This idea should make us all nicely poorer

Of course it is possible that the aim and purpose of governance is not to make us all poorer but that seems to be a minority view these days:

John Healey has drawn up plans for a tax raid on family businesses ahead of the Budget.

The Chancellor is considering proposals to levy income tax when business owners hand their company down to the next generation, potentially almost doubling the bill.

At present, transfers can be structured so they attract capital gains tax, which is charged at a lower rate.

At the larger scale of course this is converting capital into current consumption. What would have remained invested in those businesses must now be realised and sent to government. Who will use it to pay for current spending. Converting society’s capital into current consumption might, well, be called selling the family silver. Given that current investment is what makes the future richer, reducing the amount of investment currently would indeed be making that future poorer.

But there’s also a more detailed view possible:

After Sweden removed inheritance and gift taxes in 2005, private firms with potential family successors grew faster, invested more, and paid higher corporate taxes than firms without natural heirs, according to a new white paper.

As the Rev. Darwin pointed out much of life is done for the benefit of one’s children. As Haldane refined it, it’s the having of grandchildren that is winning at the game. So, where people are able to benefit their children - and given that finances do seem to influence the production of grandchildren - they do more to benefit them. Thus this finding, that people who are able to leave a family business to their children continue to build that business even when the consumption desires of this lifetime are already met.

This, of course, makes the future richer.

Quite why a Chancellor would desire to construct a taxation system that makes the future poorer is unknown. But given what Chancellors do in fact do it seems to be a common affliction.

Tim Worstall