Inheritance tax

http://www.bbc.co.uk/news/uk-politics-31920289 from 17 March

The Conservatives’ plans are in direct contrast to what is most sensible to solve the housing crisis, as recorded by Danny Dorling in his book ‘All that is Solid’. Enhancing inheritance helps perpetuate social inequality. Sadly, inheritance tax itself is hard to administer, since parents who really care will pass on goods before they die or establish ‘charitable’ trusts. IHT therefore penalises children of uncaring parents.

The way to solve these problems is a land tax. This will hit people who invest in land, which both raises prices and reduces supply. Building more homes (which the Conservatives said they wanted but didn’t do) will create more supply, but it will be supply where people do not want to live, and it will not change the fact that investors are pumping prices to make homes unaffordable. There will always be a lot of money at the top that can crowd out what little money there is at the bottom, and in our highly unequal times if we genuinely want everyone to have the chance to live in their own home, we need to make land an unappealing investment.

The rich can easily pass on wealth in stocks, shares, cash or other assets, which might need some form of greater inheritance tax themselves, depending on your political belief. A land tax will make it costly to invest in property, ensuring that only people who want to use land will actually bother buying and pumping the prices up.

This will help us kick large numbers of foreign investors out of cities where prices are highest, such as London, freeing up homes where people really need them. The poor will also have to pay a land tax, but as they both own less land, and already pay council tax and stamp tax, they won’t experience much difference.

Strangely it is rising house prices that are making people worried about inheritance, but it is the desire of the rich to provide inheritances for their children that is both drastically exacerbating inequality and increasing house prices! By investing in housing, and not moving out of large houses when children have moved out, the rich are creating demand and restricting supply, which increases prices. Because some children get vast amounts, and others are locked out of even buying a house, inequality increases. And when inequality increases, most people become more concerned to provide as much as they can for their children because the consequences of letting them fall behind are so much greater.

If people complain that moving house moves them out of an area… well, it is people’s attempts to make housing a sign of social status by choosing areas for social class, and for not having any smaller housing, that makes moving within an area so difficult.

Overall, IHT is a very difficult tax to discuss, because it involves such heated emotions. Parents assume it is a right to leave bequests to their children, because it is a natural instinct to want to do the best for one’s own spawn. Their arguments are only enhanced by the difficulty in catching all transfers of wealth up to the time of death in order to tax them. On the other hand, IHT is central to fighting growing inequality because it is such a progressive tax.

A land tax is a wealth tax, and wealth taxes are best of all for fighting inequality. If we were to have universal wealth taxes then people would have to work to maintain their wealth, and they would be perfectly entitled to be as rich as they pleased if they could earn enough to maintain that wealth.

The idea that accumulated wealth over generations is an entitlement of those lucky enough to inherit it is ludicrous, as first noted by Thomas Paine centuries ago.  We still haven’t discarded the idea, as demonstrated by the Conservative and UKIP dislike of IHT.

Thinking about the news 5

The headline story for 1/4/15 (excellent timing) is that business leaders support the Conservatives. The detail is more revealing.

The IoD claims that it has 34,500 members; the letter to the Conservatives was signed by 100 business leaders. But even all directors have no greater knowledge of what is good for the economy and country than an average person. Their expertise, such as it is, is likely to be in running companies, not in economic policy, foreign affairs, welfare, healthcare or any other big issue. The association of business with the economy, and business interests with the national interest, is the real story here. It’s simply not a direct correlation.

People who own businesses, and probably receive most of their income from the business, will of course want corporate tax rates to go down and less onerous regulation. But consumer and worker protection aren’t designed to protect business profits (the clue is in the names). Similarly, life would be wonderful if everyone else could pay taxes but not me. But taxes need to be levied, and corporations currently pay just under £40bn in corporation tax. That sounds like a lot, until you realise that income tax and national insurance raise £259bn etc. Corporations are very good at whining, but the figures tell a different story.

I could go on, about how the Conservatives have dropped the main rate of corporation tax, paid by large companies, whilst Labour's business campaign is focussing on the fact that they are promising to support small companies, who pay the small company rate. So the Conservatives are supporting mostly enormous businesses that are well-established and need no extra help, whereas Labour is merely making promises that it probably won't keep, or at best won't implement effectively. Dropping the main rate of corporation tax is an excellent way of helping the rich without doing anything for anyone who might actually need it.

One could call the story simply '100 people want to pay less tax', but that misses the question of why such a story became a headline. Many news stories are actually quite boring when you clean up the message. Why they became the stories is often the subtle message that proves interesting.

Why should we listen to business leaders? Politicians regard their support as useful, which it no doubt is, but it is strange that we trust the people who screw the economy up. There have been many news stories about businesses and business leaders avoiding tax, contributing to the financial crisis, taking shortcuts with safety and so on, yet we don’t associate this with their support for a party.
Instead there is the unspoken belief that businessmen know what's best for the economy; that their knowledge and intentions are somehow altruistic, even though at the same time we know that the purpose of business is to make money, not help others (and only a few of us believe that the two can be done well together).
It is the narcissism of these 100 businessmen, their arrogance in interfering with the election, and the public and media's trust in their judgement, that we ought to be considering.