Personal Account

Some Americans will pay tax rates of more than 50pc, the highest since the 1920s. Will Rishi Sunak be inspired to follow suit?

Where America goes, the world follows. So does that mean Joe Biden’s plans to raise income and capital taxes to pay for pandemic support packages will be replicated on this side of the pond?

The President arguably has less of a battle on his hands than Boris Johnson and Rishi Sunak would.

For a start, Mr Biden has not bound himself with an election “triple lock” promise not to raise income tax, National Insurance or VAT. Those three levers out of bounds leave only corporation tax with the heft to raise serious amounts of cash, which the Chancellor duly made it do at the last Budget.

International comparisons are tricky, especially with America, where individual states impose their own taxation, but it is intriguing to see how other nations plan to foot the coronavirus bill.

Stateside, the top rate of income tax is expected to be raised to 39.6pc, up from 37pc. Even after such an increase this is still far lower than our highest rate – at 45pc for income over £150,000 a year – and only starts at annual pay of around $500,000 (£360,000). The capital gains rate will nearly double, to 39.6pc, but only for those with millionaire incomes.

Because of a pre- existing “net investment income” tax, the real top rate of capital gains tax is 43.4pc.

Once everything is counted, Americans in New York or Los Angeles may well be giving more than half of their income to the taxman. So much for Reaganomics.

Daniel Hyde of accountants Blick Rothenberg calculated that someone earning $1m a year who realised £2m of gains would have a tax bill in the US more than double the £400,000 they would pay in Britain.

Funnily enough, as Mr Hyde noted, that might make the UK and its non-dom regime an attractive place for wealthy Americans.

As we have reported before, the wonky capital gains system is one area Mr Sunak is actively exploring. Aligning CGT rates with income tax could neatly be sold as a long overdue simplification, as well as only really affecting people lucky enough to make substantial gains on property or investments outside Isas or pensions.

Positioned as a fairer alternative to the true wealth tax some have called for, which would apply to all assets including family homes, the electorate might even be broadly supportive. The problem for the Chancellor is that aligning CGT would raise only £14bn or so a year, according to the Office of Tax Simplification. That’s a drop in the ocean of debt the Government has built up over the past 18 months.

A wealth tax with a low enough bar would raise gargantuan sums – and almost guarantee Tory annihilation at the ballot box. Meanwhile Argentina has recently discovered what we already knew: that the truly rich find ways to avoid attacks on their money. The perennial economic basket case has managed to collect only 2pc of its one- off wealth tax just weeks before the deadline.

A smarter approach would be for the Chancellor to sit on his hands and let the optimistic signs of a resurgent economy that emerge daily do the hard work as consumers unleash an estimated £180bn of lockdown savings.

Aligning CGT rates with income tax could neatly be sold as a long overdue simplification