Reforming the taxation of income from wealth

The IPPR Commission on Economic Justice identified a need to move to a higher tax, higher spend economy – with future public spending challenges likely to increase over time. We also seek a tax system that is more progressive – so that those with the greatest ability to pay contribute the most – as well as more transparent and efficient.

This briefing paper focuses on the proposal that income from wealth should be taxed the same as income from work,with a focus on capital gains. It is profoundly unjust that those who work for their incomes are taxed more highly than those whose income is derived from wealth. This situation is all the worse when we consider that the wealthiest are less likely to generate their income from labour than the rest of us. Among the richest 1 per cent, over one-quarter of total income is generated from dividends and partnership income alone. Economic justice demands change.

In a previous report, Just Tax, we estimated the revenue impact of these changes to the taxation of capital gains. In this paper, we consider the impact of these changes if made alongside the new income tax schedules likely to be proposed by Labour, the Conservatives and the Liberal Democrats.