March 23, 2009
Tories and Inheritence Tax
In a resigned, disillusioned sort of way it was amusing to listen to top Tories this morning attempt to cover-up the fact that Ken Clarke broke the official party line. You see, Clarke admitted that when the Conservatives come to power they won’t be able to afford cuts on inheritance tax.
Aside from the brief amusement of watching the Tories try not to squabble and denounce each other in public, it is depressing that the Government-in-waiting thinks that inheritance tax should essentially be scrapped. As I have argued previously, a foundation-stone of fair society with proper equality of opportunity and anything like social justice is progressive taxation of the rich.
This is especially true of inheritance tax, which regulates against some people being massively better off than others due to the utterly arbitrary fact of their being born to rich parents. Nobody “deserves” to be born to wealth parents, so nobody “deserves” their inheritance.
It’s no surprise that the Conservatives oppose inheritance tax. The Tories are the party of entrenched privilege and opposition to social mobility, not interested in helping those at the bottom of the pile. But then surprises have never had a monopoly on the depressing.
Nonetheless, the wealthy need not worry too much.
Inheritance tax is only levied on estates above a certain value. If the rich don’t want their children to pay a chunk of inheritance tax they can establish a Wealth Preservation Trust, which is equivalent to a ‘Whole of Life’ insurance, and will pay for the equivalent of the tax bill should a death occur and inheritance tax be liable.
Imagine a rich hypothetical businessman. If he and his hypothetical wife die tomorrow with no special arrangements their two hypothetical children would have each gotten a third of the estate, but a third would have been payable in inheritance tax. But by investing in a Wealth Preservation Trust, the de facto insurance created will take care of the latter, thus ensuring that the inheritance payable to the state is covered by the private scheme, and the children get to keep a third more than they would without it.
The premium for a Wealth Preservation Trust is steep by most people’s standards. About £8,000 a year is a reasonable estimate for most people’s cover. Of course for some people paying out £8,000 a year is pretty insignificant to their immediate wealth, but offers the potential of not their children avoiding much bigger sums in estate (inheritance) tax.
End product? If you are rich and plugged-in to financial opportunities, there exist convenient ways of avoiding inheritance tax.
My political opponents will say that inheritence tax is grossly unfair. Rather than offer long and detailed argumentation on this occasion, I’ll settle for quoting Republican President of the United States Theodore Roosevelt:
“Really big fortune, the swollen fortune, by the mere fact of its size acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore I believe in a tax which is far more easily collected and far more effective—a graduated inheritance tax on big fortunes, properly safeguarded against evasion and increasing rapidly in amount with the size of the estate.”
“We are bound in honor to refuse to listen to those men would make us desist from the effort to do away with the inequality, which means injustice; the inequality of right, opportunity, of privilege.”
“The man of great wealth owes a peculiar obligation to the State, because he derives special advantages from the mere existence of government.”
“The inheritance tax, however, is both a far better method of taxation, and far more important for the purpose of having the fortunes of the country bear in proportion to their increase in size a corresponding increase and burden of taxation. The Government has the absolute right to decide as to the terms upon which a man shall receive a bequest or devise from another, and this point in the devolution of property is especially appropriate for the imposition of a tax.”
“No advantage comes either to the country as a whole or to the individuals inheriting the money by permitting the transmission in their entirety of the enormous fortunes which would be affected by such a tax; and as an incident to its function of revenue raising, such a tax would help to preserve a measurable equality of opportunity for the people of the generations growing to manhood.”
Which all goes to show that current prevalent negative attitudes towards taxation are by no means necessary and perennial reactions.
Indeed, before he became the Republican Party’s presidential candidate, Senator John McCain had this to say about inheritence taxes:
“In his 1906 State of the Union Address, President Theodore Roosevelt proposed the creation of a federal inheritance tax . Roosevelt explained: ‘The man of great wealth owes a peculiar obligation to the State because he derives special advantages from the mere existence of government.’ Additionally, in a 1907 speech he said: ‘Most great civilized countries have an income tax and an inheritance tax. In my judgment both should be part of our system of federal taxation.’ He noted, however, that such taxation should ‘be aimed merely at the inheritance or transmission in their entirety of those fortunes swollen beyond all healthy limits.’
I agree with President Roosevelt, and I remain opposed to full repeal of the estate tax.”
Unfortunately McCain forgot about his long-standing opposition to inheritance tax abolition some time in 2008 when running for the Presidency.
Prevalent negative attitudes towards increasing the tax burden on the rich via progressive means are in fact very much the ideologically-infused products of the (perhaps now deceased) neo-liberal free market era.
Which means that the discourse on tax is very much up for grabs, especially now. And if the discourse changes, politics and society might just change in turn.
