Why IHT should be called the Death & Destruction tax


12:55 pm - August 15th 2010

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contribution by Adam Bell

While much of the left continues to fight amongst itself over how it should react to the fact that its political wing doesn’t even have a whisker of power any more, the centre-right coalition that currently governs the country is busy reshaping it in its own image.

This is no surprise; all parties do this when they’re in office. The problem is that arguing entirely within a left-wing context means that your arguments have little purchase beyond your immediate ideological buddies, inevitably weakening the left’s eventual response to the new age of austerity.

As an avowed centrist who fundamentally dislikes any one side of the debate getting too much power, I’d like to sketch out an argument that the left can use to demonstrate the moral necessity of progressive taxation using the language and principles of right-wing libertarianism.

The principle I’ll be focusing on is the belief in strong moral rights to property – the conviction that any wealth generated as a product of your work is yours, and that the state does not have the moral right to tax you beyond the amount necessary to protect property rights as a consequence of this.

The argument revolves around the peculiar interplay between the notion of a strong moral right to property and inheritance tax – or, as it’s been relabelled by the right-wing campaigners on the rather patronising assumption that Daily Mail readers won’t understand that ‘inheritance’ involves people dying, the Death Tax. This new nomenclature should be embraced; indeed, it should be extended. I propose instead of an inheritance tax, we work towards a Death & Destruction Tax.

As discussed above, to the right, your moral right to property is derived from your work to achieve it (“I worked hard for my money, and I deserve to be able to spend it any way I like”). This isn’t anything to do with your work having a value in and of itself, of course – the quantity of money you are due in accordance with your work is set by the market.

The value of your property is partly determined by the purchasing choices of other people. Within this framework, inheritance tax can be construed as an evil (“I worked to give my children a better life, and the state shouldn’t take that away by force.”).

How can something be yours if you’re dead?

However, the notion of moral rights to property (as opposed to legal rights) begins to break down at death. You’ve transferred your assets to your offspring, but the original moral right that says it would be wrong to take away those assets is still derived from your work, not your offspring’s. The notion of a transferable moral right in this context is peculiar in itself – you can transfer the moral right to property through voluntary exchange or donation, but the source of that right to exclusive access to that property remains your work, even when someone else owns it.

Therefore, when disposing of your wealth at death, the amount you are rightfully able to pass on is determined by the work you’ve done to create it. You can consider this wealth as coming in two forms: wealth-generating assets (land, industrial plant, stocks & shares) and liquidity (i.e. cash or some other bearer of value). Since the moral right determining the ownership of this property is derived from your work, that moral right is limited by any destruction of assets your work has entailed.

This is because the balance between the cash produced from overexploiting wealth-producing assets and the cash produced from sustainably exploiting those assets is not necessarily equivalent. Say a forest contains 100 trees, and expands at a rate of 10 trees per year. The price of lumber equivalent to a tree is £10. You can earn £100 per year exploiting the forest in a sustainable fashion.

However, if the price of lumber rises to £20 per tree owing to temporarily increased demand, you could chop down the entire forest in a single year for a return of £2,000 – a figure it would’ve otherwise taken you 20 years to achieve.

Once that 20 years is up, however, you’re making a loss on the asset. However, you don’t care, as you’re now dead, and we’re considering whether you should be liable for destroying assets that could’ve otherwise generated wealth.

Paying for Destruction
It’s pretty clear under this notion of moral right that you are certainly morally culpable for destroying wealth-producing assets: you’re free to do what you wish with your property when you’re alive, but on death any future owner of those assets has had their ability to work to produce wealth harmed by your action. Since under this notion of moral rights you can only pass on the wealth you’ve worked to generate, you can’t pass on wealth you’ve destroyed.

The basis of an inheritance tax – or, as I prefer, a Death & Destruction Tax – should be the value of sustainable wealth-producing assets you’ve destroyed over the course of your life. Everyone has their ability to produce wealth harmed by the destruction of otherwise sustainable resources.

A libertarian legal system should seek reparations for the destruction of assets belonging to other people – and necessarily, on your death, those assets will belong to other people. However, those reparations can’t go to those you’ve specified will receive your wealth – this is a reparative measure, and therefore reparations must go to all potential future holders of your assets, as eventually your heirs will die too.

This means the broader population, in some way to be determined by some form of collective expression of their will. We could call it the state.

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Reader comments


Why I will not waste anymore money being in a Labour party, best to sit back now and watch who is the likely winners and back them since they are both basically the same, with the liberal lapping at the winners table for the tips bits, good old lap dogs.

Sorry this is absolute rubbish.

I am currently in the process of dying and I can tell you now I’m not the least bit worried about any of my assets being taxed.

Strangely, my concerns are focussed much more close to home, I worry more about the forthcoming destruction of everything I depend upon like the NHS, welfare, the economy, etc with nothing much to back it up other than fine words about wonderful it will in five years.

Unfortunately, I’ll be dead then, but the fine words have a hollow ring to them anyway so who cares – many of us who are already suffering are going to suffer much much more and it will be nothing to do with disease.

Thanks for the essay, I think IHT is good because being taxed when I’m dead doesn’t hurt – perhaps we should tax more.

My advice to you Adam Bell is get over yourself and going find a suitable pro-Tory website to write on.

3. Alisdair Cameron

Um, Ben (2), he’s essentially trying to give a libertarian-esque argument for IHT. I’d agree it’s not much cop, but not for the reason you give. In essence he’s saying that by the act of existing/living/earning everyone in some way depletes the common pool of resources (flaw one: the assumption made is huge, is not necessarily the case for any one individual: there are definitely some who through public-spirited lives,environmentalism,philanthropic,sustainable deeds leave add to the general pool) is essence thereby negatively affecting others and their liberties, the only libertarian justification for state intervention. Thus at the point of death, their assets should be taxed to restore something back to that pool.Cue clusterfuck of lifestyle and employment audits on the deceased to see what their liability should be (flaw two).
Flaw three is the nicely general statement that the state should get the IHT as a kind of broker for the common pool. Nice idea, but which state?.Plenty of the destruction of ‘wealth-producing assets’ (and what a nebulous phrase that is) by UK citizens takes place in other jurisdictions.
I’d rather just argue for IHT upfront as a wealth tax.

One problem here is exactly how you measure the value of the destroyed “sustainable wealth-producing assets”. It’s hard to imagine any system for doing so that could be universally accepted, since the value of something is what someone else will pay for it – and yet, if it’s been destroyed, the value is nothing. Therefore, to determine such values, the law must step in and give specific rules for determining the value of an item. A plausible scenario, if not a particularly libertarian one.

However, the “destroyed” values determined by the law are unlikely to be entirely accurate, and worse still, they’ll affect the “intact” value, turning asset into liability and vice versa. This will have knock-on effects that you don’t want. For instance, it may be worth destroying things because their value once destroyed will be greater than their intact value. Consider farming subsidies and food mountains as an example. In your forest example, it may be cheapest to sell off the entire forest and use the profit to pay the “destruction” tax.

In the end, I think you’re just trying to justify an extremely unfair tax: a tax that’s applied to income that’s already been taxed. A tax that would prevent your hypothetical forest owner handing the forest to his children, who would be able to keep it going as a sustainable family business. Instead, it forces the children to sell it to someone, purely in order to pay IHT. Perhaps they will sell it to a property developer, who will bulldoze it away and then absorb the “destruction” tax as an operating cost.

Now, maybe your forest owner is David Cameron and he happens to have a few million pounds spare to pay off the tax man once he dies. But most likely, he’s an average person, who must sell the property in order to pay the tax. IHT is a fantastic way to widen the gap between rich and poor because it attacks everybody in the middle, and if we really cared about social mobility and progress, we would never consider it acceptable. However, hatred of IHT appears to be written in stone in the theology of “progress”, no more likely to be reconsidered than a Christian fundamentalist’s ideas about evolution. Better to keep the poor in poverty by forcing their children to sell their houses when they die, and make out we’re punishing them for not being sufficiently “sustainable”.

Adam, you’re tying yourself in knots here when there are simpler justifications. Is it because social justice is “Old Labour?”

Alasdair (3), thanks for pointing out to Ben that I wasn’t actually arguing against IHT. With regard to your counter arguments:
(1) It’s certainly true that this tax wouldn’t apply to everyone – but IHT doesn’t at present. It merely applies to a certain category of behaviour. I’m not sure this counts as a flaw.
(2) The bureaucracy involved in implementing such a tax would be significant, I agree – in fact, this is one of the objections I covered in the longer version of this piece I penned here: http://declineofthelogos.wordpress.com/2010/08/03/towards-a-death-destruction-tax/. My counter in essence is that significant numbers of these audits are already taking place, so in practice you’re likely to have classes of activity into which assets would fall, which would each come with a given cost. There would of course be edge cases, in which case you’d require the courts.
(3) Jurisdiction is a problem for all taxes, hence the tax evasion controversies of recent years. We may need to look at a broader reformation of the tax system which moves the point of payment away from profits and income and closer to the point at which value is added. Or, in this case, destroyed.

Your reference to wealth (and this applies to Yurrzem! at (5) too) is exactly what this piece is aimed at: arguing from within your comfort zone means you’re less likely to appeal to the opposition, at a time when they’re in power. We need to find justifications for left-wing policies within an unfamiliar context, otherwise debate becomes an echo chamber.

Vladimir at (4), I cover the double-taxation issue in my original version of this post. However, the thrust of your first two paragraphs is that the state must be required to set the value of a destroyed asset, which is non-libertarian in itself. I don’t think this counts as a valid counter-argument, for the reason you yourself identify in your second sentence. The value of the destroyed asset is the difference between its original market value and its consequent market value after your ownership. If that value is nothing, then the liability is the full cost of the destroyed asset. State valuation is not required.

Your last two paragraphs about the ‘fairness’ of a D&D tax also miss out on the likely consequences of its implementation: it’s likely to have no impact on the less well-off at all, as they are the people least likely to destroy wealth-producing assets. It’s necessarily focused on the main holders of capital in any given society.

IHT is discriminatory against families whose members live for shorter periods of time (which is partly inheritable and down to luck). Why not just tax land ownership instead? It tracks rich people more fairly and accurately.

Adam: “We need to find justifications for left-wing policies within an unfamiliar context, otherwise debate becomes an echo chamber”

Are you trying to argue Labour policies with Tories? Is this because of the bias of the press? I would suggest a better relationship with the people in general would be a starting point.

Of course, if you’re New Labour and basically neither know what you’re talking about or trust the people you expect to vote for you you might have to consider a more convoluted path.

What makes you think opponents of IHT are interested in economics? Just because they’ve come up with a few specious justifications for selfishness, doesn’t mean you need to refute them on their terms.

The core of anti-IHT tax rhetoric is the incorrect assumption that you can inherit a moral right to someone else’s hard work. Anything else they say is bluster and bullshit.

10. Alisdair Cameron

@ Adam Bell. I actually like the reasoning behind some of what you say, but do feel that while it’s a respectable debating line, as a basis for policy it’s a non-starter.

@9

“The core of anti-IHT tax rhetoric is the incorrect assumption that you can inherit a moral right to someone else’s hard work”

No, the core of the anti-IHT rhetoric is that you have a right to dispose of the property you have acquired through your own work (and been taxed upon as you acquired it) – that you may choose for yourself whether to spend your wealth yourself or to give it away to a person or persons of your choosing.

All inheritance tax is therefore a violation of the rights of property which are considered by many to be the foundation of liberty. (Remember Proudhon said that “property is freedom” as well as “property is theft”). However, income tax is also an affront to such rights and a more direct one since it is levied directly upon labour. We learn to live with such affronts because, in general, we value the services we buy with the money we pay in taxes and because we have the right, if we are not content with the deal on offer, to throw the tax levying authority out through elections.

IHT causes particular grief though because it is perceived as a double tax upon income. You paid the income tax when you earned the money, it isn’t clear why the state should have another go when you die. However, this neglects the fact that the state taxes earned income a second time anyway – through VAT.

If you spend your earned income yourself on goods and services, it is taxed one way (through VAT) but if you give it away, it is taxed another way – through IHT. Whether the balance of those taxes is correct is open to debate but it is worth noting that, if the inheritors spend the remaining money on goods and services, they will pay the VAT as well as IHT.

However, those who favour an increase in IHT (or a reduction in the exemptions) need to consider two questions

If you think IHT should be increased in an attempt to improve government revenue you must contend with the possibility that people would be less motivated to create wealth during their lifetimes. That would be OK if people who generate wealth by exploiting the poor were to exploit the poor a little less vigorously but less good if they generate wealth by, say, being a headteacher or developing lithium polymer batteries.

People who think that increasing IHT would be a good way to reduce the inequality in society would do well to remember that inequality is something that happens principally at birth rather than at the death of the last surviving parent – when IHT is levied. If IHT were increased, wealthy parents would surely avoid it by investing more heavily in their off-spring earlier in their lives (perhaps opting to send them to private school rather than leaving them a legacy)

@10

“No, the core of the anti-IHT rhetoric is that you have a right to dispose of the property you have acquired through your own work (and been taxed upon as you acquired it) – that you may choose for yourself whether to spend your wealth yourself or to give it away to a person or persons of your choosing. ”

Uh, yeah, that would be a moral right. But only the living have rights. Try to keep up.

Uh, yeah, that would be a moral right. But only the living have rights. Try to keep up.

Um, uh, er, I think GeorgeV knows that only the living can dispose of property.


Reactions: Twitter, blogs
  1. Nick Entwistle

    RT @libcon: Why IHT should be called the Death & Destruction tax http://bit.ly/c8esXp

  2. Adam Bell

    My inheritance tax piece on Liberal Conspiracy http://t.co/W5J4nNq via @libcon





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