Love sweat equity:)It is time to tax ALL UNEARNED CAPITAL. And zero tax on sweat. And tears.
Australia is a tax haven for those “middle Aussies” or “aspirational Aussies “ code for greedy people. If you haven’t earned your capital, you get taxed, big time. And that should including taxing convoluted Keating super , big time. More than it is taxed at the moment.
I think part of the reason capital gains are treated differently is the other accounting trick of the yearly incidence of tax, whereby 100k income per year over the course of two years is taxed much less than 200k in the first year and 0 in the second.
Potentially a good, practical way to introduce tax parity for income sources is to tax capital gains as if it were gained cumulatively over the years -- so a capital gain of 200k for an investment that lasts 2 years is taxed as if it were 100k income per year.
This is one of my bugbears generally -- we're in 2022 and we're still operating with tax systems designed in the technological dark ages. It would be pretty easy to smooth out taxes or get rebates for high taxes paid in the one bumper year being refunded in lean years. This would be especially good for parents moving in and out of full-time employment.
Fair point. But this is true also of labour incomes being earned over many years. The historical education, training and experience I undertook was part of the cost of earning me this year's income. So part of what I earned from labour was actually earned in previous tax years.
You could tax income inconsistently with size of the income. So you could make both bank interest and capital gains non-taxable till the gain was realised, up to some limit. Then above the limit taxable even before it was realized.
Some economists like consumption taxes. I think you can turn income tax into consumption tax by making investment tax deductible, and redemption of investments taxable. This is somewhat similar to the initial superannuation tax regime.
Oct 16, 2022·edited May 23, 2023Liked by Cameron Murray
This is super interesting. I've often thought it is weird how capital gains and labour income are treated differently but count together towards "taxable income". One thought I have though is whether on one construal it could be said that Australia already does Option 1. The idea would be that basically sweat equity is just valued at $0 by convention and so all growth of my cash deposit account due to wage "income" (when I exchange my labour) turns into profit or a "capital gain".
One other thought is that the argument to keep the distinction between capital gains and the "cash deposit account" is that there is a meaningful distinction between labour and assets. I don't have hugely detailed view of what that distinction would be. Perhaps something about the sort of material origins of one over the other connected with the general distinction between people and property.
Regarding distinction between labour and assets (capital), I agree. The CGT discount provides an incentive to invest and create value. This, in theory, leads to higher productivity.
Unfortunately the CGT discount is applied to non-productive assets too, such as resi property and speculating on crypto, which is dependent on the greater fool theory.
I'm for treating (indexed) capital gains just like personal income. (There may be some administrative reason for making capital losses nettable only against gains.) Ditto the (untaxed) imputed profits of companies the individual owns.
Of course that still does not get at the issue of never realizing any gains and borrowing against the gain for consumption purposes. For that we need a progressive consumption tax instead of a progressive income ta.
The Right Thing is to treat capital gains and labour income the same. And tax neither.
Tax land rent instead. That's different from both of them, independent of any accounting tricks.
Love sweat equity:)It is time to tax ALL UNEARNED CAPITAL. And zero tax on sweat. And tears.
Australia is a tax haven for those “middle Aussies” or “aspirational Aussies “ code for greedy people. If you haven’t earned your capital, you get taxed, big time. And that should including taxing convoluted Keating super , big time. More than it is taxed at the moment.
I think part of the reason capital gains are treated differently is the other accounting trick of the yearly incidence of tax, whereby 100k income per year over the course of two years is taxed much less than 200k in the first year and 0 in the second.
Potentially a good, practical way to introduce tax parity for income sources is to tax capital gains as if it were gained cumulatively over the years -- so a capital gain of 200k for an investment that lasts 2 years is taxed as if it were 100k income per year.
This is one of my bugbears generally -- we're in 2022 and we're still operating with tax systems designed in the technological dark ages. It would be pretty easy to smooth out taxes or get rebates for high taxes paid in the one bumper year being refunded in lean years. This would be especially good for parents moving in and out of full-time employment.
Fair point. But this is true also of labour incomes being earned over many years. The historical education, training and experience I undertook was part of the cost of earning me this year's income. So part of what I earned from labour was actually earned in previous tax years.
Primary producers can access 5 year tax averaging. Why not everyone else?
You could tax income inconsistently with size of the income. So you could make both bank interest and capital gains non-taxable till the gain was realised, up to some limit. Then above the limit taxable even before it was realized.
Some economists like consumption taxes. I think you can turn income tax into consumption tax by making investment tax deductible, and redemption of investments taxable. This is somewhat similar to the initial superannuation tax regime.
This is super interesting. I've often thought it is weird how capital gains and labour income are treated differently but count together towards "taxable income". One thought I have though is whether on one construal it could be said that Australia already does Option 1. The idea would be that basically sweat equity is just valued at $0 by convention and so all growth of my cash deposit account due to wage "income" (when I exchange my labour) turns into profit or a "capital gain".
One other thought is that the argument to keep the distinction between capital gains and the "cash deposit account" is that there is a meaningful distinction between labour and assets. I don't have hugely detailed view of what that distinction would be. Perhaps something about the sort of material origins of one over the other connected with the general distinction between people and property.
Regarding distinction between labour and assets (capital), I agree. The CGT discount provides an incentive to invest and create value. This, in theory, leads to higher productivity.
Unfortunately the CGT discount is applied to non-productive assets too, such as resi property and speculating on crypto, which is dependent on the greater fool theory.
I'm for treating (indexed) capital gains just like personal income. (There may be some administrative reason for making capital losses nettable only against gains.) Ditto the (untaxed) imputed profits of companies the individual owns.
Of course that still does not get at the issue of never realizing any gains and borrowing against the gain for consumption purposes. For that we need a progressive consumption tax instead of a progressive income ta.
Should inflation be taken into account at all?