of the mechanism by which this is achieved (IANATA). Can you explain?

[Charismo']

As I've been at pains to explain - I'm not a tax academic. So answering my initial questions with more questions is not helpful. I'm not looking for a pissing match over whose idea is bestest - you'll have noticed that I'm asking questions rather than offering an opinion.

I'm not really answering with questions on purpose, I'm literally asking how you would do it. I'm not a tax academic either .

Let's separate this from a bracketed tax system. Surely you are taxed based on the difference between purchase price and sale price at the time of sale. I'm not sure why the time over which this increase has appreciated comes into it. Even with a single tax rate at the top bracket, why would a cgt take into account the time over which it has appreciated? Maybe you can explain that.

I brought it into it because of the need to be taxed fairly across _BOTH_ your normal income and your capital gains. The two are intertwined and together represent your total income. Your normal income is taxed on a yearly basis, but CGT in its proposed form is not. But if you want to use a bracketed system for CGT then surely you need to add it to your normal income for it to mean anything. And to do that you should consider the duration of investment so it can be mixed with your personal income figures.

Sure, in your example of $500,000 then most of it is taxed at 33%. But let's go back to my original question:
Suppose you've sold a house and made less than $14,000 profit. If it was you salary, you'd be taxed at 10.5%. But at a flat cgt rate of 33% you're getting taxed a lot more. Now, I get that the purpose of having a high flat tax rate on capital gains may well be to discourage people investing in property; that was part of my question to GT - to understand his reasoning.

True, I'm not really debating this particular case, this would be an unfortunate side effect of a flat rate CGT at top tax rate.

But what I'm getting at is if it's a bracketed tax system, let's say the same rates and brackets as income tax. Make a profit of $14,000 on a house - pay 10.5% tax. Make a profit of $32,000 - get taxed at 10.5% on the first $14,000, 17.5% on the remainder. So it's more equitable, right?

Sure, but what about if you got a situation where someone earned $14000 income and in the same 12 month period bought and sold a property for $14000 profit. If you have separate brackets for each set of income then he only gets taxed 10.5% overall when he should really be taxed as though he had earned $28000 (i.e. some should be 17.5%). This is why I say they are intertwined and if you're going to do it the way you are suggesting this complexity comes into it.

By contrast using the top tax bracket for CGT means you eliminate having to worry about this at all.

Sure, if the intention is to discourage property investment then, by all means - wallop a high flat tax rate on a capital gain. However, taxing progressively on a capital gain would still be a disincentive to invest in property whilst taxing at (arguably) a fairer rate. Again, if the intention behind a capital gains tax is to reap a substantial return then by all means, slap a high flat tax rate on - which is where we go once again back to my question to GT regarding his reasoning behind taxing flat rather than progressive.

Surely that is only the case if you're also calculating the time over which that asset has appreciated. If you're taxing purely on the amount of profit made on the asset at the same rate as income then it's no more complicated than taxing your yearly income from salary, no?

I'm uncertain of the mechanism by which this is achieved (IANATA). Can you explain?

See above example where someone earns 2x14000 but imagine they earned 2x50000 instead.