Saturday, March 31, 2007

Inheritance tax

Chris Dillow has compared attitudes to slavery apologies/reparations and inheritance. It's an interesting point:

If we shouldn't impose costs upon people because of something they are not responsible for, why should we tolerate them getting benefits?
I think that's an unfortunate way to phrase it, though. It's trying to balance state intervention in one matter (imposing costs) against state non-intervention in another (untrammeled inheritance). In fact, the natural situation in both cases is state non-intervention, which gives neither apology nor reparation for slavery, and does not interfere in inheritance. You have to make a case for state action, not for state inactivity.

The argument is really that if good things must, morally, pass down the generations, then so must bad things. If assets can be transferred from one generation to the next then so can liabilities. Therefore if there is a liability for slavery then that liability falls on the present generation.

None of this makes the slavery apology/reparation campaigners any less fatuous. Their case would fail even if assets and liabilities properly passed down the generations. But they do not.

We have no moral claim to the products of our ancestors' labour. While people are alive they have absolute moral claim to the products of their own labour and can dispose of them as they see fit, including disposals that benefit their children. But when you're dead, you're dead. No dispositions of your assets will, ultimately, be honoured (just ask the Pharoahs) and there's no reason why they should be. The dead have no claim at all over the world of the living.

This means that while income tax is a form of theft, inheritance tax is more like the disposal of unclaimed bank accounts or lottery tickets.

Dillow argues the case on principle: it's wrong to benefit from past injustices, and these can't be disentangled from any inheritance. He's right. Claiming inheritance without liability for past wrongs is as flaky as claiming rights without responsibilities. But there's also a practical point.

Inheritance is a dead weight on us all, it's a blanket laid across the country, suffocating us all. It's a dreadful, dreadful thing, in practice. The most vital and active countries in the world are relatively unburdened by inheritance - Australia and the USA, for one reason or another, are places where it is within living memory that assets were still freely available for the most enterprising, who naturally put them to the best use.

People talk about economics not being a zero sum game, and that's patently true. But it is a massive brake on society and the economy when most - more than 50% and as much as 80% depending on who you believe - of all currently available assets are held by those whose sole purpose is to keep hold of them and pass them on to the next generation as unchanged as possible, and not to exercise them in any economically useful way whatsoever.

And since there's no moral reason why the dead should be able to dictate what happens to what were once their assets, and since nobody has any moral claim over the fruits of other people's labour, not even relatives, the auctioning off of 100% of the assets of all estates above, say, £500,000 would have no obstacles in principle, would place assets in the hands of the most productive members of the current generation, and would provide voluntary tax revenues to allow cuts in compulsory ones.

UPDATE: Tim Worstall argues persuasively that leaving assets to your children is just a form of delayed consumption. At a stretch, he argues:
While growing up the consumption of the family has been limited by the savings being accumulated. It seems a little odd to insist that delayed consumption must be taxed, while current consumption is not.
This is fair enough, although I think it is still worth repeating that when you're dead you're dead and you can't expect to control any assets beyond your own lifetime.

But this is why I think there should be a highish threshold beneath which no inheritance tax at all is paid, and above which the tax rate is effectively 100%. In the post above, I suggested £500,000 but I'd have no problem with a figure twice that. The point being that you can still trace faint outlines of the Norman Conquest in the landholdings of the English aristocracy, and by now you should not be able to. That's one hell of a period of stagnation: coming up to the millennium mark.

6 comments:

Dandelion said...

No, sorry, this is not right. It's an interesting post, but a muddled one, and it misses a crucial point, I fear.

The actions of one generation inevitably affect future generations (cf slavery). This is not something you can legislate against, it is a fact of life.

Otherwise, you'd have to revoke all laws upon the deaths of those who made them (maybe this would be a good idea, but it would create an awful lot of extra work involving the multiple reinvention of the wheel). You'd have to somehow re-programme people's minds from the parenting they received once those parents have died.

We may have no moral claim to the products of our ancestors' labour, but in that case, we must do away with electricity, the sewage pipes, the railways, heck, even language would have to go, along with philosophy, literature, medicine, irrigation, viniculture, and indeed, everything the Romans ever did for us. If we benefit from any of that, we're being "immoral", by your argument, no? We're using things we have no right to.

Of course the dead have dominion in the land of the living. To argue otherwise is plainly ridiculous.

I can receive the assets of my parents if they wish to bequeath them to me, without receiving their qualifications or status, or any credit for the work they did. Equally, I can live in a country which benefitted from slavery hundreds of years ago without being responsible for what was done.

For Tony Blair to apologise for slavery would be about as sensible as if Thabo Mbeki apologised for apartheid.

Peter Risdon said...

Blimey, Dandelion.

The actions of previous generations, including the inventions of fire, the wheel etc, and the after effects of slavery and everything else that has been done in the past, are the actions of your ancestors in a collective or metaphorical sense - unless you are the direct descendant of every inventor in the history of humanity.

Your parents' asset legacy is the product of your ancestors' efforts in a literal sense.

In other words, you're failing to distinguish between the collective and the individual, and the literal and the metaphorical. Also between inventions (houses) and instances of inventions (your parents house). And your misunderstandings go one from there...

You then assert that the dead have dominion in the land of the living (a metaphor - they're dead and make very few decisions in practice) as a response to my assertion, citing the example of the Pharaohs, that actually they're just dead and can't control what once were their assets (not a metaphor).

Then, as though no discussion had taken place you assert that you have rights (can inherit) without responsibilities (for the manner in which the wealth you inherit was gained).

Dandelion said...

It is you who is mixing the contexts of rights and responsibilities. If I have a right to breathe air, that is not an argument that I have a responsibility to, say, learn to speak German. That's the kind of logical road you are taking, and it's nonsensical, I'm afraid.

By your reckoning, babies have no rights. They certainly have very little power, and they "cannot" have dominion in the land of the living any more than the dead can, if enforceability by their own hand is a necessary condition.

I do not assert that I have the right to inherit anything - that would clearly be nonsensical, since what I inherit depends upon the wishes (and assets) of the deceased. If, in the absence of a will, the law dictates that I inherit the residue, that is not a right conferred on me, that is the law as it stands, regardless of my wishes. If the inheritance consitutes ill-gotten gains in my view, even if perfectly legal at the time of accumulation, then I am of course at liberty to dispose of them. But the question of what constitutes ill-gotten gains has to be decided by the individual concerned, and their conscience.

Your remarks about inheritance are also somewhat undermined by the inheritance-taxability of property given away less than 7 years before a person's death. If I were killed by a bus 5 years from now, any gift I'd given between now and then would become taxable. So I do not even have rights over the disposal of my own property, even while I am alive. You are mixing the ideal world with the real world, I fear.

I've never read such baloney in my life. It is you who muddles the literal and the metaphorical in your post, and the individual and collective. That was precisely the point of my reply.

Peter Risdon said...

No, I'm saying that if you have a right to assume the assets of another person then you have an responsibility to assume their liabilities too. Can you really not see that these two things are linked whereas respiration and linguistics are not?

The babies remark is silly, not least because it depends on a proviso you brought to the debate - enforceability by ones own hand. Dead people are dead, babies aren't. Dead people have no rights or powers; living ones do, including babies.

Yes, you do assert you have a right to inherit. Otherwise, if someone chose to leave something to you, you'd be unable to accept.

The law often confers rights on people, in fact the degree to which this is case, with human rights, is controversial. Probate law confers rights on relatives of intestate dead people.

I'm not explaining what the laws and tax treatment of inheritance are; I was suggesting an alternative.

As I said before: Blimey.

Dandelion said...

If one has the right to "assume" the assets of another, (as opposed to being given or bequeathed them by that person), then yes one does have responsibility for the liabilities.

But the thing is, the liabilities are taken care of out of the person's estate. This is because inheritance of property is not a question of "assuming" someone's assets, but of the assets being disposed of according to the law. Inheritance is not an active thing done by the inheritee. And that is what your post implies, which is why I say it is baloney.

The babies remark is not silly (albeit it is incomplete); the proviso is the only thing that would have made your argument, about the dead having no dominion, make sense, since as the law stands, and as history stands, they clearly do. You say living people do have rights and powers, but what responsibilities, exactly, do babies have, may I ask? And you have to admit, their powers are pretty limited. Also, I note that, like adults, they can inherit, if nominated, even though they are not able to make decisions, or understand the concept of it.

Read my comment again. I do not assert a right to inherit (though I would assert a right to be treated equally under the law with my fellow citizens). If someone chose to leave something to me, the onus is not on me to accept, silly. Accepting or rejecting an inheritance is not up to me; if I have been left something in a will or by default, it's a done deal. I'd have a fight on my hands to refuse it, and an expensive one at that. So this is why I say you are muddled. You have it arse-backwards, so to speak.

Dandelion said...

You're not explaining what the laws of inheritance are, no, but your argument kind of rests on them. You haven't offered a strong argument for the need for an alternative, you see - given what little I know about it, your argument is nonsensical, so if you do know something I don't, your argument would benefit greatly if you stated it.