High 33% capital gains tax prevents sales of assets and businesses that could be better managed under new ownership

Patslatt1

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To help heirs and partners stay in business,the Irish CAT inheritance tax wisely recognises a 90% exemption for businesses (though not for all business assets,an important exception being property businesses). This is generous but not as generous as the lack of inheritance tax in many countries such as Sweden, Norway and Canada.
Such CAT wisdom should also apply to the high 33% Irish capital gains tax-about the highest in the OECD countries-to the extent the tax is locking in businesses and assets that could be better managed under new ownership. Existing owners and managers who are not managing well their businesss and assets or who would like to switch to new businesses are deterred from selling out by the tax.
In the highly competitive and unstable restaurant business, a restaurant that lasts tweny years is an unusual survivor. The owners should be allowed to sell out at a low or no capital gains tax.
The negative effect on the economy and employment can be serious as large businesses are deterred from selling out or selling assets.
When the last Fianna Fail led government sharply lowered the capital gains tax to around 20%, capital gains tax revenues surged as people were incentivised to sell by the low tax. The prospect of repeating that surge could be an incentive for government to lower the tax on businesses if not for all.
 
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neiphin

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It would be more in line to sort out the hospital crisis
 

paulp

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To help heirs and partners stay in business,the Irish CAT inheritance tax wisely recognises a 90% exemption for businesses (though not for all business assets,an important exception being property businesses). This is generous but not as generous as the lack of inheritance tax in many countries such as Sweden, Norway and Canada.
Such CAT wisdom should also apply to the high 33% Irish capital gains tax-about the highest in the OECD countries-to the extent the tax is locking in businesses and assets that could be better managed under new ownership. Existing owners and managers who are not managing well their businesss and assets or who would like to switch to new businesses are deterred from selling out by the tax.
In the highly competitive and unstable restaurant business, a restaurant that lasts tweny years is an unusual survivor. The owners should be allowed to sell out at a low or no capital gains tax.
The negative effect on the economy and employment can be serious as large businesses are deterred from selling out or selling assets.
When the last Fianna Fail led government sharply lowered the capital gains tax to around 20%, capital gains tax revenues surged as people were incentivised to sell by the low tax. The prospect of repeating that surge could be an incentive for government to lower the tax on businesses if not for all.
Wouldn't raising corporation tax have the same effect?
 

constitutionus

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Well when they dropped it to 20% they quadrupled the take
BUT
the same lads are up to their tits in losses so they won't be paying Cgt anyway.

That's why I think there's no impetus to drop it again.

Tbh my prob is with the exemption threshold. It's 1270 which hasn't increases since the introduction of the euro (its an old 1000 punt)

Doubling that would go a way to get people to invest as right now it's practically nothing like the value it was two decades ago.
 

redmonite

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To help heirs and partners stay in business,the Irish CAT inheritance tax wisely recognises a 90% exemption for businesses (though not for all business assets,an important exception being property businesses). This is generous but not as generous as the lack of inheritance tax in many countries such as Sweden, Norway and Canada.
Such CAT wisdom should also apply to the high 33% Irish capital gains tax-about the highest in the OECD countries-to the extent the tax is locking in businesses and assets that could be better managed under new ownership. Existing owners and managers who are not managing well their businesss and assets or who would like to switch to new businesses are deterred from selling out by the tax.
In the highly competitive and unstable restaurant business, a restaurant that lasts tweny years is an unusual survivor. The owners should be allowed to sell out at a low or no capital gains tax.
The negative effect on the economy and employment can be serious as large businesses are deterred from selling out or selling assets.
When the last Fianna Fail led government sharply lowered the capital gains tax to around 20%, capital gains tax revenues surged as people were incentivised to sell by the low tax. The prospect of repeating that surge could be an incentive for government to lower the tax on businesses if not for all.
The problem with the reduction to 20% was the inflation adjustment was ended, so under the old regime if you invested £1000, cashed in after 10 years and made a profit of £2000 inflation would be allowed for and the real gain would be taxed at 40% . Under the new set up the entire gain was charged at 20%. So this incentivised short term investing especially in development land.
 

Lumpy Talbot

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No
Once a week Pat posts something the Institute of Directors and IBEC would have as a public affairs 'want' list. Very good of you Pat but they have their own PRs.
 

crossman

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The problem with the 20% was it showed McCreevy thought capital gains more important then labour as wages are taxed at a higher rate.
 

Patslatt1

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Well when they dropped it to 20% they quadrupled the take
BUT
the same lads are up to their tits in losses so they won't be paying Cgt anyway.

That's why I think there's no impetus to drop it again.

Tbh my prob is with the exemption threshold. It's 1270 which hasn't increases since the introduction of the euro (its an old 1000 punt)

Doubling that would go a way to get people to invest as right now it's practically nothing like the value it was two decades ago.
Many civil servants and lefty politicians think taxpayers are sheep to be sheared with little understanding of incentives to invest.
 

Patslatt1

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Once a week Pat posts something the Institute of Directors and IBEC would have as a public affairs 'want' list. Very good of you Pat but they have their own PRs.
That remark saves thinking a criticism of my arguments.
 

Patslatt1

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The problem with the 20% was it showed McCreevy thought capital gains more important then labour as wages are taxed at a higher rate.
INVESTMENT ARITHMETIC
At the time McCreevey introduced 20% capital gains tax with no inflation adjustment, inflation was expected to be a lot higher than today. If inflation were to run at between 2% and 4%, prices would double in roughly 18 years to 36 years (the number 72 divided by the interest rate approximates the time for a doubling). An asset such as a commercial premises worth say 500,000 euros would experience an increase of 500,000 due to inflation alone of 2% to 4% in 18 to 36 years. That is a false increase in value but the sale of the asset would trigger a 33% capital gains tax of 165,000 on the inflation gain. In today's money, that 165,000 would be 82,500, 16.5% of the original 500,000. That 16.5% is quite a deterrent to investing given that a majority of companies earn a return on investment less than short term government bonds with profits concentrated in the top 1% and 10% of companies.
 
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constitutionus

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The problem with the 20% was it showed McCreevy thought capital gains more important then labour as wages are taxed at a higher rate.
Im pretty sure before the crash the lower rate of tax was 18% and the higher was 28%

Lab and fg got in a pissin match in the 07 election promising to lower the lower tax to 17 and 16%respectively IIRC.

It was deffo 20% at least for a long time as I was on it.

So it was really only bringing it in line with labour tax. Don't underestimate how many people have small holdings in companies they work for who don't sell as they're proportionately getting screwed on tax so stick with the dividend instead.

I do share trading on the side with my own savings and use it to get that 1270. Its an extra 25 quid a week (or near as makes no difference) and I'm getting nothing leaving the cash in the bank. So I don't mind, but if the ceiling was higher I'd do more.
 

McTell

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No
The problem with the 20% was it showed McCreevy thought capital gains more important then labour as wages are taxed at a higher rate.

Dunno, capital is a store of energy, and keeping it sitting still is a bad policy. The value of money is seen when it moves around in all directions.

CGT only started in the 1970s inflation, yet another copy from the brits.
 

paulp

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Raising corporation tax of 12% wouldn't affect a decision to sell assets taxed under the different capital gains tax of 33%.
If corporation tax were 33% for example.
The value of the asset would be lower so the impediment to selling to someone better able to run it would be lower.
 

Lumpy Talbot

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No
That remark saves thinking a criticism of my arguments.
The thing I notice is that your 'arguments' are little more than a corporate wish-list. I have to tell you Pat, that no matter how much work you do online for the business interest it isn't the business interest that would visit you in hospital if you were ill, the business interest won't attend your funeral, the business interest won't be there to be a safety net for your family in hard times.

My argument will always be very straightforward. The business interest should be subordinate to the interests of wider society, because when we allow the business interest to operate outside the interests of society then society is damaged by it.
 

Patslatt1

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The thing I notice is that your 'arguments' are little more than a corporate wish-list. I have to tell you Pat, that no matter how much work you do online for the business interest it isn't the business interest that would visit you in hospital if you were ill, the business interest won't attend your funeral, the business interest won't be there to be a safety net for your family in hard times.

My argument will always be very straightforward. The business interest should be subordinate to the interests of wider society, because when we allow the business interest to operate outside the interests of society then society is damaged by it.
Your pieties fail to address the issue here ie the optimal rate of tax that encourages investment and job creation.
 

Lumpy Talbot

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No
Your pieties fail to address the issue here ie the optimal rate of tax that encourages investment and job creation.
Pat, do you have any connection with IBEC or another business lobbying group?
 

Lumpy Talbot

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No
Also, what makes you think that if there was a tax giveaway on capital gains tax, say from 33% down to 10%, that the spare loot created would create jobs and investment?

Can you take us through the mechanics of that, please? What mechanism would ensure that such a tax giveaway would be invested in the way you think it would be?
 

redmonite

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INVESTMENT ARITHMETIC
At the time McCreevey introduced 20% capital gains tax with no inflation adjustment, inflation was expected to be a lot higher than today. If inflation were to run at between 2% and 4%, prices would double in roughly 18 years to 36 years (the number 72 divided by the interest rate approximates the time for a doubling). An asset such as a commercial premises worth say 500,000 euros would experience an increase of 500,000 due to inflation alone of 2% to 4% in 18 to 36 years. That is a false increase in value but the sale of the asset would trigger a 33% capital gains tax of 165,000 on the inflation gain. In today's money, that 165,000 would be 82,500, 16.5% of the original 500,000. That 16.5% is quite a deterrent to investing given that a majority of companies earn a return on investment less than short term government bonds with profits concentrated in the top 1% and 10% of companies.
Yes the old system was a lot better as it did not tax gains solely down to inflation. But our wonderful media cheered on the big rate cut without looking at the whole picture. For example if you invested in a premises and sold it after 20 year making a 200 grand profit you pay the same amount of tax as a property developer who flipped a site making 200 grand in 14 months.
 


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