Debate-it : Inheritance Tax is a Good Thing
So, the Treasury is short of cash and needs to maintain budget promises. Aggregate demand will fall if government spending falls, such is the extent of the government as a component in it. Consumer spending will fall if labour is directly taxed, and if businesses are taxed then they may leave the country, spiralling the economy into higher unemployment and yet more falling tax revenues coupled with higher social security payments. There is a sensible tax that has no immediate repercussions. Inheritance tax will not cause businesses or capital to "fly" away from the economy as it is effectively a labour tax, and as labour is relatively immobile, people will still tend to stay in the country. The problem of lower consumer spending will not be an issue, as disposable income is completely unaffected; inheritances occur so infrequently that a financial life is rarely planned around an expected windfall.
Furthermore, inheritance tax is far below the radar of most people at election times, taking away Mr Glover's political popularity theory. Why would Middle England be so hard hit? People manage perfectly well working through their lives without relying on a parental handout when they reach their 50s or 60s. I could argue the extreme that too much inheritance may lead to higher levels of demand pull inflation, which would be economically harmful, but I doubt that this would ever be an issue.
So what if the government spent money on management consultants? They do perform a service, and constitute less red tape than many would think. Projects cannot be completed without leadership, and with the scale of the NHS and similar bodies, headless organisation is surely going to end in disaster.
I disagree with the so-called ability of the rich to out-manoeuvre the poor where financial planning is concerned. The working classes aren't stupid, and are perfectly able to sign away houses to children more than 7 years before their death. Solicitors are not too expensive when preparing your estate; with housing ownership transfers they may not be entirely necessary for much of the process either.
Inheritance tax is a way for the government to take in much needed cash (and yes it is needed, despite what Mr Glover may claim) without harming the economy in any way. It is prudent, so to speak.
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7 Comments:
Indeed. I think it was Gladstone who remarked that the dead were the easiest people to tax.
There's also a strong moral argument, re preserving meritocracy.
Why have you changed your display name to Liberal-interventionist?
If your parents had bought a Picasso on a visit to Spain many years ago and they want to transfer it to you for you to hang on your wall, currently there would be tax at 40% on their estate. You would have to sell the painting to pay inheritance tax. Why shouldn't you be allowed to keep it? They have bought the painting out of taxed income - why do they have to pay tax again on the transfer to you?
Theinjuredcyclist - I agree the current system isn't perfect; your point is a clear example of its current failings (not least who would value said Picasso?). However if my parents had bought a Picasso, I would argue that I have no right to own it, having worked nothing to pay for it. As sam says, meritocracy should be preserved as it is one of the reasons for the West's economic superiority.
There are always ways to pass on inheritance tax free by signing over assets at least 7 years before death - and also, if my parents had the wealth to buy a Picasso, then I'm sure I should have the cash to pay the 40% value! (Yes I know this argument falls apart entirely where inheriting a house is concerned).
Sam - I felt like an oxymoron for a display name.
And you could always take out a mortgage on 40% of the Picasso painting's worth.
LI: You won't argue against inheriting money when you find yourself with a huge mortgage in 10 years time, trust me.
spl: I've done some rough calculations. let's assume the picasso was not an expensive one, say £20 million. tax would be £8 million approx. If you took out a loan to pay the tax at 5%, the interest alone would be slightly over £33,000 a month. An impossibly high amount for even very high earners. and that's before working out how you're going to repay the loan!
As Matt says, anyone with the means to possess a Picasso in the first place is bound to have substantial savings anyway. And the rent charged to a museum to display this Picasso piece would surely cover a lot of the bill.
theinjuredcyclist: your argument is fallacious on two counts:
1. People pay double-tax all the time. Whenever you buy petrol, booze, or anything with VAT on it, amongst other times. So either you have a problem with all double-taxation (which I doubt) or this isn't a good argument.
2. The government allows repayment of inheritance tax over time at a reasonably low interest rate.
I agree that inheriting a Picasso is expensive, but at the same time - you've inherited a Picasso. You could sell it and live comfortably for the rest of your life on the gains from that, despite paying the tax. And if your parent had £20m worth of assets then that means they've been very successful in life (or inherited themselves) and the money could go to giving other people the opportunity to be successful. I'm not saying that's what necessarily happens with the money (insofar as the tax probably gets put in a big pot) but the government spending the money is probably going to do more good for more people than for you to keep the money.
On the individual point of hugely expensive works of art, you could always register it on the Conditionally Exempt Works of Art list and not pay inheritance tax (providing that you let the public come see it on request).
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