Saturday, March 13, 2010

Inheritance

Should it be taxed or not? If so by how much? Do you think that all people have the right to pass their surplus cash onto friends and family or do you believe in complete equality of opportunity i.e. that everyone should start from a roughly level playing field and therefore achieve based solely on ability?
Posted by at 3:45 AM
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4 comments:

  1. RossMar 13, 2010 03:32 PM
    This is obviously a delicate balancing act in that it is only right and fair that heirlooms etc. of sentimental value should be left to family members and that sentiment can also corrolate with real value (e.g. the Rolex that has been handed down the male side of the family, which grandpa hid from the Vietcong and...you know all the rest).

    However, with this real problem in mind, I care very deeply that no one should not make any significant financial gain from inheritance for these reasons.

    1) Inheritance is unearned income. It is not fair to have a top rate tax on earned income of 50% (and I think it should actually be much higher) and at the same time allow someone, as the Conservatives would, to inherit a six figure sum at 0%.

    2) Such a tax system does not encourage hard work, efficiency, career aspiration and all the things that drive a sound economy. It does encourage nest egging and avarice. It is geared towards a stagnant, undynamic economy. Taxing inheritance might well, as some tend to argue, encourage profligacy in old age to the extent that the state doesn't actually collect much after people die and the inheritance is divided up, but spenders make for a much more vibrant and dynamic economy than savers, especially spenders who are simultaneously incentivised to work through lower income tax. Dear, cynical Mandeville of all his private vices listed only one that could have no public benefit and made it quite clear which would have among the most. High inheritance tax will almost certainly reduce avarice and encourage a kind of profligacy in old age. Profligacy means demand for services which means jobs which means more people paying the lower income tax to swell the state coffers and yet striving to work harder in the greater freedom to enjoy their earnings with more to spend which in turn stimulates jobs, which in turn.... etc, etc.

    3) Such a system is contrary to social mobility and perpetuates an unjust system where an individual can be rewarded and maintained by nothing more than an accident of fortune. To answer the question, yes I do believe emphatically that what an individual has should be based solely on their own achievements.

    4) Inheritance tax is the most liberal kind of taxation. VAT, income tax, national insurance, tariffs, property tax etc. all, to a greater or lesser degree, determine how an individual's income is spent and consequently places limits on how they live their life. You can't spend money once you're gone and so inheritance tax does not create these restrictions. In fact, if you take into account the argument that people will spend their money rather than let the state have it is therefore actually a LIBERALISING tax that frees individuals to spend money and enjoy experiences that they never would have otherwise done.

    5) The most reasonable objection to high inheritance tax, to my mind, is the one that suggests that the wealthiest will just get around it anyway. That's not an argument but an obstacle to be overcome. If there are ways of catching benefit cheats there are ways of closing fiscal loopholes at the other end of the economic spectrum.
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  2. RossMar 13, 2010 03:35 PM
    *'No one should' not 'no one should not' make any significant financial gain, etc...
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  3. RossMar 13, 2010 03:42 PM
    *I also referred to wanting higher income tax and then referred to income tax being lower if inheritance were taxed more aggressively. I would raise the top level of income tax significantly, but I'd also have a much more graduated system ( both of which are for another debate, I think) and, in any case, think that greater inheritance tax would mean that income tax could be relatively lower because either the state could collect a lot of money or, more likely, people would spend rather than save in old age and that would create a more vibrant economy in which more people are paying more into the system.
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  4. RobMar 14, 2010 03:32 AM
    Some very sound points. I pretty much agree with everything. However I would actually go further, and cap inheritance tax at £600,000 per person inheriting (including the value of homes etc).

    Combining Ross's ideas with this would mean that people's right to pass on both valuables and more lucrative assets such as buildings and actual money would still be protected. People without a great deal of money could pass on what they own without any inheritence tax at all (I'm guessing Ross would agree with this as part of the graduated tax system). And this would avoid excessive profligacy in that only amounts over X (the actual amount would have to be set by the legislature based on current research) would be spent. Therefore we would avoid situations in which someone spent everything before the age of 80, only to find themselves living to 90.

    However, we would also ensure that someone with £16 billion was not simply passing on £8 billion to a son/daughter who would never have to work a day in their lives.

    Is this punishing the rich? Progressive tiers of tax already require that the rich give more. Most people accept this, and I believe we should be grateful for these people rather than cursing them with envy for the remaining amount that they have. But when it comes to inheritance tax we completely forget the principles we use to tier taxation on income. And as Ross rightly says it is far more justified to tax inheritance than income, for one is earnt and not the other.

    I also agree on the biggest problem, though I think the principle of passing wealth down the family may compete, as many people believe in that principle as a right. The easy loophole is that people will still be perfectly able to donate their wealth to others while still alive. This is something that we should think about. But it is not something that should stop us implementing this plan.
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