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Monday, August 21, 2006

Losing the inheritance

According to today's Guardian even the Blairites think that Stephen Byers has lost the plot in his call to abolish inheritance tax. There may well be a need to carry out some reforms to modernise it but its abolition will both deprive the Treasury of £3 billion a year in income that will need to be replaced elsewhere and allow those who have wealth to pass it on without penalty, a situation that is both inequitable and inconsistent with most of Europe.

What is interesting is the assumption in Byers' proposal that Labour have to out-Tory the Tories to remain electable. That is certainly how they have behaved over the last nine years, the problem is that the voters have now found them out.
£3 billion on a total tax revenue of £404 billion? 0.7% of total tax revenue? And this revenue has already been taxed once, hasn't it?

And - pace Nozick, there's nothing to suggest than inequitable wealth distribution is unjust.

Your language is revealing. One could argue that we need to collect money to run shared services of course, and I would, but you say it would 'allow those who have wealth to pass it on without penalty'. What's the moral, ethical or socially just dimension in penalising wealth simply because it is wealth?
It is called redistribution of wealth. It is not about penalising wealth but ensuring that people pay tax in proportion to what they have.
This income has already been taxed. It should be left at that.

A halfway house is to tax the recipient, but just tax it as income.

'redistributive' is all too often code for penalise the wealthy. Few people disagree that the rich should pay for those few who cannot afford services and that some things do need to be funded by the state in order for the poorest to receive them, which is indeed redistributive, but we should not be trying to create equality of income, to attempt to do so is to destroy equality under the law and basic freedoms.

Inheritence tax is a tax of envy. Should we tax someone who's attractive because their parents gave them the right genes? Or perhaps intelligence?

And as for £3 billion. Its a tiny amount of money. The government should be cutting spending on stupid schemes like ID cards. The DTI should be scrapped (LibDem policy I believe). The massive beaurocracy built up could be scaled back instead of feeding its growth with ever higher taxes. We could scrap tax credits and simply stop taxing income that low. That would save a lot of money and generate more through increased spending and saving (which of course leads to investment).

To say that scrapping inheritance tax would adversely affect public services is a lie.
So the bit where you used the word 'penalty' was a mistake?
Whether it affects public services or not depends on how you account for the 3 billion pound gap in finances it will leave. I did say that I accepted that there was a need to reform the tax but I am not convinced of the need to abolish it. A lot of the wealth that will be taxed has not been subject to tax before in fact. It seems to me that the big problem. Is that the very wealthy find ways to evade inheritance tax altogether.
A comment on Tim Worstall's blog points out that Australia got rid of its inheritance tax back in the 70s and that you wouldn't need it anyway with a properly designed capital gains tax.

Thoughts? And, btw, you don't need to patronise me with remarks about redistribution. My partner, with a Masters in social policy from Oxford, has been patronising me for years and she does it better than you.
In the sense that taxation is a penalty we all have to pay for benefitting from state provided services then, no. It was not my intention to suggest that we should penalise people for being wealthy, thhough it would be nice if they paid the same proportion of their income in tax as poorer members of our society.
I wasn't patronising David, just trying to explain my position.I did say I was happy to look at sensible proposals for reform.
Ok, abolition with reformed capital gains as in Australia.
If you wish. I will wait to see what the options are.
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