Sunday, October 07, 2007

Memento and the Inheritance Tax

To describe my central disagreement with those who support the continuation of the Inheritance Tax I think it helps to borrow a quote from one of the best films of the last decade, Memento:

"I have to believe in a world outside my own mind. I have to believe that my actions still have meaning, even if I can't remember them. I have to believe that when my eyes are closed, the world's still there. Do I believe the world's still there? Is it still out there?... Yeah. We all need mirrors to remind ourselves who we are. I'm no different."

Leonard Shelby, the film's hero, takes pretty much no utility from his vengeance. He is almost immediately dead to the consequences of his actions. However, he still wishes to do right by those he loves. Whatever we think about his seeking vengeance who would quibble with the idea that when we close our eyes the world is still there?

I don't think it is too much of a leap from what happens to Leonard when he forgets whatever he has done to ourselves when we die. Our eyes have been closed but the world is still there. The interests of the dead continue to exist after they have died and should be respected. Inheritance Tax is not a tax on the unearned wealth of the person inheriting any more than income tax is a tax on unearned wealth if the income is to be spent on providing for children. It is a tax on the dead who earned that wealth while living.

Inheritance Tax is a particularly egregious attack on the interests of those who die because it strikes not only at the financial security they wish to provide for those left behind but also at the home that they all shared. The family home is a crucial part of the stability that many people, when considering their own deaths, would want their family to be able to maintain for as long as they felt it necessary. A tax bill of tens of thousands of pounds that forces them into a hasty sale of their home and the fresh trauma of relocation is an alarming prospect to anyone considering the fate of those they care about.

The idea of a tax on the interests of the dead isn't some abstract, academic ethical argument. I think it underlies massive popular hostility to the Inheritance Tax. It is why the arguments of Labour politicians and many left-wing intellectuals continually fail to move the public on this issue. The same utilitarian minds that conceived of happiness economics cannot reconcile themselves to the idea that people care so much about something that will bring them no personal happiness. This is an issue where conservative principles are much more in touch with the intuitive understanding of ordinary people. They don't think that around half of one percent of government revenue - 16% of which the European Central Bank believe is wasted - is worth the price of their family facing additional hardship when they are first unable to look after them directly. Pretty understandable really.

In the end, even if you don't share the outlook of those who consider the world after they have died so important isn't the instinct still noble? Isn't caring so much about something you'll never see humanity at its best? For so little revenue, so little benefit to those public spending is supposed to help, is it worth taking a swipe at this supreme expression of the familial bond?

I don't think so.


edmund said...

exaclty right people giving to tohers even after death is a good- and for thier own family comes close to an obligation to try to tax people for doing good or for dying is an unpleanst thing to do. And credit to the public they seem at least quite inclined to agree.

Vino S said...

As I commented on my blog I disagree with the idea that inheritance tax is a particularly unfair tax.

In fact, I would argue that _if you are serious about equality of opportunity and social mobility_ then the concentration of wealth in a few families is to be decried. I do not see how Tories can square being in favour of social mobility and hard work when they call for _lower_ taxes on money inherited than on money earned.

And re the double-taxation point, I see VAT as double-taxation as much as IHT is. As such, a tax-cutting party which actually wanted to help the least-well-off would prioritise cuts in VAT over cuts in taxes like stamp duty or IHT. To me, what the Conservative idea of cutting IHT and stamp duty suggests that they are a party representing the class interests of the middle-class rather than standing up for abstract free-market principles and the for the principle of meritocracy.

Lord Higham-Johnson said...

To describe my central disagreement with those who support the continuation of the Inheritance Tax...

There are only two or three issues which send me apoplectic. One of them was on my blog today and IHT is another.

I completely agree here, Matt.

Matthew Sinclair said...


I didn't make the double-taxation point in this post. I agree that it really needs to be phrased more carefully than it sometimes is.

As for social mobility. Surely the important thing is to provide effective services that can help people move up rather than finding an efficient mechanism to bring people down? Otherwise aren't we back to levelling down Communism? Or is that something you support?

What do you think of the arguments I put forward in this post?

Alex said...

I used to be an advocate of inheritance tax in my young, studenty phase. Back then, the extent of the sophistication of my argument was, "yeah, but the rich can afford it, so screw them."

Now I'm a bit older and have done a bit of research into the world of money I now realize that my former arguments were a bit crap, really. Agree with your post Matt, and I must say I can't help wondering if Gordon Brown wishes he'd thought of increasing the threshold before Cameron came up with it.

William Gruff said...

Another excellent post Matt.

Few can approve of a tax that penalises those who inherit a modest property, acquired through years of honest, taxed labour, but I agree with Vino's point that our interests are not best served by allowing the concentration of wealth in a very few hereditary hands. Inheritence Tax is not inherently 'bad' it is simply not working as it was intended to do. Raising the threshold, rather than scrapping it, is more appropriate.

Vino S said...

Matt, you ask what I make of the argument in your post. From what I see, you are saying the wishes of the dead should be respected. Now, i think that is something that has to be weighed up against the other aims of social policy that i mentioned above. You also make it sound like IHT is 100% by claiming that people can not pass on things to their children. In fact, their heirs get more than 60% of any estate [the nil-rate band plus 60% of anything over it]. As such, people's wishes post-death are being reflected _as much as an employer's wishes to gave an employee a £100k salary are_. The employee gets 60% of it above the threshold - just like a beneficiary of an inheritance gets 60% over the nil-rate band.

Re social mobility, I think you are dodging the point. My contention is that - by preserving initial inequalities of wealth - inheritance reduces social mobility. Now there is thus a conflict between 2 goods - social mobility vs. people's freedom to bequeath all their wealth to their heirs without paying any taxes. You have to weigh up which you see as the most important of these.

Finally, I will pose, in a clearer form a question I have wondered before re what Tories think are important tax cuts, as I think it goes to the heart of whether the Tories believe low taxes are good in themselves or whether they are simply cutting taxes to reflect the class interests of the middle-class.

The question is: if you had several billion in tax cuts you could make and the choice was:

1% off VAT;
1% of income tax; or
an end to IHT

which would you favour?

To me, the cut in VAT would be the most appealling - since that would help everyone. To focus on IHT shows, to me, that the Tories are only concerned about those who are in the top quintile of the wealth distribution [remember the average house price is less than £200k and the IHT threshold is £350k _and_ that most of the homes in this bracket are probably jointly owned by spouses and so _taken separately_ neither has an IHT liability].

Lord Higham-Johnson said...

Now there is thus a conflict between 2 goods - social mobility vs. people's freedom to bequeath all their wealth to their heirs without paying any taxes. You have to weigh up which you see as the most important of these.

The latter is of course of greatly more importnce.

fairnotselfish said...

Like most 'arguments' against IHT, your post is full of emotional hyperbole and short on good reasoning. Cutting IHT for the few has a nasty 'opportunity cost'for the many - a point Vino S makes well. And why do you see the untaxed windfall you and other wealthy older people have enjoyed from rampant house price inflation as 'earned'? Do you simply not care about other people's children - who are priced out of the housing market even when they work like dogs, and are not one of the lucky few to get a sizeable inheritance?

dearieme said...

People in this country are all rich by the standards of much of the rest of the world. They have done nothing to deserve it: it has happened because they were born citizens of an advanced country. They inherited it, and want their children to do so too. So when they say they are "against inheritance", they lie.

Alex said...

Interesting post but I don't think the analogy between Memento and dead people holds.

The reason is that Leonard must have some incentive to do what he is doing, or he wouldn't be doing it. He wants to give his life meaning when none seems possible, so he continues on his revenge mission, and as well he wants the satisfaction of avenging his wife.

But the dead don't want anything. They can't give their life meaning. They're dead. So when you say "The interests of the dead still exist and deserve to be respected", you can't be right, because the dead don't have interests. The person who used to be alive might have interests, but that doesn't matter anymore.

Some of your points seem irrelevant as well. When you state the ECB thinks 16% of our tax is wasted, you are attacking all tax, not just inheritance tax. That's all well and good (I'm not exactly a statist myself) but presumably you think there must be some tax (if only to maintain security and law).

What percentage of revenue the tax raises is also irrelevant, since it doesn't answer the question of whether it is a good way to raise that particular money.

So we are left with your argument that it is not worth 'breaking the familial bond'. But firstly you must accept it is an odd kind of bond to bond one side and not the other (as I have mentioned, the dead don't have interests, feelings or anything else). And frankly, given that people are receiving a massive dollop of cash they haven't earned (they may be partially responsible for someone else earning it, but clearly that isn't enough justification), losing the family home doesn't seem like the biggest blow in the world. An estate of £400 000 is only taxed £40 000 after all, it's not a big loss (loss being an odd word given the recipients never actually had the money). Only for the super-rich is it very significant, and, frankly, they are still super rich.

Anyway, yeah. We need to tax, and inheritance is a good time to do it.

Vino S said...

A couple of points - re Lord Higham-Johnson's point, at least you are honest. A lot of people claim to be in favour of a 'classless society' and 'social mobility' and yet don't see anything strange about inequalities passing down the generations.

Re dearime's point, that is indeed a good one. I take it you are a supporter of greater foreign aid, then. It is quite right that the wealthier countries should assist the others since - as you point out - their wealth is the result of historical circumstances, including colonialism etc, that the present-day inhabitants of the country are indeed profiting from.

William Gruff said...

Alex: What rubbish you write.

The property of the dead exists after their decease and thus their interests continue until it is disposed of.

The loss of the family home may well be 'the biggest blow in the world'.

A levy of £40,000.00 on a property of £400,000.00, or even £40,000,000.00, may require a catastrophic loss to pay. That one may inherit a property or item deemed valuable does not mean that one is in any position to pay the tax levied on it. Why should one forfeit it?

The most compelling argument against the Community Charge was that many of those liable for it were in no position to pay it. The same holds true for inheritance tax.

Capital Gains Tax on income derived from the sale or lease of inherited assets is defensible but where modest assets bought with earned income are retained it is not. Inheritance tax was intended, partly, to break up the great landed estates, not to impoverish those of the lower-middle and working classes who had managed to improve their circumstances with the aim of making life easier for their children.

Out of interest: What are your thoughts on those who win (i.e. do not earn) huge sums on the lottery?

dearieme said...

Bloody Hell, Vino; do you mean that if an economist were to persuade you that colonialism had been a net burden on the Western countries, then you'd advocate that the Third World would have to start paying them compensation? Golly.

Vino S said...

Dearime, I think you are somewhat ignoring the substantive point!