For an inheritance tax: The news that David Cameron got £500,000 tax-free from his parents raises the question of how or whether inheritances should be taxed. My view is that they should be, and heavily so.
Certainly, a lot of the defences of inheritance look pathetically weak. For example:
“Because a parent’s income was taxed, taxing inheritances is a form of double taxation.” But the same is true for most incomes. When people buy the Investors Chronicle – thus handing money over to me - they do so out of taxed income. Should I therefore escape income tax?
“People should be able to provide for their kids.” Most recipients of inheritances, however, are middle-aged. And the prospect of a big inheritance can actually damage offspring, by reducing their self-reliance and incentives to work and save. ...
“Inheritance tax punishes aspiration.” In most cases, though, the aspiration is an illusory one. HMRC data show that of the 279,301 estates that were left in 2012-13, a mere 6.4% attracted tax. Even if the IHT threshold were greatly reduced, only a minority would pay it.
This, though, brings me to why I favour inheritance taxes. ... We should think of every penny of inheritance which is not taxed as a penny which has to be raised from income taxes. Low inheritance tax thus means high income tax. From this perspective, those who want tax-free inheritances are exactly like benefit scroungers. They want something for nothing at the expense of hardworking tax-payers. It is, therefore, the lack of a serious inheritance tax – and thus the higher taxes on workers, savers and entrepreneurs – that is truly an attack upon aspirations.
If – as I find plausible – the prospect of getting an inheritance reduces labour supply, then optimal taxation might require big inheritance tax rates; these might be less distortionary than income taxes. ...
Surely, there is something fundamentally unjust about being able to get £500,000 tax-free from not working, when the same sum obtained by work would be heavily taxed.
I suspect opposition to sensible inheritance taxes owes more to the rich’s colossal sense of entitlement than it does to justice or economic efficiency. ...