24th March 2023 - Tax and cryptos.
tl;dr
Why increasing taxes will accelerate the rate of crypto adoption into the real-world economy.
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Curious Cryptos’ Commentary – Why increasing tax is good for cryptos
You never have to dig very far, or at all really, to identify the most common trait in all politicians – hypocrisy.
Sir Keir Starmer, who immediately decried the removal of the lifetime allowance for pension funds announced in the budget and vowed to reinstate it, is the beneficiary of a specific pension law set up naming him – and only him – as having no lifetime allowance on his pension from his time as the Director of Public Prosecutions:
Meanwhile, Rishi Sunak is reported as paying 22% in tax on £5mm of earnings.
There is no suggestion of foul play at work here – both are taking legal advantage of the ridiculously complicated tax code in the UK that now runs to 10 MILLION words, doubling in size since Labour were last in power.
Quick as a flash, Starmer has said he will rescind his special tax-free pension status, but no-one of a fair mind can view that as anything other than being caught out. The suggestion that Starmer was unaware of the special tax status of his pension is risible.
This puts the pressure on Sunak to do the same.
Which is a timely reminder to everyone who thinks tax rates should continue to rise – put your money where your mouth is and make additional voluntary contributions.
Any takers? Nah, though not.
…
In response to Sunak’s tax affairs, it is being speculated that an incoming Labour government will increase capital gains tax to the same rates as income tax, no doubt cheering up the cohort mentioned above who have not taken up the offer of making additional voluntary contributions themselves but want others to be forced to pay more.
With the tax take at record levels at some point trying to take more will lead to having less. The Treasury and the OBR (Office for Budget Responsibility) both assume that increasing tax has no impact on behaviour, which is clearly nonsense.
It is VAT that is largely responsible for cash payments for builders. When CCC Towers was extended upwards, the builder told me that most of his clients ask to make cash payments, and to split the VAT saving. He even claimed a High Court judge asked that specific question, though I have no evidence to prove or disprove that story.
Just to reassure you all, I did not go down that path – my builder wasn’t offering a cash service, and in any case regularly walking around Hackney with a large cash stash is probably not the wisest move.
…
It isn’t beyond the realms of possibility that CGT (capital gains tax) on crypto gains is taxed at even higher levels than other assets. That already happens for the sale of properties that are not your main home, an inspired way of ensuring less supply of rented homes, of lower quality, at a higher rental price than would otherwise be the case if that is your objective.
The argument would be an obvious one, totally fallacious of course, but appealing to some. It would go something like this.
Cryptos are simply speculative in nature, they are bad for the environment (got to get that one in early), bad for the economy, are used solely for terrorism, drug dealing, and money laundering amongst other nefarious ills, and can cause personal financial ruin and/or a steep slope down into gambling addiction. Therefore the CGT for cryptos is now 80%, or some other ridiculous number.
Perversely, and adhering to the immortal law of unintended consequences, this scenario would be hugely positive for crypto adoption.
…
Even the most law-abiding citizen (see reference to the High Court judge above) instinctively wants to pay less tax themselves.
In the same way that VAT encourages a cash economy outside of the tax system, the combination of VAT and a high rate of CGT on cryptos will encourage a crypto economy outside of the tax system.
Though the blockchain is available for everyone to interrogate, there are simple ways of obfuscating one’s purchase and transfer of coins. There are also privacy coins that ensure the source of funds is hidden, even though all transfers are recorded.
As crypto adoption grows, the crypto economy will come into existence, but its growth will be accelerated with every new tax increase. With the facility to simply tap phones together to affect a transfer of crypto from one person to another the authorities will not have the ability to tax those transactions.
I am not saying this is morally right, but it highlights the fact that lower tax rates encourage compliance with tax law, whilst higher rates do the exact opposite, a lesson our politicians would do well to heed.
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