Life: just death and taxes

Despite the UK being one of the most capitalistic countries in the world, it has never been particularly anti-tax.  That’s not to say people enjoy paying taxes or wouldn’t mind their own particular burden being reduced – they are human, after all. Instead, there simply isn’t a particularly strong belief that taxes should be low and there is remarkably little protest at the government raising taxes openly, introducing new ones or using stealth measures to increase taxes. The British people appear to have made their peace with tax in a way that Americans (rightly, in this writer’s opinion) never will.

There is one type of tax, however, for which this rule is blown out of the water. Despite being a tax that affects a remarkably small proportion of the population in any significant way there is surely no tax that is more despised throughout the country than that on estates worth over £600,000 ($1.2m). Doing my research for this article, it was difficult to find a source (bar the government) that would discuss this issue without making a shamelessly political point on why inheritance tax is so awful. Those who argue against the tax are incensed by its role as a “double tax”: they claim that the benefactor is taxed once upon earning the money and then again on death. This is being rather pedantic. The sufferer of the tax in the second instance is the heir, not the person who has died. Labour MP Stephen Byers argued that inheritance tax is “a penalty on hard work, thrift, and enterprise”.  I fail to see how this is the case for inheritance tax but not for income tax, capital gains tax, and every single other type of tax that has ever existed. I will not make the point that inheritance tax is a good thing; on the contrary, I consider anything that forces a person to part with their property (e.g., tax, robbery) to be a necessary evil at best and just plain evil at worst.  My point, rather, is to take a step back and consider this tax relative to other taxes. My point … is that inheritance tax is probably the least offensive of all types of tax.

First, let us put on our practical economist hat. One of the reasons capitalists believe in low taxes is that tax discourages innovation, hard work, and investment. It is self-evident that the greater the financial reward that people will get for their work, the harder they will work. The hard work-low tax relationship applies for virtually every type of tax … except inheritance tax.  Inheritance tax does very little damage to the country’s economy relative to all other types of taxes. Worse still, a lack of inheritance tax potentially has a negative effect on the economy – why work and contribute to society when one can live off one’s inherited estate? It is strange, but there seems to be little reason to attack this tax in the name of fiscal efficiency. 

Thinking more ideologically and less practically, let us consider “fairness”, indeed an important factor when considering the need to force people to part with their property. Again, I must stress that all tax falls into the same bucket on this. Private property is an inalienable right and all that. But there must be measure. It is, surely, more inappropriate to force a person to part with property personally earned through hard work than property “earned” by mere virtue of birth. I suppose this argument does not extend to lifetime gifts as I do not consider these different from a salary. It is, rather, based on the fact that inheritance represents a person trying to influence events on Earth that occur after their death. Something about exercising one’s rights after one’s demise is simply a bit more woolly than exercising those same rights while still alive – we all believe in the lifetime right to vote but what if someone decided to bequeath a vote to their favourite political party for an election held after their death?  Is this really all that different? 

Lastly, I shall espouse an argument that I would not myself ever pay heed to, on the basis that it is selfish, but is one that many might find influences their feelings on the matter. Quite frankly, unless your parents are particularly wealthy and you plan on remaining in a relatively low-paying job, you have much more to personally gain from cuts in income and capital gains tax than you do from inheritance tax.  As alluded to earlier, a mere 6% of British households pay a penny of inheritance tax and the majority of these pay a small amount. The average bill last year was £100,000 and the median is undoubtedly lower. This may seem like a lot of money but it really isn’t for the wealthiest 6% of Britons when compared to their personal lifetime income, especially for having done nothing whatsoever (and having received £850,000 in the average case). The only people who are really significantly affected by this tax are the tiny number who have windfalls of over £5 million coming to them (and if one is really worth that much, then one is a fool if there isn’t a clever Mayfair tax lawyer ensuring that tax bill never comes). 

I cannot in good conscience promote inheritance tax as a good thing but I will stand by my view of it as a best-of-all-evils tax. This transcends party politics; the left seem to love taxes anyway and the right should concern themselves about taxes that hit the hard-working than those that hit the merely fortunate.  I don’t expect many to agree with me, but I suppose I never do.

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