LSE professor defends chancellor and CGT change

A London School of Economics (LSE) professor has defended chancellor Alistair Darling’s proposed changes to the Capital Gains Tax (CGT), saying further reform of CGT is necessary.

In an open letter to the editor of Financial Times, Willem Buiter, professor of European political economy, LSE European Institute, urged Darling not to listen to his attackers, saying taper relief had ‘no more justification on grounds of efficiency or fairness than would tape worm relief’.

‘Further reform of the capital gains tax is required, integrating it fully with the taxation of other forms of capital income, and indeed with the taxation of labour income,’ he said.

‘Through trivially simple financial engineering (varying dividend payouts, borrowing and share repurchases) listed companies can seamlessly transform dividends into interest or capital gains. The same can be achieved by unlisted companies when their owners sell the business. This means that, for simple tax administration reasons and to preserve the capital income tax base, only a common tax rate for all capital income, dividends, capital gains and interest, makes sense. Sector, holding period, type of capital, nature of ownership, size of firm, corporate form are all irrelevant.’

Further reading:

Private equity bosses happy enough with fallout from PBR

Bipartisan stance against disliked CGT proposal