There have been an absolute storm of responses to my article on Inheritance Tax both in the comments and over at Gracchi's blog. I'll bring a range of the arguments together here. If I've misrepresented any of them I'm sure their authors will correct me. In order to keep this post from reaching book length I've had to boil a few arguments down.
"It doesn't affect that many people"
Gracchi quotes the "only 6% pay" statistic that far too many supporters of inheritance tax put far too much faith in. How can we reconcile that with the Scottish Widow's estimate earlier this year that 37% of households are wealthy enough to be eligible to pay Inheritance.
It's partly a result of rising house prices and the Treasury counting the number of estates rather than the number of households (not very sensible when you're trying to work out how many people are affected). The important question, though, is: which 6%? For an answer look to Lord Lipsey in the Guardian who, in a piece attacking the Inheritance Tax, acknowledged that it is paid only by the "unwise or the unlucky". This isn't, as Lipsey tries to argue in the article, because of unfair exceptions. If exempting businesses and farms is unfair then a fair Inheritance Tax is one that bankrupts countless family businesses.
It will always be relatively easy to avoid Inheritance Tax if you know what you're doing and if death doesn't take you by surprise. The rich are more likely to have expensive advice to avoid the tax both because they are more likely to be able to afford it and their large inheritance tax bill is more likely to justify the cost of lawyers and accoutants that make an effective avoidance strategy possible.
Inheritance Tax may only affect 6% of people but they are not necessarily those most able to pay and, for the small amount of revenue it raises, it causes too many of those 6% too much distress as well as having broader social effects.
"You only want to cut Inheritance Tax to look after the class interests of the middle class" and "if you were in the Rawlsian Original Position you wouldn't want to cut Inheritance Tax"
Look at the results of a major YouGov poll commissioned by the TaxPayers' Alliance (I don't think the full breakdowns are online - I'll try and put them up tomorrow). Particularly reliable thanks to a large, 2162 strong, sample. 65% of the total sample think that the Inheritance Tax is unfair. In the North - where much fewer homes qualify for Inheritance Tax than in the South and London - that number falls to 64%. In both cases the number who think the tax is fair is 10%. There's almost no difference in opinion on Inheritance tax at all between groups with very different chances of having to pay it.
If you want to move off a regional measure look at the socio-economic breakdown. Among the C2DE group 63% think the tax is unfair against only 9% who think it is fair. This is not a tax that people only oppose because they think they are likely to have to pay it. By the Rawlsian logic Northerners and the poor should be even more supportive of Inheritance Tax than someone in the Original Position; they are less likely to have to pay Inheritance Tax than an average Briton.
There is no evidence that opposition to the Inheritance Tax is based upon class interest or selfishness. Can the Left please drop this tired ad hominem?
The results of the TPA poll are backed up by the massive increase in support for the Conservatives following the announcement of their proposal for inheritance tax cuts. If only the very rich 6% pay this tax and people only support it because they are selfish then why, exactly, was a Conservative proposal to abolish the tax so popular among at least some of the other 94%?
"The Inheritance Tax strengthens social mobility by breaking up concentrations of wealth"
This argument really troubles me. To make it you have to have simplified the concept of social mobility so much that it simply becomes "how often do people change status". That is clearly not always a good. If a company director becomes a chronic alcoholic, loses everything and winds up in the gutter there has been a social movement. Is the human suffering somewhat offset by the increase in 'social mobility'?
Apart from petty vindictiveness I can see no reason to support downward social mobility. Instead I support making it possible for people from poor backgrounds to improve their lot in life: Upwards social mobility.
Upwards social mobility is on the decline but the Inheritance Tax doesn't help. To create the conditions for the poor to create a better life for themselves you need to do all you can to encourage good schools, strong families and economic opportunity. The economic opportunity is there, the schools need reform more than money and you don't create the conditions for a resurgence of strong families by placing a particular penalty in the tax system on an expression of the intergenerational bond.
"Without Inheritance Tax you'll get an aristocracy"
I can see two potential problems with aristocracy:
1) They monopolise political power by being the only ones with votes.
2) They create barriers to entry that prevent others getting wealthy.
Neither of these problems seem particularly relevant today. The abolition of Inheritance Tax wouldn't be followed by a restriction of the franchise. Barriers to upward mobility are created by failures of public services and social decline rather than some kind of social stigma against the climber among the business community.
If aristocrats are just people with inherited wealth then I fail to see the problem. Unless you believe in the socialist dogma, proved wrong long ago, that a nation's prosperity is a fixed pie, and the wealth of one is the poverty of another, dynastic wealth shouldn't be a worry.
"Instead of cutting Inheritance Tax you should go for a tax cut everyone will benefit from"
As the Inheritance Tax doesn't raise a lot of money it makes little difference to the possibility of other tax cuts compared to whether or not you control government spending and tackle government waste (academics at the European Central Bank estimate we waste 16% of government revenue by spending less efficiently than more astute nations). If you do have to prioritise, though, I think you need to consider efficiency in a broad sense: which tax raises the least revenue for the amount of social and economic disruption it causes?
If such an index were constructed I think Inheritance Tax would be near the top of the list. While it doesn't affect everyone those it does affect suffer enough that it is not at all worth the paltry amount the exchequer receives. VAT and Income Tax make a lot of people a little worse off and raise enough that you can only make very marginal changes for the money that gets rid of Inheritance Tax. Inheritance Tax affects a smaller group of people directly but it often causes a huge amount of heartache and disruption for them. It also sends political signals that hurt the willingness to save and family values that we should all want to protect.
"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."
He won't take satisfaction from avenging his wife. He won't remember, won't have the slightest inkling that she has been avenged. That tragedy is central to the story.
He definitely does take meaning from his struggle to avenge his wife just like I'm sure many parents take meaning from knowing that they are going to provide for their children once they are gone. Parents will place quite a value on the estate that gives them such meaning. Taxing inheritance therefore taxes their interests and is a tax on the dead who earned their wealth rather than on the children who inherit it unless you want to argue that income tax is a tax on unearned wealth if the income would otherwise be spent providing for children.
The same TPA poll I quoted earlier also confirms that the elderly are deeply opposed to the Inheritance Tax. 67% of the old think this tax is unfair (11% think it is fair). Apparently they do care what happens after they die.
"[Matt] thinks that it is wrong to tax a virtue- well again I think he is wrong- hard work is a virtue and income tax takes 40% of people's income above a freshhold and more people are taxed via income tax than inheritance tax, would Matt abolish income [tax?]"
This is a ludicrous Reductio ad Absurdum. I think that taxing virtue is a bad thing. As such I think that both taxing hard work and taxing leaving money to your children is a bad thing. However, I am willing to sacrifice that principle at times in order to fund essential services. I accept Income Tax as it appears to make an important contribution to funding services which I think is worth the sacrifice of taxing a virtue. By contrast, Inheritance Tax makes very little contribution to funding services so is not worth the sacrifice of discouraging good behaviour (saving and looking after your children).