Latest news with #capitalGainsTax
Forbes
28-05-2025
- Business
- Forbes
Investment Income Tax Developments In Washington & The States
The move toward lower and flatter personal income tax rates is persisting as a dominant state policy trend in 2025. Mississippi Governor Tate Reeves (R-Miss.) and Oklahoma Governor Kevin Stitt (R-Okla.) enacted legislation this spring to phase out their income taxes in the coming years, while Governor Greg Gianforte (R-Mt.) signed into law the largest income tax cut in Montana's history. This year, however, state lawmakers have also made strides when it comes to reducing and repealing taxes on investment income. In Missouri, for example, Governor Mike Kehoe (R-Mo.) is preparing to sign a bill passed by legislators in April that will eliminate Missouri's capital gains tax. 'Once Gov. Mike Kehoe, who has reportedly expressed strong support for the idea, signs the bill, Missouri will become the first state in the nation to fully exempt profits from the sale of stocks, real estate, cryptocurrency, and other capital assets from state income tax,' Kiplinger reported in early May. 'Proponents argue the move will encourage investment in The Show-Me State and potentially spur job creation and economic growth.' 'This legislation is about creating a fairer tax system that supports growth and empowers individuals to keep more of their hard-earned money,' said Missouri Speaker Pro Tem Chad Perkins (R). 'I firmly believe this bill will have a great positive impact on our state's economy and the financial well-being of our citizens.' Representative George Hruza (R), who cosponsored the capital gains repeal bill with Representative Perkins, said the move will 'turbocharge Missouri's economy.' Days after Missouri lawmakers voted to repeal their capital gains tax, Governor Greg Abbott (R-Texas) approved a constitutional amendment that would prohibit the imposition of a capital gains tax in the Lone Star State. Texas, one of eight no-income-tax states, already has a constitutional prohibition on taxing wages. 'Voters will vote on this to ensure that we're not going to have a capital gains tax in Texas,' Governor Abbott said on May 14 immediately after signing the joint resolution to refer the capital gains tax prohibition to the ballot. 'The next tax law that I will sign will be a tax law to reduce your property taxes in Texas.' Recent developments in Texas and Missouri follow the completion in recent years of investment income tax phaseouts in Tennessee and New Hampshire. While state lawmakers have had success when it comes to improving the tax treatment of investment income, Republicans in Congress have faced pressure to raise federal tax rates on capital gains, namely in the form of a tax hike on what's referred to as 'carried interest.' Carried interest, a form of capital gain, refers to the share of a private equity fund's return on investment that is paid out to fund managers. The U.S. House passed a tax bill last week that will ensure the income tax rate cuts enacted as part of 2017's Tax Cuts and Jobs Act (TCJA), which provided a net tax cut to the vast majority of households, do not expire at the end of the year. As the debate moves over to the Senate, President Donald Trump (R), Speaker Mike Johnson (R-La.), and congressional Republicans are saying they would like to enact the tax bill before the Fourth of July. Despite pressure to 'pay for' maintenance of current federal income tax rates with offsetting tax hikes, the House-passed budget reconciliation package does not raise taxes on carried interest. House Republicans' rejection of calls for a carried interest tax hike is a relief to many of those who are concerned that such a tax hike, aside from direct adverse effects, would serve as the camel's nose under the tent in a longer term effort to raise rates on all capital gains. 'Democrats not only want to tax capital gains at ordinary income tax rates—over 40% all-in federally—they want this tax rate to apply to phantom gains derived merely from price inflation,' says Ryan Ellis, president of the Center for a Free Economy and an IRS-enrolled agent in charge of a tax preparation firm. 'It's gets worse, as some of them even want to tax gains before they are gains, before an investor sells.' Many progressives in Congress don't like that capital gains are taxed at a lower rate than wage income. Though passing a capital gains tax increase would be a heavy lift even in a Democrat-led federal government, politicians on both sides of the aisle have expressed interest in singling out carried interest as special form of capital gain that should be taxed at a higher rate. With the rising tide of populism, many Republicans across the country have increasingly taken to demonization of banks, hedge funds, private equity firms, and large companies in general. Yet, by targeting private equity with more punitive tax rates, Congress would end up harming the retirement plans for millions of public sector workers in nearly every state. In February, for example, the South Carolina Retirement System Investment Commission allocated $260 million to private equity funds. Public pension investment in private equity is not unique to South Carolina or to only red states. In fact, public pension funds in most states have made similar investments in private equity. Governor Tim Walz (D-Minn.), for example, has 17% of Minnesota's combined pension funds invested in private equity. The belief that raising taxes on carried interest would be economically harmful is not limited to columnists, policy analysts, and those who work in private equity. It's also shared by leaders on Capitol Hill and key members of the Trump administration. 'Private equity is growing our economy and boosting the retirement savings of working Americans,' said Senator Tommy Tuberville (R-Ala.). 'Jacking up taxes on carried interest will kill the goose that laid the golden egg.' Kevin Hassett, director of the White House National Economic Council, discussed the adverse effects that would come with a tax hike on carried interest in a 2010 policy brief for the American Enterprise Institute. In that brief, Hassett wrote that a tax hike on carried interest 'would be unwise to adopt' and that 'there is no compelling case that it will produce a more efficient allocation of capital.' Many believe the Tax Cuts and Jobs Act took the right approach to carried interest. The TCJA did not raise the tax rate on carried interest, but increased the timeline for investment after which the capital gains tax rate would apply. 'President Trump's tax law struck the right balance in 2017,' says Drew Maloney, president and CEO of the American Investment Council. 'A new 40.8% tax rate would be higher than China, Europe and Canada and would make the U.S. less competitive.' Critics of raising taxes on carried interest point out that higher tax rates on carried interest mean less capital to invest in the U.S., harming the overall economy. A 2022 Ernst & Young report estimated private equity's entire contribution to the domestic economy: 'In total, the US private equity sector, the sector's US suppliers, and the related US consumer spending supported an estimated 31.3 million workers earning $2.4 trillion in wages and benefits and generating $4.0 trillion in US GDP in 2022. PE-backed small businesses, their suppliers, and related consumer spending (i.e., a subset of this) together supported 4.4 million workers earning $360 billion in wages and benefits and generating $615 billion GDP. Additionally, the federal, state, and local taxes paid by, and related to, the US private equity sector totaled more than $700 billion in 2022.' Sen. Tim Scott (R-S.C.), a member of the Finance Committee, said he is 'excited about the future of private equity in South Carolina.' One thing that could curb that excitement is a tax hike on carried interest. Furthermore, for governors and legislators who have have been working hard to make their tax codes more conducive to investment, a federal tax hike on investment or wage income would counteract the benefits of pro-growth state reforms. Senator Scott and his colleagues, however, will soon have the opportunity to take federal tax threats off the table when they take up the House-passed tax bill.
The Australian
23-05-2025
- Business
- The Australian
Jim Chalmers destroys Paul Keating's superannuation vision
Paul Keating announcing universal super in 1992. You can now listen to The Australian's articles. Give us your feedback. You can now listen to The Australian's articles. Jim Chalmers is set to be remembered as the treasurer whose unrealised capital gains tax destroyed the historic 1992 universal superannuation vision of Paul Keating. At the moment there is an eerie silence from the 81-year-old former treasurer and prime minister. But in 1992, I was writing and broadcasting about the Keating plan to create a universal savings movement that would make Australia's pool among the largest in the world. It seemed optimistic then but now Australia's superannuation savings are close to being the highest in the world – the original Keating vision. Keating must know that aspiring Australians, mostly in self-managed funds, will exit superannuation rather than pay tax on unrealised gains. Accordingly, a third of superannuation will exit, leaving it as a lower to middle-income Australian movement. I can't believe Keating's eerie silence on the destruction of his vision will remain forever. Already, I am getting the message that some members of the cabinet and the caucus are realising that, by voting for the unrealised capital gains tax, they will have to tell their children and grandchildren they were part of the destruction of the universal savings vision that had been established by a previous ALP government – knowing that that destruction would weaken the nation. Yet the Treasurer, the cabinet and the caucus can still become ALP and community heroes if they go back to the original Chalmers plan – a 30 per cent tax on the income derived from superannuation balances above $3m – double the current 15 per cent rate on all funds. The second 15 per cent tax would be taxed in exactly same way as the first 15 per cent tax, which would continue to apply to all superannuation members. Keating's 1992 legislation had reasonable benefit limit provisions that were later abandoned by Peter Costello and the Coalition. Accordingly a 30 per cent tax on the income from an indexed $3m balance, calculated in the same way as the 15 per cent base rate, will not destroy the Keating vision, but rather restore an equivalent to his original reasonable benefit limit provisions. I believe the vast majority of young and middle-age Australians who aspire to success will accept that tax as fair. Chalmers becomes a hero instead of a person who will have virtually destroyed himself as a candidate to replace Anthony Albanese when he decides to retire as prime minister. It is ironic that Albanese achieved his historic win partly by flashing his green Medicare card, which every Australian participates in regardless of their income or wealth. The Keating superannuation scheme duplicated Medicare by also involving every Australian irrespective of income or wealth – it was a universal savings scheme A remarkable feature of the Keating plan was that, although it would see the emergence of very large industry funds, there was great scope for both retail and self-managed funds to be part of the universal savings landscape. The self-managed funds tend to be dominated by aspiring Australians seeking greater wealth by investing part of their superannuation savings in developing businesses. This has enabled about 60 per cent of ASX stocks to survive and prosper, thanks to the capital raising support of self-managed funds. These plus smaller emerging and venture-capital enterprises will be the first casualties of the decimation of self-managed funds as a result of the Chalmers tax. The aspiring people in the community will structure their savings in a different way. The mischievous detail in Chalmers' unrealised capital gains tax plan made me believe that this was the work of the top people in Treasury. But the avalanche of respected people from business plus former Reserve Bank and Treasury heads has been so great that it is clear they have been informally told by Treasury people that this is not their doing. This is a Chalmers tax, not a Treasury tax. In a strange way the Chalmers tax on unrealised capital gains is like cigarette excise. The Chalmers tax income estimates are rubbish because people simply will organise their affairs not to pay it. It will lead to legal and devious tax-avoidance schemes and nothing like the current revenue estimates will be achieved. A tax that is considered fair would raise substantially more. The best way to understand the horror of the Chalmers tax is to look at how it has been structured. The Treasurer clearly has demanded that it be designed to be able to cover a much wider field than superannuation Firstly, there will still be an initial tax of 15 per cent on income of a fund that is not in the pension phase. It will be levied in exactly the same way as the current 15 per cent which is applied universally across all superannuation funds regardless of size. Secondly, instead of basically doubling that tax to 30 per cent on income generated by funds above and indexed $3m, the government introduced legislation for a new tax that is actually going to be paid by the member not by the fund. To calculate this second tax – the unrealised capital gains or Chalmers tax – on June 30, 2025 (and for every subsequent year), superannuation fund members must provide a market value of the total asset base of their funds. If the value at June 30, 2026, is above a non-indexed $3m then the increase above the June 30, 2025, value, adjusted for withdrawals and contributions, will be 'taxed' at 15 per cent. The tax liability so created is not a liability of the fund, rather of the member who is entitled to the superannuation assets Accordingly the beneficiary of the rise in unrealised gains attributable to the balance above $3m will be personally taxed at 15 per cent on the increased paper value of his or her fund investment. Measured over a year the rise in value of the funds will include realised gains, income and, most significantly, unrealised capital gains. • The July 1, 2025, base will be taken as the market value of all the assets irrespective of what was actually paid for them: i.e. if there is a substantial paper capital gain in the years prior to July 1, 2025, that will not be the subject of the Chalmers tax. But if there's a loss that too will not be counted. Losses incurred under the Chalmers tax will merely be carried forward to be offset against future profits. Superannuation fund members can withdraw a sum equal to their new tax liability from their fund Alternatively they can leave the money in super and fund the tax from their personal funds. Originally there seemed some difficulty in the industry funds adapting to doubling the 15 per cent tax on balances over $3m but it is now clear they can manage it easily although they may need a one-year grace.
Telegraph
21-05-2025
- Business
- Telegraph
More than a million pensioners face ‘triple tax threat'
Over a million pensioners face a 'triple tax threat' as frozen allowances drag them into paying higher rates, data shows. The number of retirees paying the higher (40pc) and additional (45pc) income tax rates has more than doubled in four years to surpass one million for the first time, as tax-free thresholds failed to keep pace with inflation-boosted pension increases. Anyone tipping over the £50,270 higher rate cliff edge not only pays a larger share of their income in tax, but also has their tax-free savings interest allowance slashed and faces a higher rate of capital gains tax. Income tax thresholds have been frozen since 2022 under the Tories and are due to remain so until 2028. At the same time, the state pension 'triple lock' has pushed up retirees' weekly payments, meaning millions more have been dragged into the tax net, or into higher brackets. The number of taxpayers aged 66 and over paying any income tax at all rose by around a third from 6.7 million in 2021-22 to 8.8 million in 2025-26, according to HM Revenue & Customs (HMRC) figures obtained from a Freedom of Information request. However, the number of higher rate-paying pensioners doubled from 455,000 to 904,000 over this period, while the number paying the additional rate tripled from 39,000 to 124,000, thanks in part to the reduction in the top threshold from £150,000 to £125,140 from April 2023. Tax rates and allowances become less generous once a taxpayer exceeds the higher rate threshold. The 'personal savings allowance' (PSA) – the annual limit you can earn from interest without paying tax – is £1,000 for basic rate taxpayers. But for higher rate taxpayers the PSA falls to £500, and for additional-rate taxpayers it is zero. Similarly, the standard rate of capital gains tax is 18pc for basic-rate taxpayers, whereas those paying the higher rate must pay 24pc on all their gains. Steve Webb, a former pensions minister, now partner at pension consultants LCP, said: 'There has been a significant increase in the number of pensioners paying income tax at all rates, but the rise has been greatest in the numbers paying income tax at the higher rates. 'It means pensioners on the cusp of higher rate income tax face a triple tax threat as the freeze on allowances continues – higher tax on their private pensions, reduced tax breaks for savings, and increased tax on their capital gains'. 'The higher rate threshold has become a real cliff edge over which growing numbers of pensioners are falling'. The new 'full' state pension rose to £11,973 in April thanks to the 'triple lock', which ensures that payments rise by the highest of inflation, wage growth or 2.5pc each year. But a combination of earnings-related add-ons and choosing to defer the benefit can boost payments further, meaning around 3.3 million people already receive a state pension above the £12,570 tax-free personal allowance. Many retirees also receive additional income from private pensions. Charlene Young, senior pensions and savings expert at investment firm AJ Bell, said that British taxpayers, including pensioners, had 'fallen victim' to the effects of fiscal drag in recent years. She added: 'The Government is in a straitjacket thanks to its own fiscal rules, and these figures will bolster the arguments of those calling for state pension reform. 'The full 'new' state pension is close to breaching the tax-free personal allowance, and many pensioners already receive well above this thanks to the way benefits could be built up under the old system. 'The Labour Party has repeatedly pledged to protect the triple lock guarantee and has paused further hikes to the state pension age beyond those due to start in 2026. 'But with pensioner spending predicted to top 50pc of the welfare bill by the end of the decade, and the rise in state pension age from 66 to 67 set to save £10bn in borrowing, can it really continue to ignore calls for further reform?' The Treasury was approached for comment.
Telegraph
14-05-2025
- Business
- Telegraph
End the war on second home owners
If there is a defining characteristic of this Labour Government's time in office so far, it is a marked distaste for private wealth. Expanding the scope of the widely despised inheritance tax, raising capital gains taxes, and increasing stamp duty on second homes have painted a picture of a Government that appears to think private property exists only as a form of lease from the state, with regular service charges due. Sadiq Khan's insistence that the ability to levy a 100 per cent council tax premium on second homes is 'not enough', and that councils should 'have the power to charge much more for leaving your property vacant' fits neatly into this picture. Class warfare aside, it is unclear what would be achieved by further punishing second-home owners. While local authorities and the Treasury appear to be doing their level best to break the link between the sums households pay out in council tax and the services they receive, there is at least in theory a link between the two. Second home owners, being non-resident for at least part of the year, would appear to be a lesser burden on these services. The logical position in a market system would accordingly be that this group should, if anything, be charged a lower rate to reflect their lower demand for services. Regrettably, neither logic nor markets carry a great deal of weight with British politicians, and accordingly second home owners in over 200 authorities across England are now being asked to pay significant premiums. Given the appalling state of services in too many parts of the country, this is unjustifiable. Many councils are shirking their responsibility for road maintenance, failing to fix potholes, failing to collect the bins on a reasonable schedule, and failing to justify their entitlement to a large and growing annual tax payment. Part of the issue is that council budgets have been stretched to breaking point and beyond by ill-thought out policies on social care and housing. Treating second-home owners as cash cows, however, is a short-sighted step that will backfire, with ordinary residents bearing the cost. Over the long term, the tax incentivises second-home owners to sell up, lowering the value of neighbouring properties, and raising demand for services even as the revenue base shrinks. This is a tax that benefits nobody, with year-round residents bearing much of the burden. It should be abolished rather than raised.
