A tax on death

Madsen has a piece in City AM today, on the benefits of getting rid of inheritance tax:

Perversely, inheritance tax rewards spending rather than saving. The spender enjoys 100 per cent of value, whereas the saver is allowed only 60 per cent. The incentive is to dissipate the pool of capital rather than preserve it. Some unincorporated businesses that could continue as going concerns under family stewardship are sold and dissipated. Other businesses guard against this by ceasing to be entrepreneurial and growing, diverting energies instead into ways of minimising their exposure to inheritance tax rather than into expanding their activity and their markets.

The tax’s adverse effects on entrepreneurship go much further than discouraging parents from building up and passing on businesses. Several studies have shown that ordinary bequests boost self-employment. They provide capital sums to children at just the time when some contemplate branching out from paid employment into their own business. The bequest makes it possible, and by taxing bequests we are inhibiting future self-employment and the new businesses it would bring.

Read the whole thing.