January 16, 2010
Grassroots Tories on Tax: Ignorant and Incoherent
Still one argument being avoided, but it will be dealt with. In the meantime…
–
Yesterday at the Fabian New Year Conference I attended the “Will the real David Cameron please stand up?” debate. Polly Toynbee was solid and impressive. So was Sunder Katwala, who pointed out that all recent Tory leaders have emphasised their class backgrounds (Thatcher as grocer’s daughter, Major as working class boy, Howard as grammar schooler) but now that David Cameron is up, suddenly his Etonian background is a no-no subject. (The New Statesman have picked this up).
Mad “Nadine” Dorries provided much amusement when she revealed that she had “spent two nights with four stoners” and that people on sink estates “really want marriage in their lives, but they don’t even have it in their vocabularies”.
Douglas Carswell MP kept trying to flog his book The Plan - co-written with Dan “60 year mistake” Hannan – which he kept reminding us was “only £10″. Somehow the bits about replacing the NHS with a privatised system were transformed into “the monolith of the state doesn’t offer people much choice”, or something.
But best of all was Jonathon Isaby, co-editor of ConservativeHome.
A good question was asked about the madness and injustice of Tory plans to raise inheritance tax thresholds, granting tax-breaks to millionaires when public support for the poorest is to be slashed.
At this point Isaby went a bit, erm, whacky. He declared inheritance tax to be “immoral”, because it penalizes “aspiration” and is a “double tax”.
Let’s take the first claim about aspiration. This is simply nonsense. As Giles recently pointed out to me, most recipients of inheritances are not children or those starting their working lives, they are in their 40s and 50s. To say that people are put-off from aspiring to work hard and succeed because they want to leave even more than £325,000 (or £600,000 for couples) completely tax free to their adult heirs – as oppose to the mere 40% above that threshold currently taxed – is pretty far-fetched.
And furthermore, let’s note some Tory incoherence. The right likes to preach that benefits “disincentivise” the poorest from working, and therefore are bad. But what could be a bigger disincentive to hard work than the knowledge that one stands to gain – through no personal effort whatsoever – considerable sums of money from one’s parents?
And it is a considerable sum of money. As Peter recently noted, somebody on minimum wage would have to work for thirty years to even earn £300,000, let alone save it and pass it on. But that’s not even the level at which inheritance tax kicks in – and when it does begin it’s only at a 40% rate!
What about Isaby’s claim that inheritance tax is “double taxation”? Well this is manifest nonsense too. Let’s say Andy earns a sum of money, and is taxed on it via the usual mechanisms. If his son Bob stands to inherit Andy’s wealth and incurs an inheritance tax, is this double tax? Manifestly not: Bob never paid tax on it the first time around, Andy did. And he’s dead when inheritance tax kicks-in.
But I notice a pattern emerging. The Tories have let it be known that they are considering putting VAT up to 20% post-election. They lambasted Labour’s temporary drop to a 15% rate. Yet if anything is double taxation, VAT is: we get taxed when we earn our income, and then we get taxed again when we spend it because of VAT (which is an incredibly regressive tax, affecting the poorer more than the rich).
For some reason Isaby isn’t slamming VAT as “immoral”, but instead wants tax-breaks for millionaires. Grassroots Tories on tax: ignorant and incoherent.
You can airbrush your posters, Dave, but not your party.
stephenwhitehead said,
January 17, 2010 at 4:10 pm
Good point on double taxation. It’s a phrase that the US right has trotted out for years around inheritance tax, but it’s a peculiarly meaningless one. We pay tax on almost every transaction we make – from earning to spending to investing – and are often ‘double taxed’ on the same transaction – NI and Income tax for example, or VAT and fuel duty. That’s how taxation works.
Mark said,
January 17, 2010 at 4:44 pm
But there is a bit of a difference between providing people with (forcibly extracted) money on the basis that it will make society better and giving people money because we want to. IE – if the first makes it less likely that people will be less motivated to work towards a better society it`s failed in it`s primary motive, where as if the second does the same it doesn`t.
I also presume that you object in similar terms to Heather Mccartny receiving however many odd millions from Paul and also (if you don`t want to be a money bound hypocrite) to your daddy reading you books at night while mine beat me around the head with a stick.
In fact if we have no moral right to the advantage we might receive as a result of the kindness of our relatives, why do we have any moral right to any advantage what-so-ever?
If we have a duty to adjust for the unfair advantage that the children of the rich might receive, do we not also have an equal duty to adjust for the non-monetary social benefit that the beautiful, tall, pleasant, charming or whatever might receive as a result of their genes?
In fact, don`t we have a duty to ensure that everyone has exactly the same life as everyone else?
Mark said,
January 17, 2010 at 4:45 pm
sorry, more likely
freethinkingeconomist said,
January 17, 2010 at 10:47 pm
Paul, good post, and I would like to point out that despite its ostensible partisanship, there is no earthly reason why the Right who favour enterprise should favour this tax break. The best case was made by Irwin ‘not exactly left wing’ Stelzer
http://www.spectator.co.uk/essays/all/269796/listen-to-adam-smith-inheritance-tax-is-good.thtml
‘If we have a duty to adjust for the unfair advantage that the children of the rich might receive, do we not also have an equal duty to adjust for the non-monetary social benefit that the beautiful, tall, pleasant, charming or whatever might receive as a result of their genes?’
I’m curious what you have to say to Mark on the general question about a duty to favour equal outcomes – I’m a bit nervous (on account of my beautiful tall pleasant genes . . . )
More Nonsense from Tories on Tax « Bad Conscience said,
January 18, 2010 at 10:41 pm
[...] in Politics at 10:36 pm by Paul Sagar Jonathan Isaby of ConservativeHome has responded to my accusation that his pronouncements at the Fabian Conference on inheritance tax were both ignorant and [...]
Ste For Sure said,
January 19, 2010 at 12:12 pm
‘to your daddy reading you books at night while mine beat me around the head with a stick.’
yes, most left wingers are opposed to child abuse, and support efforts to prevent it and ameliorate its effects. This might even involve the state interfering (shock fucking horror), and might be paid for in part by taxing little lord faultneroy’s. I can hear them;
‘oh god make them stop. what happened to me getting ALL daddy’s money?’
are right wingers just nasty little shits mostly?
David T Breaker said,
January 19, 2010 at 2:27 pm
I’m affraid it is not Jonathan Isaby who is “whacky” but you.
IHT is a tax on aspiration because if you aspire to leave wealth to your children, once you reach a certain level, the knowledge that 40% will go in tax acts as a disincentive to go on working for more.
And it is double taxation. In your scenario Andy has been taxed and so what’s left is his property and should be free to gift it as he wishes.
Paul Sagar said,
January 19, 2010 at 2:45 pm
Aha, our first ConHome footsolider! Wonderful!
“And it is double taxation. In your scenario Andy has been taxed and so what’s left is his property and should be free to gift it as he wishes.”
Just remind me again, David. Who is inheriting the money? Andy or Bob? Here’s a hint: Andy is dead.
If we get taxed on our incomes – which we earn – why is it not OK to tax flows of totally unearned wealth/income, especially when such flows entrench inequality and disadvantage equality of opportunity? And how can Bob be suffering from “double taxation”, when tax on his inheritance was never paid by him, or anyone. But rather, some other tax was levied on some previous income stream, some of which has eventually contributed to Bob’s inheritance.
And why is IHT bad, but not VAT?
Paul Sagar said,
January 19, 2010 at 2:49 pm
Or to demonstrate again, for your slow-witted kind:
Under IHT: Andy pays tax when he accumulates wealth or income. Then Andy dies. Now Bob inherits some money/wealth/property, and Bob pays tax.
Under VAT: Dan earns some income, and pays income tax and NIC. Dan then spends his income, and Dan incurs VAT.
VAT = double tax, IHT = not a double tax, but a tax on (unearned) streams of wealth/income/property.
Whacky, me? In the land of the lunatics, the sane man is mad.
Mark said,
January 19, 2010 at 2:58 pm
Ste -
We might agree that we have a responsibility to ameliorate the effects of child abuse and that a tax on inheritance is the most efficient way to achieve this, but I think we should also recognise that the extent to which money can make up for abusive parents is extremely limited. (Money can`t buy you love.)
If we`re arguing that a tax on inheritance is justified on the grounds that we have no right to unfair advantage from unearned gifts, then why limit ourselves to money?
I`m sure your lovely upbringing and obviously charming personality have granted you all manner of advantages denied to bitter right-winger such as myself, regardless of how much money pa-pa- left us. Should we just completely ignore this because it can`t be expressed by a nice tidy (largely irrelevant) number? Eloquent Oxbridge graduates possess an advantage over poorly-read troglodytes such as myself. Maybe they should write my opinions for me?
Why are the left so concerned with money? Once people reach a certain level of wealth, ever more wealth is not the most important element contributing to their happiness.
Mark said,
January 19, 2010 at 3:07 pm
Paul – because the family (or circle of friends) is the fundamental unit of society – I work for my family and live collectively with them. My money is already their money.
We are not just a collection of individuals?
Grace said,
January 19, 2010 at 5:04 pm
“for your slow-witted kind” wouldn’t it be more helpful/constructive not to throw insults at each other, since that’s just going to be provocative and mean that your arguments are less likely to be seriously considered?
mark – of course there are competing considerations. equality of opportunity doesn’t override everything else. eg even if it might increase equality of opportunity if we banned parents reading to their children, an egalitarian govt might well decide not to do it because of the effect this would have on loving parent/child relationships. of course it’s a difficult question how to balance the different values we hold to, something i find slightly problematic in this account – if judging when the principle of “parents should be able to pass down money to their children” should give way to “unfair advantages are bad” is just a matter of intuition, how would you set about persuading others who disagree – like some of the pro-IHT people on here? is there no way, and so debate is fruitless?
after all they could claim that the first principle overrides the second to such an extent that the optimal rate of IHT is 0% – the marginal impact of putting the rate from 20%-0% (for example) would be much greater than a change from 40%-20%, because it would make some actions possible that weren’t before, like passing down the family home. there is 0% IHT in Italy and members of my extended family live in homes purchased by my ancestors… definitely strengthens family solidarity, my grandfather can show me the cottage where he fled from the nazis etc! quite cool!
max u said,
January 19, 2010 at 8:20 pm
Noone ever points out the real inequity of IHT- thats it taxed on the estates of the decased rather than the gifts recieved by the recipent. This is best illustatred by an example, using the names already used above-
Scenario A
Andy is an only child who when his dad BoB dies recieves an IHT exempt estate of £300,000. Shortly thereafter is rich bachelor Uncle Dan also dies leaving an estate worth £525,000 which after payment of IHT leaves a further £445,000 to Andy. In total Andy cleans up a total of £745,000 in inheritance.
Scenario B
Andy is one of three children and thus recieves only £100,000 on Bob’s death as his estate of £300,000 was divded equally betwen the three of them. Dan still dies unmarried but likewise leaves his estate after IHT to Bob’s three children- meaning Andy gets a further £148,333 from him for a total of £248,333.
As you can see being an only child is highly beneficial to Andy and in fact much more important to him than the impact of inheritance tax. Yet where there are three beneficiaries no allowance is made to inheritance tax to take account of that. In financial terms having only one child is the best gift
parents an give to their issue.
A much fairer system imho would be for IHT to be charged on the size of the bequest in the hands of the beneficiary. For example you could be allowed a life time allowance for gifts of, say £200,000 above which you would be obliged to pay 40% tax. This would stop only children being favoured above their peers. Assuming the average family has two hildren this would equate to an IHT threshold of £400,000 (not far from the current level).
Mark said,
January 21, 2010 at 6:19 am
Grace-
Dunno! Only one way to find out!
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