The case for inheritance tax is a supremely rational one – but that's precisely the problem...
In the New Statesman, George Eaton examines an enduring paradox:
It doesn’t affect most people, so why the widespread hostility?
It’s a phenomenon that doesn’t just drive the Left round the bend, but a lot of liberals and quite a few free-marketeers too. Wouldn’t it be more efficient to tax unearned wealth rather than earned income? Why should people inherit things they’ve never had to work for? Isn’t taxing people post-mortem the least painful way?
The case for inheritance tax is a supremely rational one – but that’s precisely the problem. By-and-large people don’t see themselves as autonomous work units to be optimised for maximum productivity. Rather, most of us see ourselves as part of a family – whose possessions aren’t mere ‘assets’, but homes and the objects that help make a home.
The remorseless logic behind inheritance taxation (and related measures) is that nothing that we work and save for, both as individuals and as families, is ever truly ours. Rather ownership is provisional, tolerated by the state until such time as it decides we don’t deserve it anymore – or that efficiency demands that we be expropriated so that other people elsewhere can be incentivised to work harder.
Most people have a deep and instinctive sense that the right to own is the material foundation of private life – a realm whose existence limits the reach of the state and which ultimately distinguishes a free society from a totalitarian one.
Eaton mentions an alternative to inheritance tax:
‘If you’re well advised and if you can predict when you’re going to pass away it [inheritance tax] is very easy to avoid,’ Carys Roberts, IPPR’s chief economist and the head of the Centre for Economic Justice, said. Any gifts made at least seven years before an individual’s death are exempt from taxation, prompting many to transfer their assets in advance. Exemptions for agricultural land and unquoted business assets provide further opportunities for avoidance.
While this correctly identifies a further problem – that the truly rich get away without paying, a policy of taxing gifts from family and friends is likely to prove even more unpopular than conventional inheritance tax. We don’t want the taxman present at every birthday party, wedding and bar mitzvah. It’s bad enough having him there every time we earn or buy something; but after payday, beyond the cash register, he can go away. What happens between friends and family is our business, not his – the last unbureaucratised space.
Eaton points out that some countries have already abolished inheritance tax, including “social democratic Sweden and Norway, India, Canada and Austria.” He also notes that “in OECD countries the proportion of total government revenues raised by such taxes has fallen since the 1960s from over 1 per cent to less than 0.5 per cent.”
Instead of asking why the public are so opposed to a tax most of them won’t have to pay, one might ask why its advocates are so obsessed with such a marginal component of government revenue.
There are much better ways of getting the rich to pay their fair share – not least by targeting the productivity-sapping, rent-seeking activities from which they’re getting rich in the first place.
Let’s interfere with that, not family life.