Inheritance Tax – a “good” tax? — February 2, 2012

Inheritance Tax – a “good” tax?

Inheritance Tax is a politically divisive issue. The debate is normally caricatured by “rich, Tory toffs” versus “your average worker”, but ideologically its a bit more of a challenge.

I’m a big fan of John Rawls and his theory of justice. The key point in regards to inheritance tax is his idea of the difference principle. The difference principle is defined by Rawls: “Social and economic inequalities are to be arranged so that they are to be of the greatest benefit to the least-advantaged members of society.

The issue becomes confusing when you apply the rest of Rawls principles to the debate. The issue of birth is so random, that nobody should benefit from it, however, whilst this is a noble idea it is of course a flawed one. Inequalities do exist, but it is to what level do they remain permissible?

If we had a 100% inheritance tax this would be a huge disincentive for people. Families work hard so that their children/family can “live a better life than they did.” A 100% tax is a frightful idea from a Liberal perspective, it totally undermines the work ethic, like most taxes. But, to what extent are those who are “entitled” to inheritance, really entitled to it? The luck of birth isn’t a strong claim to anything.

So am I in favour of 0% inheritance tax? No, not really. And neither is Rawls. Whilst “the unequal inheritance of wealth is no more inherently unjust than the unequal inheritance of intelligence” it must remain that allowing inheritance is to everybody’s benefit. So does allowing millionaires to leave their children all their estate eventually help the poorest, through tax and redistribution later down the line?

I’m not wholly convinced by either argument. But, if we are to have an inheritance tax; the purpose of tax, should not be to raise the government revenue, but to close the gap in personal wealth and capital ownership.

What do you think, is inheritance tax a good idea? Let me know below…