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Independent Green Voice

ABOLISH THE DEATH TAX

Alistair McConnachie writes: Independent Green Voice advocates the abolition of Inheritance Tax (IHT) -- not raising its threshold, or cutting its rate -- but its complete abolition. Please note: This is an issue reserved to Westminster.

In August 2006, Stephen Byers, the former Transport Secretary and leading Blairite, called for its abolition also. Presuming he is genuine, and not just trying to make things awkward for Gordon Brown's political aspirations, then he is correct to describe it as a "tax on death" and "a penalty on hard work, thrift and enterprise".

Inheritance tax is levied at a staggering 40% on all estates worth more than £300,000, which includes everything left to beneficiaries including jewellery, cash, land and cars, and of course, the home!

If the threshold had kept in line with house-price inflation, it would be £425,000. It is deliberately being kept low to entrap more people -- a stealth tax to clobber the lower middle class!

Let's look at the arguments for and against this tax.

FOR INHERITANCE TAX

  • It is a tax on unearned wealth. This may have been an argument many years ago, but today it is a tax on savings. Most people put their savings into their home and the average value of a detached house in the UK is now £300,349 and rising1 -- above the threshold.

  • But you are being taxed on the rise in value of your house, and that is unearned wealth, which has nothing to do with your hard work! It rightly belongs to the community! This is a spurious argument when everyone else's houses are rising by the same proportions. For example, if I sold my house while alive, chances are that I would only be able to find an equivalent, or indeed less than equivalent, house for the same price.

    I haven't gained from its price rise in any substantial sense, so why should I be taxed on it? Under our reform, if people really want to leave 40% of their estate to "the community", then there will be nothing to stop them writing the Treasury into their Will!

  • It is only a tax on the mega-rich. On the contrary, the numbers paying the tax have doubled since Labour came to power and at current rates, Scottish Widows calculate that 34% of households in Britain are effected, and 68% of homeowners in London. 2

  • Why should rich kids get the benefit of money for which they never worked? The answer is simply, "Why not?" Envy, no matter how understandable, is not sufficient ground upon which to build a political principle!

  • Abolishing it may push up house prices. If there were a serious concern about the short-term effect on the economy, then it could be phased out over a 5-year period, by raising the threshold, and lowering the rate, with each year.

AGAINST INHERITANCE TAX

  • Inheritance Tax is a Communist Tax. Marx and Engels stated in The Communist Manifesto that number 3 or their 10 measures which "in the most advanced countries" would be "pretty generally applicable" was "Abolition of all right of inheritance."3

    The purpose here is to prevent wealth being passed through the generations in an attempt to level out wealth disparities in society -- to prevent wealthy families being able to perpetuate a wealthy line. This follows similar communist redistribution and social theory, which is orientated towards levelling certain groups downwards, rather than raising others upwards.

    If you believe in the concept of inheritance -- passing money or other possessions, physical or otherwise, down through your family, or indeed, wider society -- then you must oppose the tax on principle, in any form and at any level, even if the threshold is linked more closely to house-price inflation, or the tax rate on it is lowered.

    It is a matter of political principle that people should be able to pass on the fruits of their lifetime's endeavours to whomever they want.

  • It is a double tax. As Byers said, "It is unfair and punitive. It often represents a form of double taxation because it is applied to assets which themselves have been acquired from earned income that itself has been taxed."4

  • It weakens small and medium sized businesses, especially family businesses, by removing a vital source of capital. Hence it benefits only big businesses, which can access other sources of capital much more easily. Economic democracy -- whereby as many people as possible have access to capital, other than their wages -- requires its abolition.

  • It is a tax on saving, and inhibits saving.

  • It doesn't even trap the mega-rich who can avoid it, but rather the lower middle-classes who are unable to escape it.

POLICY ALTERNATIVES to INHERITANCE TAX

The Treasury estimates it will raise £3.6billion from inheritance tax in 2006/7. Where, instead, could this money come from?

This money will remain in society, rather than being redistributed via taxation. Thus it may create a dynamic effect in the economy which will either boost tax revenues elsewhere, or lower the need for this tax revenue in the first place.

However, for the sake of argument, let us presume we need to find the same amount from elsewhere…Here are 3 suggestions:

  • Tax the Toys of the Mega-Rich: Raise taxes on showy playthings -- for example, expensive cars, personal aeroplanes, helicopters and yachts.

  • Prevent Tax Evasion: The UK loses billions of pounds in tax revenue through tax evasion by the mega-rich and corporations. These loopholes need to be closed.

  • Tax Speculative Investment: As Michael Rowbotham has written: "A Tobin tax is a levy on international money transfers, intended to act as a deterrent to short-term, aggressive investments that simply extract profit rather than create wealth.Such a tax can be graduated, with a sliding scale from heavy penalties on short-term investment to lighter penalties for longer term investments. It is thus a very flexible policy instrument, applicable to different areas, at different rates and taking into account the critical factor of time.

    "A graduated Tobin tax on international portfolio investment could be levied either on profits secured by dealings on foreign stock markets, or on the total stock market investment transaction. The first scenario is perhaps more just, while the second would ensure that sudden, destabilising monetary influx/efflux -- even if it generated no profit -- was discouraged.

    "There would be no impact upon true investment, for if a foreign company is undertaking a true investment it will bring capital into the country, by-passing the stock market and all such disincentives." 5

In short, to pretend there is no alternative source for £3.6billion tax revenue is intellectual laziness, or communist principle.


(1) Editorial, "Fair taxation of inheritance", The Scotsman, 21-8-06, p.21.
(2) Sean Poulter, "Inheritance tax burden will fall on one third of families", Scottish Daily Mail, 4-2-06, p.14.
(3)  The Communist Manifesto, (Penguin Classics paperback), Ch. 2, p.104.
(4) Alastair Dalton, "Labour split over 'punitive' level of inheritance tax", The Scotsman, 21-8-06, pp.4-5.
(5)  Michael Rowbotham, Goodbye America: Globalisation, debt and the dollar empire, (Charlbury, Oxon: Jon Carpenter Publishing, 2000), p.180.

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