Taxing farmers back into the peasantry seems an odd idea
We tend to think that inheritance tax in itself is a bad idea. That conversion of capital into current spending by government just strikes us as being the wrong thing to be doing if we desire a high investment, high wage, economy. But, you know, views and prejudices abound in such corners of the political scene.
However we really do think that this idea of taxing farmers back into the peasantry has more than just that problem associated with it. Farming is a highly capital intensive business - the price of that land. Farming is where we see considerable to vast economies of scale. The minimum economic size these days starts at about 200 acres by some estimates. Below that it’s a hobby.
The imposition - again - of inheritance tax upon farms and farmland just does militate against that economic efficiency. Worse than that, over time it’ll drive the size of farms below that economic size. A 20% slice off the capital each generation will do that.
We can see that in history. Napoleon insisted upon division of landholdings among all children in order to break up the power of rural grandees. That’s why France still has so many peasant sized farms - for all the joy that causes the European Union’s agricultural policies. The Protestant British in Ireland insisted that Catholic landholdings must similarly be divided each generation. That’s how millions tried to raise families on half an acre of potatoes with those well known effects in the 1840s.
People deliberately went out to break up farms as a manner of political control. No, we don’t think that the current government is doing this IHT thing to kill off the independent yeomanry - but that will be the effect over time.
It gets worse. Those farming as a hobby, those with holdings too tiny to be possibly economic, will not be taxed. Those just growing into economic size start to get hit with the tax. It’s a direct tax upon economic efficiency that is - which just doesn’t strike as a useful effect of taxation policy.
As at the top our preference would be that wealth cascades down generations, increasing over time those with the resources to be independent of government. We really do think that increasing the portion of the population able to tell Whitehall to b’ggr off is a good thing.
But to deliberately tax farming back into peasantry seems rather more retrograde than tax policy should be.
Now add one more stage. Of course farms employ more capital than just the land. So we’ve now got, with IHT, a tractor tax as well. Not only are we to tax economic sized farms, we’re also to tax - the tractors in short - the capital equipment that makes farming economic at all.
As George put it:
Now my advice for those who die (taxman)
Declare the pennies on your eyes (taxman)
'Cause I'm the taxman
Yeah, I'm the taxman
And you're working for no one but me (taxman)
Given that we’ve just spent 500 years getting rid of peasantry it does seem odd to try to insist upon it again through the tax system.
Tim Worstall