March 30, 2007

Inheritance Tax

Chris Dillow of Stumbling and Mumbling has used the current debate over whether reparations for slavery where justified or not to put forward some arguments for the need for inheritance tax.

I will admit that most of my objections to inheritance tax come from a combination of my general objection to all tax, and an irrational distaste of the state sending its bully boys out to threaten the the recently bereaved so they can pick over the corpse. The irrational yuck factor. However in this argument I can see some of Mr Dillow’s priors coming through as well. As the core of two of his arguments he assumes that the recipients of inheritance don’t do anything for it, and more importantly that this has any relevance at all. This is expressed here:

This too suggests a case for taxing inheritances. After all, if you've no connection with your forebears, how can you complain when you don't get their money? Longrider, who's expressed the individualist argument well says: "I plan to keep what I’ve earned." 
But don't think  you can keep what others have earned
Inheritance is not guaranteed. It does not necessarily go to the decedents, it goes to whomever the deceased wanted it given too. This could be a trust to give prizes in order to promote science and goodwill. It could be to a foundation to promote the well-being of humanity. It could even be to make sure that the newspaper that you founded remained free of the press barons (even if that did not stop it from moving away from your editorial preferences). If you don’t want to give it away to anybody and choose to try and take it with you then you can do that as well.

These are the big examples, but many people will decide that they do not want all their money to go to people other than their decedents. A will is a gift like any other. It is you giving away your property because you want to. That property is yours you can do whatever you want with it, just one where you can give more because you aren’t going to need it anymore. Again like any other gift once it has been given to you it becomes your property. You might not have earned it from hard graft down t’ pit. However whomever gave it to you thought that they (and possibly you) would be happier because of this as in any voluntary exchange and it is that, not simple calorific calculus, that is in the end the motivation and justification of all voluntary exchanges. It increases of Utility.

That one of the participants in this type of exchange happens to get their happiness in advance of the exchange does not change the basic nature of it or that, like practically all voluntary exchanges, it served its purpose and did increase utility.


Anonymous Anonymous said...

I commented on Chris' post. His thinking is flawed and my case is much as you point out here. My father's estate has been earned and tax paid. What he now chooses to do with it should be entirely his business. For what it's worth, my suggestion to him is to blow as much as he can while he and my mother are still alive to enjoy it. I don't need an inheritance, I'd rather he and my mother live well while they can. The less they leave, the less the state can steal.

Inheritance tax is merely the thieves of the state indulging in grave robbery.

10:51 am  
Anonymous Anonymous said...

In a sense, we agree - you're arguing that people have a right to leave money, not to inherit it.
My prior is not just class hatred, but individualism; I'm not sure how people can have rights that affect other people, as the right of bequest does.
Also, given that taxes must be paid (at a lower level, we agree) lower inheritance tax means higher income tax. And wouldn't you rather be taxed when you're dead than when you're alive? I would.

11:05 am  
Blogger chris said...

To avoid confusion this is me, the author of the post. (I'll prefix this to all my replies on this thread)

Point taken as to your priors. Plus while I would rather not be taxed at all, since that is not an option then paying after I'm dead is a good deal.

Two problems:

1. The level collectable is not high enough for it ever to make a significant dent relative to income tax. The people with the most would simply shift it offshore, stick it in trust funds, or gift it to the people that would get it as inheritance while they are alive to be leased back until death (I'm pretty certain the National Trust uses this option quite a bit already). This is easier with a lump of capital that with a flow that has to reach them at some point to be used. It currently raises about £2billion a year so simply not enough for something like raising the income tax threshold to 60% median income (yes, I would be willing to pay a slightly higher taxes on the rest to get that). Therefore the utility gained by the possible tax cut for everybody might not in fact compensate for the utility lost form setting the HMRC on relatives that have just been bereaved.

2. It is not (or rather should not) really be me that is paying the tax. It should be the person that I have decided to give my gift to, who will be still alive. If it where me then this tax would not really be justified as I would have already have paid the appropriate taxes in order to acquire this stuff in the first place. The tax would therefore be a wealth tax, setting a mandated limit on the amount of wealth that it is believed justified to acquire. This would discourage the creation of wealth, which would not be a good thing.

However I consider the arguments fairly finely balanced so I understand that it is the yuck factor that is currently tipping me anti.

11:11 pm  

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