The case for abolishing Inheritance Tax

Posthumous taxation is no different to Victorian style grave robbery, only done on a much larger scale. Morally- the inheritance tax should be abolished.

As well as the moralistic argument, there are also serious economic consequences of the tax- chiefly that it makes the tax system incredibly complicated. Abolishing the tax also means that those who are about to die will have the security of knowing their loved ones will have enough to live comfortably- a worry most parents have in common.

Some say this will lead to more inequality of opportunity. However this may not necessarily be the case. Take the case of the Walton family. Sam Walton grew up very poor. Through innovation and enterprise he founded Walmart and grew it to be the biggest retailer in the world, and when he died in 1992 Walmart was worth roughly $45 billion. His six children have no such experience in building a business. They are better at spending money than making it, and so their fortune will decline over the generations even without inheritance tax. This happens across the economy in Britain and the U.S. Of all the Fortune 500 companies that existed in 1955, only 11% remain. The average life expectancy for a Fortune 500 firm is now 15 years old. Family owned firms are usually sold by a less competent individual family member to another firm or individual, one with a better talent for enterprise.

So, without inheritance tax, the market still distributes resources to ensure maximum efficiency. The inequality of outcome cannot be attributed to lack of opportunity, but to inequality in entrepreneurship, something which builds capitalist society. Additionally some wealthy individuals like Bill Gates, choose to give away their wealth voluntary on their death, Gates choosing to leave his three children with just $10 million each of his vast fortune so they can “find their own way”. Taxing this fortune would probably result in less social good than would result from it going to the charities of Bill Gate’s choice, given how efficient government is.

Of course some hereditary inequality will occur, but this is the case when parents hand down good parenting skills, or good genetics or good education. Why should hereditary property be regulated by the government? Inheritance tax is unfair, predatory and economically harmful. The UK economy would benefit from Inheritance tax being scrapped.

Theo Cox Dodgson is winner of the Under-18 category of the ASI’s ‘Young Writer on Liberty’ competition.                              

A difficult problem but we’d really better try and find a solution

Disturbing news about social mobility in the UK. To he point that something really must be done:

Well-off parents create a “glass floor” for their less academically inclined children ensuring they “hoard the best opportunities” over poorer peers, a study has suggested.

Children from wealthier families but with less academic ability are 35% more likely to become high earners than their more gifted counterparts from poor families, according to findings from the Social Mobility and Child Poverty Commission.

Clearly something just must be done. The report itself is here and commenting upon it we get:

Study author Dr Abigail McKnight from the London School of Economics said: “The fact that middle class families are successful in hoarding the best opportunities in the education system and in the labour market is a real barrier to the upward social mobility of less advantaged children.”

“Children from less advantaged families who show high potential at age five are struggling to convert this potential into later labour market success.”

“Schools could do much more to help children from less advantaged families build on high early potential.”

Difficult to know what to do really. Perhaps some system could be devised whereby we identified those bright but poor children and then gave them the academic, specialist, education which would enable them to make the best use of those talents? Would it be too, too, odd to suggest that they might even be sent to separate schools?

The value of remittances

When it comes to doing development properly, the role of remittances in helping the poorest in other nations plays a pivotal role and yet is considered by many to be a cost to the UK economy – a resource that would otherwise have been spent in the UK, being diverted elsewhere. The efficacy of remittances is also questioned: developing countries have been receiving remittances for years, and what do they have to show for it?

These are all false questions and positions.

First, the net cost of remittances to the UK is negligible. In 2013, remittances from people in the UK to people outside of it totalled $2.2bn (outflows). Inflows (remittances into the UK from people outside of the UK) totalled $1.7bn. The net impact on the UK from remittances is $510m, which represents 0.0195% of the UK’s nominal GDP in the same year. Hence, the impact of belonging to a world where remittances are possible, and belonging to one where remittances are condemned, is “negligible” by my reading.

Bearing in mind it is low-cost to us, the only other plausible objection is that it doesn’t do any good. One example of how this criticism is levelled is when it is argued that all remittances do is increase consumption amongst recipients, and is not invested in such a way as to create long-term opportunities for growth.

It’s not clear to me that this is a proper criticism. For one, increasing the amount of resource that is available to an otherwise poor family may result in more consumption, and potentially better consumption. Imagine if the consumption takes the form of food stuffs: although the immediate effect of remittances is on non-investment purposes, these can be seen as an investment in the individuals’ long-term health. And, ultimately, a world in which people eat until they are full rather than going to bed hungry is a better world to live in. But lots of other types of consumption are also effective at improving people’s quality of life – for example, if a family has more resources with which to buy more sources of light, they may be able to work longer in the day and avoid health risks associated with working in more dangerous (i.e. unlit) conditions. Even if there are no such gains, increased consumption is associated with increased welfare – which is in itself good, particularly since the welfare gain is enjoyed by people on the lower end of the income spectrum. It’s not evident a priori that spending remittances on consumption is a bad thing.

But the evidence indicates that remittances have significant supply-side effects, and aren’t solely consumption-affecting. A study in Ghana found that remittances were spent in the same way as any other income – split between investment and consumption, rather than focused on consumption. In Mexico, households without healthcare insurance spend on average 10% of remittances on healthcare. Remittances substantially lower the likelihood that children in El Salvador do not enroll into school at all, or leave before the 6th grade. A study of 11 Latin American nations showed that in households with relatively low levels of schooling and healthcare, households receiving remittances had higher health outcomes and were more likely to keep their children in schools.

When it comes to poverty reduction, current studies may, in fact, overplay the impact. The study of Latin American nations argues that many research papers assume a higher impact on poverty than is really plausible, because they do not factor in the fact that the emigrant who is sending their remittances back to the home country would likely have been working had they not left. Nevertheless, even when controlling for this, they find a modest positive effect of remittances on poverty reduction.

The fact that remittances cost the UK relatively little in net terms, combined with the improvements in lifestyle metrics in recipient nations, is a convincing case for them. If we want to do good for those in need, on a global level, we must be committed to permitting remittances and avoid the rhetoric that posits them as being ‘bad’ for the UK. They enable us, as the source nation, to benefit from the skills of the migrants coming to the UK to work, whilst providing welfare and investment opportunities elsewhere. Remittances earn developing nations three times as much as they are sent in aid – rather than forcing transfers via tax, they enable workers to make their own spending decisions with their own earnings from their own labour.

What an excellent argument against the BBC licence fee this is

Not that Ms. Reynolds means it this way of course, she thinks she is producing the concluding argument for the retention of the BBC’s licence fee:

Anne McElvoy makes several sound points (“‘The Beeb is not facing involuntary euthanasia’”, Comment). Her easy assumption, however, that BBC radio operates with an unfair advantage – “a serious radio competitor, for example, has never got off the ground…” – must not pass unchallenged. Commercial radio in the UK competes seriously and successfully wherever there is a mass audience to be attracted. It does not, however, compete in “serious radio” because the audience it would attract (for features, documentaries, drama, comedy, etc) is not sufficient to justify the higher costs entailed. What “serious radio” commercial competitor would, for instance, underwrite her regular Radio 3 arts review, Free Thinking, or her Radio 4 series on Charlemagne and his legacy, or even the show where she has now also become a regular, Radio 4’s Moral Maze? Meanwhile, as a frequent visitor to New Broadcasting House, it cannot have escaped her eagle eye that further cuts to BBC radio budgets will seriously threaten the continued existence of any kind of “serious radio”.

Gillian Reynolds

Radio critic, Daily Telegraph

London W2

The point being that there really are things that must be done and can only be done by government and the power to tax. Radio not being one of those of course. There’s also a weaker argument that there’s things it would be nice to have and where it’s worth taxing the masses to produce a benefit to said masses. But what there isn’t is a space for the argument that the proles must be taxed in order to provide something of only minority interest. For if something does not justify the costs then we should not be doing it. If producing “serious” radio costs more than can be gained from doing so then this is an activity which makes us all poorer.

The BBC licence fee is a tax of course. And we’re really sorry to have to point this out but the point of mass taxation is not so as to provide sweeties for some small section of the metropolitan intelligentsia.

That not many people are interested in “serious” radio is an argument against the tax funding of it: that it doesn’t, as claimed, cover the costs of its production is an argument against doing it at all, not in favour of taxing those who are uninterested in it.

Subverting the urge to regulate

Two golf clubs on the Costa Geriatrica north of London play by different rules. Club A pours out regulations and spreads little instructional notices around the course. The new health and safety leaflet is only picked up because it looks like a score card. No one ever reads it. The club even specifies the socks gentlemen are allowed to wear. Club B has none of that. If their Captain suggests a new rule, he is quietly taken to one side and urged to lie down in a dark room until the urge passes. No prizes for guessing which club is the more harmonious.

Brussels and Whitehall both trumpet the need for deregulation and then do the opposite. Last week’s Research Note “EUtopian Regulation” discusses whether total regulation could be reduced by competition between the three factories, global, EU, and member states, and concludes that competition might decrease or increase total regulation. It is not the mechanism that matters, i.e. who regulates, but the will to deregulate. We need to take a hard look at the fundamental causes of the urge to regulate and then consider how the vice can be cured.

Yes, it is a vice. For example, complaints about the NHS have grown proportionately to the increase in its “management”, while malpractice in the City has grown in proportion to the number of regulators. I’m not suggesting that correlation is causality, merely that rule-making has improved satisfaction neither in the NHS nor in the banks, nor in golf clubs.

The drivers of regulation are at least threefold:

Cause One is the rise of the lobby group. Unions, NGOs and save-the-worlders all claim to represent ordinary people in pressing for additional regulations. Alongside all those telling government how to spend other people’s money, are those telling government to stop us doing whatever we happen to be doing. In a democracy, we should be free to express our opinions but that is not the same as getting the law changed to remove our freedoms. We should be governed by those we elect, not by those who think they know better. They should be taxed, for a start, on their gross income in order to compensate society for the amount of governmental time they waste.

Cause Two is the excessive number of levels of law-making and law-makers at each level. Every single one of them, like the Captain of a golf club, wants to leave his or her mark on society, to be famous for some Anti-X Act. We even hand out CBEs to these controllistas. Much better would be to reserve medals and pensions for those civil servants who can show that they have simplified and improved our lives. Performance should be measured by outcomes, not activity, i.e. the net reduction of regulation they have achieved.

Cause Three is the excessive number of supposedly independent regulators who have become arms of government. Margaret Thatcher introduced regulators to provide proxy-markets where competition did not exist, e.g. telecoms. The idea was to benefit consumers. Some still push prices down from time to time but too many are now working against consumers, e.g. imposing “compliance” costs, in order to carry out the wishes of government. As government in other colours, we should insist that regulators are funded not by levies on the private sector, but transparently by the government they represent. The squeeze on public expenditure to balance the books would then help bring sanity to regulation.

How can we subvert the urge to regulate? These three solutions should help but we need a much bigger change in the establishment mindset than that. It happened when nationalisation was found to fail and it will happen one day when we recognise the dangers to innovation, entrepreneurship and competition created by these factories of regulation. Bring it on.