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January 08, 2005

Comments

Tim Worstall

1) Not that I’m aware of in an economic sense. In a political one, lots. Lots of peasant votes in some countries.
2) Yes. Inheriting large sums of capital increases social mobility. (Seriously!). Think the old clogs to clogs in three generations. The methods by which inheritance tax is avoided (primarily trust funds) perpetuate privilege by stopping idiots dissipating the money.
The methods by which other taxes are avoided do not perpetuate this inequality down the generations.
3)Not a lot.
4)You are assuming that politicians are normal.
5) ?

Blimpish

1. Funnily enough, I worked this out the other day: the CAP has been created to provide a ready-made case study of how not to run a market. Everybody I know who's been an economics undergrad spent many hours of lectures learning about how lunatic the CAP really is.
2. With Tim - especially about how Inheritance Tax encourages far more wasteful rent-seeking than other taxes can, because of the bigger stakes.
3. What's worse is that the idea doesn't even work without a resort to totalitarianism. The British state has never successfully monopolised health and education - it's just constrained choice for most normal people.
4. Acton: Power corrupts.
5. As I very much don't, I shall worry not.

Robert Schwartz

"2. Is there any argument against the principle of Inheritance Tax that does not apply as well to other taxes?"

All arguments concerning taxes, once the legitimacy and necessity of taxation are established, are prudential. They concern the direct and indirect costs of administration, the amount of revenue raised in relation to those costs and the incentive side effects of the tax.

So I suppose that the correct formal answer to your question is yes as the argument must depend on social, political and economic context.

Being ignorant of the UK Inheritance Tax and the arguments advanced pro and con, I cannot comment on those arguments. The recent debate over the Estate Tax in the US maybe similar.

The anti tax people concentrated on the supposed excessive indrect cost of the tax on the owners of family farms and small businesses. The pro tax people trumpeted the supposed side effect of perventing the accumulation of large multi-generational estates.

The anti tax crowd won. First their argument was more emotionaly compelling to Americans than that of the pro. Americans are motivated far more by the hope of creating a fortune than by the resentment against those who have. (UK readers will simply have to accept this as a truth). Second the pro tax faction missed the real chance of keeping the tax alive to fight another day which would have been to offer to lower the rates of taxation, which peaked at 60%, to match the capital gains tax at 15% so that tax were a nuisance rather than a nightmare.


Bill Newman

One argument against inheritance tax doesn't distinguish it from all other taxes, but it does distinguish it from some. Inheritance tax is built around a distinction which is not very firm, and so it encourages sham transactions and bogus accounting and so forth. The same could be said of various forms of income tax, so evidently this is not a killer objection in the real world. But compare, for example, a tax on tobacco or steel; people may avoid the taxed activity, but probably not by sham transactions. Income tax ends up getting avoided by doing production for oneself outside the market, or by not realizing capital gains until they've compounded as many times as possible. Similarly, inheritance tax tends to depend on all sorts of definitional issues about, e.g., when a transaction was an inheritance, not a gift, or a gift and not income, or honest wages and not a gift, and so forth.

Another property which might distinguish the inheritance tax from other taxes is that its proponents characteristically argue against the evil of inheritance and simultaneously consider it uncontroversially obvious and not hypocritical in the least that their remedy is to distribute the spoils almost entirely to those who inherited citizenship in the same (typically very rich) country. That seems sufficiently above-average incoherence to distinguish the inheritance tax from the average. However, I doubt that you would consider this to be a property of the tax itself, but instead a property of the political currents which swirl around it.

dearieme

For "hate": Brown, whatever his weaknesses, is an intellectually able chap. Blair, whatever his strength, clearly isn't. This might understandably lead to a festering resentment by GB. He might be particularly annoyed with himself for falling for Toni's sequential porkies. Is that enough pop psychology?

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