Are inheritance taxes unfair?



Are inheritance taxes unfair? Many people think they are. "Why should I be taxed twice on money I've earned during my lifetime?" they say.

This is, of course, a fallacy. Dead people don't pay taxes. Living ones do. So inheritance tax is not double taxation of money the dead person earned while they were still alive. It is taxation of an unearned windfall for the people to whom they leave their assets, usually their children. Other forms of unearned income, such as interest on savings and capital gains, are taxed. Why should someone be taxed on unearned income they receive as a result of investments made from their own earnings, but not on unearned income they receive as a result of investments made from someone else's earnings? That doesn't look very fair, does it? Surely taxing that unearned windfall must be fair. 

No. According to the economist Greg Mankiw, taxing inheritance is fundamentally unfair:
From my perspective, the estate tax is a bad way to tax the rich because it violates the principle of horizontal equity. The basic idea is that similar people should face similar tax burdens.
This opens a whole new can of worms. After all, if the rich and the poor are similar, then a 20% basic rate of tax rising to a 45% top rate of tax is unfair to the rich. Those in favour of flat taxes usually raise this point. Perhaps Mankiw is one of them. But there are very good reasons for taxing the rich more highly than the poor, not least of which is the fact that a similar burden of taxation lies much more heavily on those struggling to pay for essentials than it does on those who want for nothing. "Similar" is in the eye of the beholder.

But let's stick with inheritance tax. Mankiw goes on to provide an example to show why inheritance tax is unfair:
Consider the story of two couples. Both start businesses when they are young. They work hard, and their businesses prosper beyond anything they expected. When they reach retirement age, both couples sell their businesses. After paying taxes on the sale, they are both left with a sizeable nest egg of, say, $20m, which they plan to enjoy during their golden years.
So we are not talking about unfair taxation of the rich versus the poor. We are talking about unfair taxation between rich people. And we are not talking about unfair taxation of one couple's nest egg over the other, either. Inheritance tax would equally be charged on what is left of each couple's nest egg when they die. So what is unfair about that?

One couple lives frugally in order to be able to pass the majority of their wealth on to their children and grandchildren. The other couple has a lavish lifestyle. They have a great party in their declining years, but they leave much less to their descendants. According to Mankiw, these differences in lifestyle choice make inheritance taxes unfair:
So here's the question. How should the tax burdens of the two couples compare? Under an income tax, the couples would pay the same, because they earned the same income. Under a consumption tax, Mr. and Mrs. Profligate would pay more because of their lavish living (though the Frugals' descendents would also pay when they spend their inheritance). But under our current system, which combines an income tax and an estate tax, the Frugal family has the higher tax burden. To me, this does not seem right. 
Now, of course Mankiw has conveniently ignored the existence of state-level sales taxes (or, in Europe, VAT), which would disproportionately be paid by the Profligate family. But he approves of unequal taxation anyway. He is happy for the Profligate family to pay disproportionately higher taxes because of their lavish spending, but not happy for the Frugals to pay disproportionately higher taxes because of their excessive saving.

Mankiw's comment "To me, this does not seem right" exposes the real basis for his opposition to inheritance tax. We have departed from the realm of economics. His argument is a moral one. Frugality is good, profligacy is bad. Tax policy should reward the good and punish the bad. Therefore the Frugals should be excused from taxation on their saving habit, even if the Profligates are taxed on their spending.

The moral belief that saving is inherently good and should be rewarded is deeply ingrained. And in the distant past, when eating the seed corn meant famine next season, there were very good reasons for rewarding saving and punishing consumption. Indeed, that is still the case in many developing countries today.

But in a world where there is not only too much capital floating around but widespread unwillingness of the owners of that capital to put it to productive use, rewarding excessive saving and the transmission of wealth down the generations is counterproductive. In developed countries, there are now very good reasons to tax excessive saving and reward consumption - and indeed this is what the very low interest rates of central banks around the world are doing. We don't view negative interest rates as a tax on saving, but that is what they are.

Mankiw's view of the "family" is perhaps counter-intuitive. He treats the family as an infinitely-lived unit, not as a series of overlapping generations. Inheritance tax is thus taxation of the family's wealth, not its income.

If we were to do a discounted cash flow analysis of the returns from the Frugal family's nest egg out to infinity, we would see that their returns are far higher than the Profligate family's returns. This is due to the Frugal family's patient lifestyle, which Mankiw wants to reward. But I am struggling to see why we should not tax these higher returns. Indeed, I can see some extremely good reasons not only for taxing them, but for taxing them rather highly.

Of course, Mankiw's model is fundamentally flawed. Families are not infinitely-lived, and preferences are not uniform across the generations. The children of Frugals can be Profligate: the children of Profligates can be Frugal. But whatever their own preferences, the fact is that because they inherit wealth, the children of Frugals have a financial advantage that Profligates will never have.

The different lifestyle choices of the Frugals and the Profligates thus create wealth inequality, not for themselves but for their descendants. However hard they work, the descendants of the Profligates will never be as wealthy as the descendants of the Frugals, unless at some point a future Frugal becomes Profligate and blows the lot.

Looked at in this way, we might take the view that NOT imposing inheritance taxes is fundamentally unfair, since it gives an unearned advantage to future generations and progressively widens wealth inequality. Perhaps 100% would be a little steep, but given the compounding effect of intergenerational wealth transfers, inheritance taxes can in my view be pretty high without being remotely unfair.

There is an even more vital reason to tax intergenerational wealth, too. Humans are naturally selfish, envious and belligerent. Those who have wealth tend to hang on to it like mad, while those who don't have wealth tend to try to take it from them. If there is no mechanism for dampening the tendency of wealth inequality to widen down the generations, eventually we have a reset. Usually that takes the form of war, which wipes out lots of wealth (and people). Sometimes we have a revolution, a form of war which explicitly targets the holders of wealth for retribution.

I don't know about you, but I would much rather have explicit taxation of intergenerational wealth than an unstable political economy that generates wars and revolutions because of the buildup of wealth inequality over the generations.

Related reading:

Wealth inequality in the United States since 1913 - Saez & Zucman (pdf)
Capital in the 21st Century - Piketty (book)






Comments

  1. If I have paid tax on my money I should be able to give it away without paying even more tax. So that someone else can spend it on their way instead of me spending it on my way. What is difficult about that?

    And if I give my money away five minutes before I die, it should be the same if I give it away five minutes later.

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    1. No-one is denying your right to give your money away. But the recipient should pay appropriate taxes on receiving it.

      I haven't touched on the matter of lifetime gifts, though that is a major IHT avoidance strategy.

      Please explain the economic justification for your moral stance?

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    2. > But the recipient should pay appropriate taxes on receiving it.

      But how granular should this reasoning go? If I make a regular wire transfer to, say, my mother, to help her in her monthly costs, should I pay extra tax? Should it be illegal to give a €20 euro note to a friend in need without paying some kind of VAT? And if it is €500 euros? Should we define a threshold to start applying taxes, for practical purposes. Or is there something different with these simpler events?

      I think you do make a reasonable/convincing argument for inheritance taxes, but this comment of yours seems a different argument.

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    3. Some parents lavish love and time on their children as others prefer to lavish an inheritance instead.

      Why single one out for punishment rather than the other as they both hope to achieve the same thing?

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    4. Joao,

      Clearly, it depends on the circumstances. Taxation of gifts between family members is a thorny subject.

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  2. I used to get into arguments about tax with Libertarians sometimes. They'd typically start with an argument somewhere between 'dignity of labour' and social Darwinism - everyone should have the right to the product of their own labour, it's only just for people to get rich if they've worked hard, idle people have no right to expect handouts, they should get a job and work like everyone else or they should starve, nature doesn't prop up losers and neither should we. At this point I'd ask whether they supported a 100% inheritance tax - and, of course, they'd tell me fairly forcefully that they supported no such thing. But what about the morality of getting rich by working hard, and what about idle people having to get a job or starve?

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    1. You are right.

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    2. Most libertarians confuse free-for-all for freedom. They have got one important part of freedom correct. That is the State has no moral or economic claim on the returns to Labour or Capital. Unfortunately they then neglect to ask whether humans can be free if we do not equally share the value derived from natural resources.

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  3. And you did not even mention Lloyd George or the old aristocracy that once ruled not only our waves but also most of our land, primogeniture ruled OK, that is if you were the eldest son.

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    1. Heck yes. And entails, to keep the family property in the male line. Jane Austen waxed lyrical about the unfairness of this.....

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  4. The problem with inheritance taxes is that they do not fall evenly. The very poor are exempt, as are the smart, the criminals and the very rich. Only the middle classes who cannot afford expensive tax avoidance vehicles and the stupid who try and fail to dodge inheritance taxes actually get caught and have to pay them.

    Inheritance tax in the USA has created a form of aristocracy over there, whereby the richest families exist in a form of symbiosis with their wealth held in trust, like a sort of magical cow that only they are allowed to milk. Charitable trusts have to do charitable work, but clever investors set up this work so it benefits themselves and the charitable trust, as opposed to anyone outside the cosy symbiosis.

    The final point is that inheritance taxes do not actually bring in much money for the government, especially not when compared to the cost of administering them and checking that people are not dodging them illegally (which means that the tax people have to check out many a dubious scheme for legality).

    Taxes are there so that the government has money to do various things with. Tax as a social construct very quickly takes us into the "Bread & Circuses" realm together with corrupt lobbying of politicians, as people try to persuade the government to favour one side or another. Politicians are notoriously corruptible; better that we don't give them the temptation.

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    1. From your argument, it sounds as though we should close a lot of the loopholes that allow people to escape inheritance tax. It has always been the case that the very rich can afford to pay tax lawyers for advice to legally escape tax, so we should make it more difficult.

      The other issue is that whilst inheritance tax is a small proportion of government revenue, you ignore the benefits of people spending more of their money before they die. The economy would be stimulated and the government would get VAT. So, an increase in inheritance tax rates (and closing of loopholes) could actually reduce the money the government makes from this tax, but it would be more than made up with VAT and other taxes the government makes from a stimulated economy.

      Ultimately, a tax on inheritances is progressive and doesn't dissuade real investment. Is it any more 'unfair' than other taxes?

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  5. Francis why are you wasting time on this?

    Would you not agree that an LVT or any shift of taxes towards it would both increase our stock of wealth and welfare, and decrease inequality?

    Inheritance Taxes, may have some merits compared to other bad taxes, but two wrongs never make a rights. They are utterly pointless and counter reproductive.

    Taxes on income,capital and transactions are never justifiable. Not on moral grounds,economic grounds or even the necessity to pay for public services.

    They exist to protect economic parasitism and justify social engineering.



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  6. As you say, this isn't really a question of economics: it's more a question of social policy framed by broad moral principles. So I think it's a bit unfair to ask the first commenter for an economic justification for his moral stance(although I absolutely disagree with the approach he prefers). Indeed it's an interesting question how far economic arguments can justify any moral stance. There are undoubtedly possible policies that would be economically efficient - compulsory euthanasia to take an extreme case - but where the economic case is for all practical purposes - at least in our society - totally irrelevant.
    Mankiw's little fable misses one important point, namely that both couples had the same choice about how to spend their money. The Frugals willingly embraced their family's higher tax burden. Mankiw should have applauded their wish to reduce the US public debt rather than feeling that they'd been hard done by

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    1. Moral principles and economic principles are two sides of the same coin.

      Which is why we know that taxes like Inheritance Tax are immoral because they carry deadweight losses. That is, because they are unfair they distort incentives and thus lower our stock of wealth and welfare.

      Public revenue should only be ever be raised from sources that align our incentives rather than distort them.

      However that would require people to ask fundamental questions regarding property rights. Which is a subject they tend to avoid at all costs.

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  7. Hi Francis, so your argument is that I can't leave the house that my kids grew up in to those same kids tax-free because it might lead to revolution or war. That is utterly ridiculous.

    And this is a house that I have bought, renovated, and maintained with money that has been taxed multiple times. First when I earned it. Then I had to pay tax when I bought the house (stamp duty). Then I had to pay VAT when I modernized it and when I maintain it. And I pay council tax every year that I own it.

    At a time where house prices, especially in the South of England, are priced by the market so that:
    (a) it is hard to see how my children will ever be able to afford to buy a decent family home
    (b) a decent family home will easily incur UK inheritance tax

    When a normal middle class family home (or its equivalent value) can't be passed on to following generations something is wrong - we are not talking about revolution inciting plutocrats. We are talking about ordinary families who struggle for decades to pay off the mortgage.

    Then contrast that with the Duke of Westminster passing on a 9 billion pound fortune to his son paying no IHT. You argue that IHT should exist to avoid revolution inducing wealth differentials, then the Duke of Westminster example proves that in reality (rather than academic theory) your argument is holed below the water line. See also http://fortune.com/2014/06/17/clintons-seek-to-avoid-a-tax-they-once-supported/ and it is clear that IHT is only a tax for the "little people".

    The current UK inheritance tax system is broken in so many ways. It is a tax on dying when you didn't expect to, because if you make it to old age you can pass on significant assets to children and grandchildren by making gifts more than 7 years before you die, though trusts, etc.

    I am a regular reader of your blog because I usually find your articles informative and insightful, but this time you are really lost in academic cuckoo land. The wealthy - who control politics in the USA and UK, and possibly everywhere else - will never accept a system that does not provide adequate loopholes for passing on their wealth to their children and grandchildren. Given that reality, IHT will only penalize those in the middle strata and MAINTAIN the wealth divide, by stopping families in the middle from achieving the financial independence that could make them able to really participate in civic life and politics.

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    1. "When a normal middle class family home ... can't be passed on to following generations something is wrong"

      So something has been wrong for much of history then ... inheritance, except for the very rich, is a modern invention.

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    2. Read the first two paragraphs of my post.

      Then google "Sunk Cost Fallacy".

      Then you will understand that this is not about you, the taxes you pay or the money you put into doing up your house. Your lifestyle choices are your business.

      There is no particular reason why your particular choice of lifestyle should not be taxed but other lifestyles should. Nor is there any particular reason why your kids should be excused saving for a deposit out of their earned income but others should not.

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    3. Oh, and IHT is most certainly not a tax for the "little people". It's a tax on the rich. If your estate is worth enough to incur IHT, you are rich. The majority of people don't have enough assets to incur IHT.

      Your gripe is that the ordinarily rich are less able to avoid the tax than the extraordinarily rich. But the extraordinarily rich avoid other taxes, too, such as income and capital gains taxes. That's not a reason to eliminate those taxes.

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    4. You must have a very different understanding of the word "Rich" than I do. To me a Rich person would have at least achieved two things:
      - Have a high probability of living to a ripe old age without descending into poverty.
      - Have a level of financial security such that their lifestyle and that of their children is not completely dependent on the whims of the corporation that they work for.
      People who still live with significant financial risk are not "Rich". In 2016 with ZIRP, NIRP, defined contribution pensions, extended human longevity, high health and care costs, how much does someone have to own to have achieved these very basic measures of financial security? When a four bedroom house costs a million pounds, it is absurd to consider that someone in the UK with more than £325,000 in assets in 2016 is Rich.

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  8. Frances,

    You are making a distinction between moral arguments and economic arguments as though it is possible to make an economic argument without moral judgements, and as though an economic argument is somehow superior to a moral argument. However, all social debates have a moral element and the moral usually outweighs the technical.

    Physicists get to split the atom. However, they don’t get to decide whether we develop nuclear weapons. Medical doctors get to treat patients. However, they don’t get to decide social policies and they have to operate under a code of ethics. Economists get to analyse the economy and advise policymakers but they don’t get to set society’s moral values.

    Imagine if economic arguments really did ignore morality. We could bring back slavery and child labour. We could introduce euthanasia for people whose costs of medical care exceeded some arbitrary limit. We don’t do these things for moral reasons irrespective of the economic consequences.

    You are making a valid argument that your moral values are preferable to Mankiw’s. I may prefer your morals to Mankiw’s. However, you are pretending that your argument is not based on morals because you have built logic on top of your personal values. However, so has Mankiw.

    Three specific points. First, tax is imposed on the estate of the deceased and we have tax thresholds based on the total value of the estate. We don’t have tax thresholds based on the amount received by individual beneficiaries, so I don’t think you are correct to say that “dead people don’t pay taxes”. We could change to your preferred system, and maybe it would be better, but it’s not the current system.

    Second, you say that “we don't view negative interest rates as a tax on saving, but that is what they are”. However, that is only partly true. The saver loses out either way. However, a tax goes to the government and can be used to build schools and hospitals. Negative interest goes to the bank. I would be much happier to pay a tax than to suffer from the equivalent negative interest rates. Right wing economists who oppose taxes support negative interest rates. They would rather that money was given to banks (or passed to central banks who can then cancel the money) than given to governments to spend on social services. This is also a moral argument.

    Third, as others have commented, the real problem with wealth taxes, including IHT, is that the extremely wealthy avoid them. As a result, they fall mostly on middle income families who pay significant taxes on their income and spending throughout their lives. No-one starts a revolution against middle income families who pay their taxes.

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    1. 1) Google "tax incidence". Taxes are paid by people, not institutions, and by the living, not the dead. Inheritance tax reduces the amount the beneficiaries receive. Therefore the tax falls on them even though they don't physically pay it.

      2) Yes, that's a good argument for taxing savings instead of having negative rates. If you are a regular reader of my work you will know that I am no fan of negative rates. So let's raise capital gains and inheritance taxes instead of cutting interest rates. Would you agree?

      3) The extremely wealthy also avoid income tax. Is that a reason not to have income tax?

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  9. Tax revenue must be raised, and there are 3 considerations: 1) the rich have a greater capacity to pay than the poor, 2) Taxation should incent better behavior (i.e. productivity), and collection should be relatively easy to enforce accurately. 'Horizontal' is absurd. Taxing inheritance fits the bill for all three.

    As you said, and which should be strongly re-emphasized, is that it must be framed and designed as an inheritance tax rather than an estate tax (which is how US tax code is designed and named). That way it becomes obvious who is being taxed, and that the recipient provided no economic or social good in return for their income.

    We should treat inheritance like gifts, and consider both over a lifetime (which addresses schemes to evade taxes). For example, anyone can receive up to 10X annual median income in inheritance and gifts at a standard income tax rate. But after someone has gotten 10 years worth of income for doing nothing for the betterment of the private or public sector, then they face a punitively high tax on any future risk-free and toil-free income. This would affect few and would help prevent the intergenerational, snobbish idle rich.

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  10. You claim to be using economic arguments, but as others have also pointed out, you are really presenting moral arguments, and your fundamental bedrock is a claim to increase fairness. Fairness is a personal illusion. What you consider fair and what I consider fair are clearly very different. Fairness does not exist in nature or in the real world of humans.

    I don't believe that IHT as implemented in the UK increases fairness, or that the way politics works in the UK it could possibly be implemented in a way that increases fairness.

    I am not moved at all by the clever arguments you try to put forth that the government seizing my assets rather than allowing me to give them to my children is "not about me". Of course it is about me - it is about my legacy to my children. Being a parent, an important part of my life mission is to do everything I can to set my children up for a great life. Of course I want to give my children a head start in life. Google "The Selfish Gene".

    You propose that instead of enjoying the freedom to give a legacy created from my life's work to my children, I should support the government confiscating my legacy in the pursuit of *your* idea of fairness. You talk about me wanting a "tax free lifestyle" but I already paid tax multiple times in the process of converting my skills and time to a modern, renovated, well mainted home. Sunk cost fallacy does not apply: I am not being led into illogical behaviour because of money spent in the past. We are discussing whether I should support the confiscation of a house that that has real value NOW.

    The incentives of the system you propose are all wrong. You say:
    “The moral belief that saving is inherently good and should be rewarded is deeply ingrained .. [but] .. In developed countries, there are now very good reasons to tax excessive saving and reward consumption”

    So instead of creating long term inter-generational financial stability for my family, you say that I should be "consuming" i.e burning through my capital on things I don't actually need, because otherwise the government is going to confiscate the money. "Hey son, have fun with the student debt and working for a few decades trying to save up for a deposit, Mum and I are flying to the Barrier Reef again this winter. Got to spend it before the government steals it from us!". Thats the world you want?

    Speaking of burning: You want me to respect your "economic arguments", yet the whole of our economic system is bonkers; it requires exponential growth while at the same time we live on a finite planet. We are extremely dependent on natural systems which are showing extreme signs of distress, such a climate change, ocean acidification, collapse of fish stocks, frightening numbers of species going extinct. In the face of this environmental crises, your economic thinking which completely ignores this "externality" leads you to tell me that I should be being incentivised to consume more, rather than modelling frugality and long term thinking for my children. Sure, consume as fast as I can, that will surely lead to more fairness in the world as Bangladesh slowly sinks beneath the waves.

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    1. The better the economy is for all, the less need there is for a "head start" which can only be given to a few, on the basis of an accident of birth and not any sort of proven need. Flying to the Barrier Reef keeps up demand in the economy (and Australia's) giving people less need for a safety net (taxation) and a "head start". Hereditary houses impose relative poverty on those who don't have them by keeping house prices high; you can now inherit a million pound house tax free thanks to the Tories, but Housing Benefit gets cut and more social housing gets sold off, there is no "head start" for those left out more than ever. And no, wanting to abolish inheritance tax doesn't imply one supports unlimited economic growth which is of course impossible.

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  11. [continued]

    Of course, there wouldn't be any incentive in the system that you propose to look for loopholes, like those used by David Cameron's family with offshore trusts. Or our role models, the Royal Family, who have been using the Dutchy of Cornwall to pass wealth on to future generations tax free since 1337. Oh, sorry, I'm mentioning those "extraordinarily rich" people again that you want me to ignore in pursuit of what you think is increased "fairness".

    Until we remember that we are a society, not an economy, and that we are citizens, not consumers, that we are deeply dependent on nature, abolish the class system, and start looking after everyone in the society with some real dignity and equality, your argument makes no sense. While we are still in Margaret Thatcher's "there is no such thing as society" neocon world, I'll keep my gold, thank you. I have a family to look after, a responsibility I take very seriously.

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    1. Frances's observation that the rich avoid taxes in general, including IHT, does not imply that she supports tax avoidance or doesn't want loopholes to be closed. There's a reason why the govt that doesn't close loopholes is the same one that has reduced IHT! Abolish IHT in exchange for abolishing the Duchy of Cornwall too? Fine, you're on! We don't have to live in a socialist utopia before taking any positive steps, it's incremental. Saying Thatcherism has to be abolished before we keep IHT is a cop out, because it's a circular argument. People can't be persuaded that we should all look after each other while people like you are simultaneously arguing for hereditary houses. I just inherited ten grand, 3 years' JSA. The guy on JSA suffers harsher sanctions than ever and the number of vacancies is not his fault but he is stigmatised. Whereas I am supposed to praise the selfish gene?

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  12. I don't ask you to praise the selfish gene, simply to understand that most human beings care deeply about their children and grandchildren, that there are deep evolutionary reasons for that. That aspect of human behaviour it is not going to disappear any time soon just because someone presents a clever academic argument.

    No one is surprised to hear stories of parents risking their lives by running into burning buildings to save their children, or diving into a raging sea in a storm. Kings and Queens want heirs. Why? According to Frances they should not care who becomes King or Queen after they die because "it is not about them", and yet we know that is not how human beings think or behave.

    If people are willing to die for their children, it should not surprise us that they will fight hard to provide for them financially. Those off shore trusts etc. are a natural expression of that fight. Frances does not acknowledge that this is fundamental human nature to provide for our children and grandchildren with love, wisdom, and money, so long as we are able to. My point is that it is foolish to expect human beings to support a tax system that fights against their deep nature. For better or worse, the reality for human beings is that evolutionary logic trumps economic logic.

    You argue that Hereditary houses impose relative poverty on those who don't have them by keeping house prices high. It is not Hereditary Houses that keep prices high, it is insufficient housing that keep houses expensive, exacerbated by allowing people who don't live in the UK to - in the words of the Financial Times - use UK property as a global reserve currency. All IHT does is change who gets to live which house. You can't solve a shortage of housing by imposing IHT on normal family homes. You have to enable people to build more homes, or free up empty homes owned by people who don't live in the UK, or incentivise older people to move into smaller homes so that younger people raising families can use the larger homes.

    I understand the economic argument that we should all go out and Spend For Britain to raise the economy to create Jobs for the Kids. It is short sighted madness. When the economic theory says that the solution to an economic malaise it to burn the planet faster, perhaps we should pause to consider that the economic theory is clearly insufficient. We need to be doing much more long term thinking, much more investment today for multi-generational outcomes, instead of window dressing for the quarterly reporting cycle or the election cycle.

    Maybe we should do something else radical and really look at the Royal Family as a role model. They live without fear of financial or material need, and have a strong tradition of commitment to service. They also have a long term view - they don't burn their seed corn. The Dutchy of Cornwall only gives the income of the Dutchy to the Prince of Wales, the capital is preserved for the long term. Not having to worry about their own future needs, they can focus on long term projects for the greater good. That strikes me as an enviable model for everyone. I'll start with my family.

    BTW, I completely agree that it is not the fault that the guy on JSA that the job he or she needs has been moved to China, and that we should have a strong social safety net. But that is a red herring in a conversation about IHT. The Cameron/Osborne destruction of the social safety net is unconscionable, but why does that justify the government stopping me from giving my house to my daughter? It is my property. I paid my taxes already.

    If some children have the misfortune to lose both of their parents unexpectedly in a car accident, or when a jet flying at an airshow ploughs into a bunch of cars on the adjacent motorway as happened recently in the UK, why should those children suddenly have to sell the family home in order to pay an unexpected IHT bill? Do we really want a tax system that follows tragedies and adds further pain by behaving like a vulture?

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  13. Maybe the best thing for everyone is for government to spend much less money. Governments always seem to crowd out the family unit via lousy schools that cause poor children to remain trapped in government programs and discourage marriage and family formation in the first place. Of course the government hates inter generational wealth transfers, THEY want to do the transferring and require a needy and pathetically grateful populace.

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  14. Francis Coppola, I also feel that the Greg Mankiw point of view hardly justifies the space you have given it. I think 'Estate tax' (Death duties, Inheritance tax) about the most essential tax there is. Great accumulations of wealth are bad for nearly everyone in society. But 'great accumulations' means something like the top 1%. Gordon Brown was being 'clever' but 'foolish' in leaving unchanged the threshold for Estate tax, for with inflating house prices he got increased revenue, but seriously distorted the effect and purpose of the tax. Much heartfelt discussion of taxation here but no mention of Mirrlees Review (Q.V.), which I strongly recommend. I had a letter in the Times back in 2007 on Tory plans to abolish 'Inheritance tax', protesting they were: [a] wrongly named, [b] least damaging to wealth creation (c.f Income Tax and VAT), [c] essential.

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  15. RE: Are inheritance taxes unfair? Many people think they are. "Why should I be taxed twice on money I've earned during my lifetime?" they say.**

    Who says that?

    I think more likely logical people would want to express more nearly, “Why should my labor, earnings, investments, etc. be taxed twice? “ Or, why should our family's labor, earnings, investments, etc. be taxed twice? “ You statement the subject was I. And here the subject is labor, earnings, investments.

    Put that way, the unfairness of it is more clear. But, still understated.

    One could also clearly see the unfairness if one looks at the transactions form the taxing entities point of view. The inheritance tax would cause the taxing entity to receive extra tax a second time on assets derived from labor, earnings, investments, etc. Often, received from the same family that lost some one.

    If you looked at it from an accounting point of view it is not an income but a transfer of assets in subsidiary entities in a family and friends entity. So, if all entities are consolidated there is obviously no gain but an asset transfer and a priceless loss!

    Also, how would you account for the priceless loss? It is not a net windfall at all. A loss like that is greater than assets. Thus, it is a net loss.

    How would that loss creating a net loss be deducted?


    ** https://en.wikipedia.org/wiki/Straw_man

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    1. Correction :

      If you looked at it from an accounting point of view it is not an income but a transfer of assets between subsidiary entities in a family and friends entity.

      Delete
  16. Isaiah 5:20

    Woe unto them that call evil good, and good evil; that put darkness for light, and light for darkness; that put bitter for sweet, and sweet for bitter!

    https://www.biblegateway.com/passage/?search=Isaiah+5&version=KJV

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