Pros and Cons - Debbie Newman, Ben Woolgar 2014

Inheritance tax at 100 per cent
Section D. Economics

Most advanced industrial economies level some form of tax on inherited wealth, although it is usually only charged above a certain threshold, and certainly is not close to 100 per cent of the total assets considered. However, some states (Australia, Israel, some US jurisdictions) have abolished it and others have scaled it back. Importantly, inheritance tax (IHT) does not require anyone to lose anything they had before; it is impossible for someone to be made worse off by inheriting a taxed bequest. There is also generally an exemption for small items of sentimental value. Related debates include substantially raising inheritance tax or scrapping it altogether.

Pros

[1] People do not deserve the wealth they inherit; they had nothing to do with the creation of their parents’ assets, and it is an arbitrary consequence of their birth. So there can be no complaint about taking it away from them.

[2] People do not have a right to dispose of their income however they wish; we already impose taxes on income and assets because we acknowledge that people have been dependent on what the state and society provided them with to make their money. So there is no absolute right to gift money to others.

[3] Often, inherited wealth simply sits idle, because those who possess it simply have more money than they can spend. A 100 per cent inheritance tax would transfer this money to people who would actually spend it, so providing the economy with a valuable boost.

[4] Windfalls of inherited wealth that people acquire around the time when their parents die (generally middle age) exacerbate inequalities; for instance, they allow people to get onto the housing ladder, converting rent into equity, or send their children to private schools. This means that social inequality is perpetuated further.

Cons

[1] It is not possible to say that just because people have not earned wealth themselves, they have no entitlement to it. The nuclear family is a fundamental social unit, and it is a basic human instinct to want to keep assets within it. In some ways, families are extensions of ourselves, and thus their assets are also our own.

[2] People have a right to dispose of their income in the way they wish, so that even if the recipients of an inheritance do not ’deserve’ it, they should still receive it. We should respect the wishes of the dead, and it is wrong that when parents have worked hard to earn money, their children’s entitlement to it should be ignored. That is especially so because they have already paid tax on this wealth; they should not be taxed on it again.

[3] Rather than inhibiting the economy, large inheritances serve a vital function in increasing investment, because the rich do not leave their wealth idle, but put it into private equity funds which then spend it trying to help promising businesses. Without these funds, global business would find it much harder to raise any capital.

[4] Rather than being an unfair benefit, injections of capital in middle age simply help families get by before they have real assets to speak of. When they have children, their expenses often go up far more than their salaries. Inheritances simply allow them to live moderately comfortable lives.

Possible motions

This House supports a 100 per cent inheritance tax.

This House believes that all of the dead’s property should go to the state.

This House would stop double taxation of inheritance assets.

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