The argument put up by those who favor the repeal of the inheritance tax is that people work hard and want to leave something to their offspring.
“I should be free to do what I want” has become the modern definition of liberty. Economic liberals hold that wealthy individuals should be free to gain unrestricted money, use others in exploitative ways, and freely harm the environment.
Any attempt to tax, regulate, or otherwise prevent negative effects is seen as an oppressive attack on personal freedom, according to economic liberals.
But they are actually protecting privilege rather than liberty.
This past weekend, there were reports that the struggling Conservative government of Rishi Sunak was thinking about doing rid of the inheritance tax.
Due to liberal thresholds, which now mean that anything passed on below a particular sum (£325,000 for individuals, £650,000 for couples, and can reach up to £1m in circumstances that entail property) is subject to no taxation at all, only 5% of estates pay inheritance tax.
Although inheritance tax now generates £7 billion in income, it also serves as a minor restraint on the widening gap in wealth disparity.
43% of the private wealth in the UK is held by the top 10% of families. The University of Greenwich’s Ben Tippet and Rafael Wildaur conducted a study that found that the wealth of the poorest 50 percent of households in Britain, or 33.5 million people, is equal to that of the poorest 50 percent of families.
I doubt many people would concur that individuals acquiring enormous wealth and multi-million pound mansions are those who currently most need government intervention.
People who support the repeal of inheritance tax claim that they work hard and want to leave something for their offspring. Of course, inheritance tax does not stop that; because of the thresholds, substantial sums can be transferred tax-free, and everything over that is subject to a 40% tax.
Of course, millions of members of the working class put in a lot of effort during their lifetimes, tend to do a better job of paying their taxes, and also wish to leave something for their offspring.
They put forth the same amount of effort and care for their kids. Building up riches is not a sign of virtue or affection.
The claim that inheritance tax is unfair because it is “double taxation” is another somewhat fanciful argument. People have already paid tax on their income, so why should they pay it again, is the justification offered by tax opponents.
This misses—or rather, purposefully hides—the fact that inheritance is the act of transferring an asset, and the recipient is responsible for paying the tax. The inheritor must pay taxes because they are getting unearned wealth and income.
If the “double taxation” argument were to be taken to its logical conclusion, it would also result in the elimination of the VAT, alcohol and cigarette taxes, council taxes, and almost all other taxes that we pay with our money after paying income taxes.
In actuality, the tax system has never had and never should have had a single goal. Taxes can combat inequality by rebalancing the inequities in the labor market; they can help keep inflation down by stifling demand; they can help deter damaging behavior, which is why we have taxes on unhealthy consumables and environmentally damaging actions; and they all serve to bring in tax revenues that governments use to fund public services, pay off debt, and reassure the markets that they are fiscally responsible.
Given that the latter point is currently receiving a lot of attention, with candidates like Rishi Sunak, Jeremy Hunt, Keir Starmer, and Rachel Reeves vying for votes by pledging their allegiance to the market orthodoxy of balanced budgets, it is puzzling that the government is reportedly considering losing £7 billion in tax revenues, which primarily come from the richest 5% of the population.
It would be similar to the unfunded tax cuts for the wealthy that ended the Liz Truss and Kwasi Kwarteng economic experiment, which was a short-lived farce.
Since neither Conservative nor Labour officials are commenting on the record, a skeptic would assume that this is just some red meat, or at least the aroma of it, to entice core Conservative voters to turn out this Thursday in defense of their party, which is in danger of being wiped out in three by-elections.
According to Labour insiders, they don’t believe the proposal will ever be implemented.
At a time when the majority of people’s real earnings are declining, I imagine some would be delighted to capitalize politically on the Tories’ decision to provide £7 billion to the wealthiest households in Britain.
The government should tackle the loopholes that allow the super-rich to evade the tax rather than abolish inheritance tax.
For instance, the previous Duke of Westminster left his £8.3 billion estate to his heirs, but a sizable portion was given to family trusts, which are exempt from inheritance tax laws.
Instead of getting rid of the inheritance tax, let’s get rid of the loopholes and improve the efficiency of the system to make it more equitable for everyone.
The previous Labour Party director of policy is Andrew Fisher.