Lib Dems: when in doubt, tax the wealthy

18 Sep

It is perhaps their unlikely forced marriage with the Conservative Party that causes the Liberal Democrats occasionally to ‘go rogue’ and make statements that are guaranteed to please their core supporters. Unfortunately, these proclamations very often make little sense, including their latest proposal that those earning more than £50,000 per annum should be hit with higher tax bills.


The Lib Dems’ preferred method for instituting these new tax hikes – which can hardly be considered to be aimed less at the super-wealthy than at the already squeezed middle-classes – is to increase capital gains to equal the proposed increased income tax rates.


Clearly no strangers to political spin, the Lib Dems’ press team described this plan as, “looking at how the richest…could make a further contribution.”


Mark Field, Conservative MP for the Cities of London and Westminster, has already pointed out the folly of linking in income tax and capital gains tax: “Capital gains have hitherto been taxed at a different rate from income for good reason. They come from investments, which inevitably involve risk. Reduce the incentives to make those investments and you will find there are some unwelcome knock-on effects.”


One of the most significant effects of this lack of incentive is the fact that, with less people feeling that they are in a position to invest, the smaller the pot will be for capital investment.


Of course there are other reasons why raising income tax and linking it to CGT is a bad idea, most obviously the sense that individuals who strive to succeed will ultimately be beaten with the whip of excessive taxation.


Furthermore, if Britain followed this dangerous path it would make the country far less appealing to prospective investors, who are increasingly drawn to countries like Switzerland, Australia, New Zealand and the Netherlands who, far from raising CGT, have made themselves even more attractive by abolishing it altogether.


Perhaps the Lib Dems should bear in mind that Britain can only benefit from lessening the financial pressure on the squeezed middle who, with more money in their pockets, will have more financial resources to pump back into the national economy.



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