Tuesday, October 02, 2007

Why all this fuss about Inheritance tax?

The Tories are making a bit of a fuss about inheritance tax, personally, I really don't get why this tax is apparently so hated. It affects only six percent of estates and even those middle class families who have seen rising house prices nudge them into that tax bracket will likely only have to pay a very small amount. The arguments usually deployed in against it are also somewhat unconvincing when examined a little more closely.

It only brings in around £3 billion, small change when you consider that the treasury budget is somewhere in the region of £450 billion.
This argument could equally be deployed for most tax cuts, the total tax take is made up of a very large number of "small" amounts. In terms of teachers, doctors, schools and hospitals, £3 billion relly rather a lot.

I've already paid tax earning it, why should I pay tax again
Lets say I choose to spend my paycheck on an iPod, part of the amount I pay will be VAT. Should I not pay the VAT on this purchase? Taxation occurs at various points as money moves about the economy. To attempt to make an rewrite the tax system into one where money is only ever taxed once is close to impossible. To turn the idea that an individual should only be taxed once on their money into a matter of principle falls down on the fact that it is just not practical.

The super rich just avoid it anyway
This is an argument for finding better ways to deal with the super rich, not an argument for abolishing/reducing inheritance tax.

Inheritance is a redistribution from old to young
This is true to some degree, although it would seem to be more a redistribution from old to middle aged. It is also a distribution from rich old to rich young. Inheritance tax means that while inheritors benefit, a porition of an exceptionally large inheritance is used to the benefit of everyone.

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