The case for abolishing Inheritance Tax

Posthumous taxation is no different to Victorian style grave robbery, only done on a much larger scale. Morally- the inheritance tax should be abolished. As well as the moralistic argument, there are also serious economic consequences of the tax- chiefly that it makes the tax system incredibly complicated. Abolishing the tax also means that those who are about to die will have the security of knowing their loved ones will have enough to live comfortably- a worry most parents have in common.

Some say this will lead to more inequality of opportunity. However this may not necessarily be the case. Take the case of the Walton family. Sam Walton grew up very poor. Through innovation and enterprise he founded Walmart and grew it to be the biggest retailer in the world, and when he died in 1992 Walmart was worth roughly $45 billion. His six children have no such experience in building a business. They are better at spending money than making it, and so their fortune will decline over the generations even without inheritance tax. This happens across the economy in Britain and the U.S. Of all the Fortune 500 companies that existed in 1955, only 11% remain. The average life expectancy for a Fortune 500 firm is now 15 years old. Family owned firms are usually sold by a less competent individual family member to another firm or individual, one with a better talent for enterprise.

So, without inheritance tax, the market still distributes resources to ensure maximum efficiency. The inequality of outcome cannot be attributed to lack of opportunity, but to inequality in entrepreneurship, something which builds capitalist society. Additionally some wealthy individuals like Bill Gates, choose to give away their wealth voluntary on their death, Gates choosing to leave his three children with just $10 million each of his vast fortune so they can “find their own way”. Taxing this fortune would probably result in less social good than would result from it going to the charities of Bill Gate’s choice, given how efficient government is.

Of course some hereditary inequality will occur, but this is the case when parents hand down good parenting skills, or good genetics or good education. Why should hereditary property be regulated by the government? Inheritance tax is unfair, predatory and economically harmful. The UK economy would benefit from Inheritance tax being scrapped.

Theo Cox Dodgson is winner of the Under-18 category of the ASI's 'Young Writer on Liberty' competition. You can follow him @theoretical23.                             

Economic Nonsense: 21. Inheritance tax is needed to prevent some having an unfair start in life

This question carries the assumption that life is some sort of race in which we are all struggling to outdo everyone else. Life is not like that. We are not racing against others because we all have different characters and different goals. There is a different finish line for each of us. Even the pace at which we choose to pursue our goals varies with the character of individuals. One widely-held aim of parents is to give their children a decent life, even a better life than they had themselves. Many put effort into achieving this; it seems to be a natural and widespread aim. When society prevents them from passing on their assets to their children after death, they often find other ways of achieving that aim. This can take the form of using influence to place their children in comfortable jobs. It can be done by transferring the assets while they are still alive. It can lead people to set up complex trust schemes beyond the reach of the taxman.

Inheritance Tax is taxing money that has already been taxed when it was earned. The provision parents worked to make for their children, paying tax as they did so, is now taxed again, removing part of their incentive to create wealth in the process. For many recipients, the bequest comes as a lump sum when they are already established and probably own their home. It is thus available for investment or to start a business. Taxing it greatly reduces these possibilities. The capital pools built up by a family business such as a shop, for example, can be dissipated on death by Inheritance Tax, with a consequent economic loss to society, a loss that impacts employees and customers.

People are not equal and cannot be made so. They are differently talented. Some are genetically equipped to develop athletic prowess if they work at it. For others it might be music or mathematics. The notion that 'fairness' requires they should all have equal chances sits ill with what life is actually like. We should not be trying to impose an equality that does not fit, but on extending to everyone the opportunity to better their lives.

Well of course we should reform inheritance tax

Another report into inheritance tax and another observation that it doesn't actually do what it says upon the tin:

People with estates worth many millions are able to avoid the brunt of inheritance tax through complex schemes, including moving the cash offshore or investing in agricultural land and small business shares. Those avenues are closed to "moderately well–off" people whose only assets are their home and pension, Mr Johnson said.

It's just about possible to see that the great plutocratic fortunes should be broken up every generation or so to prevent the fossilisation of society: if that's something you tend to worry about which we don't very much. But to have a taxation system which attempts to do this and then doesn't is obviously entirely dysfunctional.

Our current system manages to tax the small capital of the bourgeois while leaving those plutocrats untouched. We therefore really rather do want to change that taxation system.

This is not, I hasten to add, the official ASI line here, rather being a personal musing. But I take it as a given that we don't actually want to tax the petit and haute bourgeois accumulations of capital. Far from it, we'd much prefer to see modest estates cascade down the generations. For reasonable amounts do provide freedom and liberty. In that currently fashionable phrase, enough to do anything but not enough to do nothing. It's also, even if you do worry about the plutocrats, not how much money is left that is the problem but how much money is received. Someone leaving a few billions to be spread among thousands is very different from a few hundreds of millions being left to just one.

So I would muse that we might want to move to a system something like the following. It is the receipt of an inheritance which is taxable, not the leaving of one. Further, there's a substantial lifetime exemption from having to pay tax on receiving one or many. Several millions perhaps: that need to still do something amount.

Alternatively, of course, we could just move the entire taxation system over to being a consumption tax. In that manner we don't actually mind who has what amount of capital nor where it came from. We just tax people when they spend with the capital or the income from it. and given that that's the general trhust of the Mirrlees Report there's good academic backing for the plan.

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