Wednesday, July 01, 2009

The fairness of inheritance tax

Winston Churchill warmed to its qualities as "a certain corrective against the development of a race of idle rich."

Others call it a Death Tax (bringing to mind Darth Vader and the Death Star canteeen)

Warren Buffett has warned against dynastic wealth and the dangers of perpetuating a "lucky sperm club."

Our colleagues at Citizens for Tax Justice in the USA have examined recent studies and found claims made in favour of their abolition to be based on decidedly thin arguments.

Nonetheless, inheritance tax just keeps bouncing back onto the political agenda. Here's a timely and interesting thought piece arguing the case for viewing inheritance tax through the prism of fairness:

First: nobody deserves to inherit wealth, property or money – their inheriting these things makes their lives go better than those who were not so lucky in the lottery of birth.

Second: it is important to the lives of people in a free society – both parents and children – that parents be able to leave an inheritance to their children.

These two things need to be traded-off against each other. The state can correct for the first by taxing inheritance. This adjusts for the unfair reward of material distributions allocated by the lottery of birth, and can be used to compensate those who were unlucky enough to be born to parents who couldn’t or didn’t leave them an inheritance. This is fair because receiving inheritance and the accruing benefits is itself fundamentally unfair.

So far, so reasonable: which leads on to what should be the core of public debate on this sensitive issue:

The real question is therefore where to draw the line between these two competing demands. How much unfair, undeserved social and material inequality are we prepared to allow in the name of allowing people’s lives to go well by leaving inheritances for their children?

Read the blog and draw your own conclusions.


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