write a critique of article provided.

requirements: 1. summary 300 words 2.critique 500 words

Taxing personal capital gains in Australia: An alternative way forward Chris Evans (Professor of Taxation, UNSW Business School, UNSW Australia) John Minas (Lecturer, Tasmanian School of Business and Economics, University of Tasmania) Youngdeok Lim (Senior Lecturer, UNSW Business School, UNSW Australia) Abstract A comprehensive regime for taxing capital gains has been a feature of Australia's personal taxation system for 30 years. The rationale for the inclusion of capital gains as a statutory extension to the income tax base is now well accepted, although there is somewhat less consensus about the extent to which gains should be included in the income base. Current policy dictates that capital gains are treated in a highly preferential manner, at considerable cost to the fisc and with significant implications for the equity, efficiency and simplicity of the tax system, a point noted in recent tax and financial system enquiries such as the Henry Review and the Murray Enquiry, as well as in the Tax Discussion Paper released by the federal government in March 2015. This paper argues, on grounds of equity, efficiency and simplicity - and, importantly, on the grounds of fiscal sustainability - that the time is now right for consideration of the appropriateness of the existing preferences for individuals in the capital gains tax (CGT) regime. In particular, it queries whether the 50% CGT discount should continue to be available to individual taxpayers, and makes proposals for a reform that might lead to \"improved\" outcomes for the tax system and for Australia as a whole. In partial compensation for the removal of the 50% CGT discount, the paper considers the possible introduction of a CGT-free threshold (usually referred to as an annual exempt amount or AEA). The paper supports its analysis by estimating potential first round (static) and (where possible) second round (dynamic) effects on tax revenue of such changes, concluding that the proposed changes would not only enhance the equity, efficiency and simplicity of the tax system going forward, but would also result in an overall revenue gain for the government. 1 1. Introduction A comprehensive regime for taxing capital gains has been a feature of Australia's taxation system for 30 years. 1 The Draft White Paper which preceded the introduction of the Australian capital gains tax (CGT) in 1985 correctly identified that a tax system without a CGT violates the principles of horizontal and vertical equity and distorts investment decisions by encouraging investment in assets with returns in the form of capital gains over other types of investment.2 Virtually all developed countries - New Zealand is the notable exception in the OECD - now have CGT regimes in place as a key part of their tax systems, as do most developing countries.3 The justification for taxing capital gains lies principally in one of the two dominant modern economic theoretical approaches to taxation: the comprehensive income tax concept enshrined in the Schanz-Haig-Simons model, whereby personal income was defined as 'the algebraic sum of (1) the market value of rights exercised in consumption and (2) the change in the value of the store of property rights between the beginning and end of the period in question.'4 Hence increases in the value of assets, which is what a CGT regime effectively taxes, obviously fall within this comprehensive definition of income. But even proponents of the alternative optimal tax theory, which held in early and simple models that no capital income taxation was appropriate,5 now accept that it may be appropriate tax capital income, albeit at lower rates than comprehensive income taxation proponents would argue.6 * 1 There was no general tax on capital gains in Australia before 1985, although the Income Tax Assessment Act (ITAA) 1936 did provide for limited taxation of capital gains in the period before then. This was through the former sec 26(a) of ITAA 1936 (later replaced with sec 25A of ITAA 1936 and now partly re-enacted as sec1515 of ITAA 1997), which included in assessable income the profit arising from the sale of property acquired by the taxpayer for the purposes of profit-making by sale or from the carrying on or carrying out of any profitmaking undertaking or scheme; and the former sec 26AAA of ITAA 1936, which taxed short-term capital gains by including in assessable income the profit on the sale of property held for less than 12 months. Unfortunately, both sets of provisions had major shortcomings that meant that they were not entirely successful in achieving the objectives set for them. 2 Australian Government, Reform of the Australian Tax System, Draft White Paper, June 1985. 3 See, for example, G Cooper and C Evans, The CGT Handbook, 6th Ed, Thomson Reuters, 2014, p. 11, which suggests that 167 out of 219 countries in 2014 had a CGT regime in place. This is not to suggest, however, that the case for the taxation of capital gains is readily accepted by all. As noted above, some countries, such as New Zealand, do not formally include capital gains in the personal income tax base; and some commentators continue to argue that it is inappropriate to tax capital gains: see, for example, the UK Budget submission by the Adam Smith Institute \"ASI's Budget 2015 wish list: A tax code that actually makes sense\". Available at http://www.adamsmith.org/blog/economics/asis-budget-2015-wishlist-a-tax-code-that-actually-makes-sense/. 4 H Simons, Personal Income Taxation: the Definition of Income as a Problem of Fiscal Policy, University of Chicago Press, 1938, p. 50. 5 See, for example, C Chamley, \"Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives\1 Article Summary There exist several complications with taxation of capital gains in Australia. The article points put that for over thirty years, Australia's personal taxation system has been characterized by a comprehensive regime for taxing capital gains. Amidst a few disagreements regarding the types of gains that should be included in the income base, the rationale for the inclusion of capital gains as a statutory extension to the income tax base has already been established. The current policy suggests that capital gains be treated in a highly preferential manner; with emphasis on the implications for the equity, efficiency and simplicity of the tax system hence the need for alternative ways of taxing capital The argument is that it is time to consider the appropriateness of the existing preferences for individuals in the capital gains tax regime in line with the taxation system goals of equity, efficiency and simplicity. Besides questioning the 50% CGT discount to individual tax payers, the article proposes a reform that might lead to \"improved\" outcomes for the tax system. The comprehensive income tax concept and the optimal tax theory justify the taxing of capital gains. The article thus argues that CGT improves horizontal and vertical equity, limits tax avoidance, broadens the tax base and reduces distortion of saving and investment. Vertical equity requires high taxation people with high incomes hence a tax system without CGT or with preferential rates violates vertical equity. Also, the exclusion of capital gains from the income tax base will constitute a weakness in the stricture of the tax system. The paper advocates replacement of a the 50% CGT in Australia with a more targeted noncumulative tax free threshold for capital gains in the form of an AEA in a single package to facilitate equity, efficiency and simplicity in the tax system. 2 Critique of the Article It is indeed true that Australia's personal taxation system has been characterized by a comprehensive regime for taxing capital gains. Even though there is no consensus regarding the types of gains that should be included in the income base, the rationale for the inclusion of capital gains as a statutory extension to the income tax base has already been established. I agree with the article that the time is now to consider the appropriateness of the existing preferences for individuals in the capital gains tax regime in line with the taxation system goals of equity, efficiency and simplicity. The article highlights that the current statistics points to an inefficiency in the current taxation system. The statistics indicate that resident taxpayers with a taxable income of over $180,000 and a taxable capital gain, comprised approximately 3.6% of the total taxpayer population with a taxable capital gain, but realized over 56% of all taxable capital gains in 2012-13. Such statistics points to the inefficiency of the Capital Gains Tax system that fails to tax capital gains or worse tax them at lower rates than ordinary income that in essence favors high income earners thus violating vertical equity. Apparently, good Capital Gains Tax systems are aimed at; improving horizontal and vertical equity, limiting tax avoidance, broadening the tax base and also reduces distortion of saving and investment. The paper thus focused on the Capital Gains Tax discount as it applies to individuals or personal taxpayers rather than other forms of \"entity\". The paper consequently concludes that the exclusion of capital gains from the income tax base constitutes a structural weakness in a tax system. However, most countries experience difficulties in taxing capital gains as they accrue (as a result of the well-recognized valuation and liquidity problems that would arise under an accruals regime). Besides, these countries face the inevitable consequence of failing to accept realization basis, meaning that the regime has to accommodate a series of so-called preferences 3 (such as lower CGT rates, or exclusions of parts of the gains, or exemption of certain amounts, as well as a variety of other concessional treatments) to ensure acceptance and smooth operation. In as much as the ideal tax policy is to tax capital gains at the prevailing marginal rates of tax for ordinary income especially in keeping with the comprehensive income concept, the practice is to tax capital gains at preferential rates or with part of the gain excluded from the tax base, or with other in-built tax preferences. The paper proposes the removal of the 50% CGT discount in Australia and its replacement with a more targeted non-cumulative tax free threshold for capital gains in the form of an AEA which, in my opinion apparently is the best way to ensure both taxation and fiscal policy efficiency by enhancing equity, efficiency and simplicity. The removal of the CGT discount and the introduction of an AEA that, together, could enhance the equity, efficiency and the simplicity of the regime for taxing personal capital gains in Australia(as proposed by the paper)can be the best reform package to bring sanity to the Australian tax system without compromising the associated fiscal policies. 1 Article Summary There exist several complications with taxation of capital gains in Australia. The article points put that for over thirty years, Australia's personal taxation system has been characterized by a comprehensive regime for taxing capital gains. Amidst a few disagreements regarding the types of gains that should be included in the income base, the rationale for the inclusion of capital gains as a statutory extension to the income tax base has already been established. The current policy suggests that capital gains be treated in a highly preferential manner; with emphasis on the implications for the equity, efficiency and simplicity of the tax system hence the need for alternative ways of taxing capital The argument is that it is time to consider the appropriateness of the existing preferences for individuals in the capital gains tax regime in line with the taxation system goals of equity, efficiency and simplicity. Besides questioning the 50% CGT discount to individual tax payers, the article proposes a reform that might lead to \"improved\" outcomes for the tax system. The comprehensive income tax concept and the optimal tax theory justify the taxing of capital gains. The article thus argues that CGT improves horizontal and vertical equity, limits tax avoidance, broadens the tax base and reduces distortion of saving and investment. Vertical equity requires high taxation people with high incomes hence a tax system without CGT or with preferential rates violates vertical equity. Also, the exclusion of capital gains from the income tax base will constitute a weakness in the stricture of the tax system. The paper advocates replacement of a the 50% CGT in Australia with a more targeted noncumulative tax free threshold for capital gains in the form of an AEA in a single package to facilitate equity, efficiency and simplicity in the tax system. 2 Critique of the Article It is indeed true that Australia's personal taxation system has been characterized by a comprehensive regime for taxing capital gains. Even though there is no consensus regarding the types of gains that should be included in the income base, the rationale for the inclusion of capital gains as a statutory extension to the income tax base has already been established. I agree with the article that the time is now to consider the appropriateness of the existing preferences for individuals in the capital gains tax regime in line with the taxation system goals of equity, efficiency and simplicity. The article highlights that the current statistics points to an inefficiency in the current taxation system. The statistics indicate that resident taxpayers with a taxable income of over $180,000 and a taxable capital gain, comprised approximately 3.6% of the total taxpayer population with a taxable capital gain, but realized over 56% of all taxable capital gains in 2012-13. Such statistics points to the inefficiency of the Capital Gains Tax system that fails to tax capital gains or worse tax them at lower rates than ordinary income that in essence favors high income earners thus violating vertical equity. Apparently, good Capital Gains Tax systems are aimed at; improving horizontal and vertical equity, limiting tax avoidance, broadening the tax base and also reduces distortion of saving and investment. The paper thus focused on the Capital Gains Tax discount as it applies to individuals or personal taxpayers rather than other forms of \"entity\". The paper consequently concludes that the exclusion of capital gains from the income tax base constitutes a structural weakness in a tax system. However, most countries experience difficulties in taxing capital gains as they accrue (as a result of the well-recognized valuation and liquidity problems that would arise under an accruals regime). Besides, these countries face the inevitable consequence of failing to accept realization basis, meaning that the regime has to accommodate a series of so-called preferences 3 (such as lower CGT rates, or exclusions of parts of the gains, or exemption of certain amounts, as well as a variety of other concessional treatments) to ensure acceptance and smooth operation. In as much as the ideal tax policy is to tax capital gains at the prevailing marginal rates of tax for ordinary income especially in keeping with the comprehensive income concept, the practice is to tax capital gains at preferential rates or with part of the gain excluded from the tax base, or with other in-built tax preferences. The paper proposes the removal of the 50% CGT discount in Australia and its replacement with a more targeted non-cumulative tax free threshold for capital gains in the form of an AEA which, in my opinion apparently is the best way to ensure both taxation and fiscal policy efficiency by enhancing equity, efficiency and simplicity. The removal of the CGT discount and the introduction of an AEA that, together, could enhance the equity, efficiency and the simplicity of the regime for taxing personal capital gains in Australia(as proposed by the paper)can be the best reform package to bring sanity to the Australian tax system without compromising the associated fiscal policies