Reforming inheritance tax

by Chris Bertram on October 11, 2007

I’ve just noticed (thanks to Facebook) that my friend Martin O’Neill had “a splendid article on inheritance tax in last week’s New Statesman”: . This is currently a hot topic in British politics, as Labour have reacted concessively to a populist Tory attack on the tax. You should read the whole thing, as Martin gives a very cogent explanation of why we should learn to love inheritance/estate taxes and of what’s wrong with the arguments against them. Martin concludes with a Rawlsian suggestion for progressive reform:

bq. To return from abstract arguments to concrete policies, what should Labour do about IHT, in reaction to the Tory proposals? The answer comes from an unexpected direction. The American philosopher John Rawls, in his final book Justice as Fairness, suggests that a just society should have a system of IHT that taxed beneficiaries rather than estates. In that way, inheritance could be taxed much more like income, and hence inheritance tax could be made progressive, through orienting it towards receivers rather than donors. Large estates need not attract any taxation, as long as they were dispersed among a number of relatively disadvantaged recipients. At the same time, even small estates could be taxed heavily if they were all left to others who were themselves already wealthy. Under this system of IHT, there could be no objection that the state was stopping middle-income families from “setting something aside” for their children. But, at the same time, this form of IHT would prevent wealth-transfers which greatly widened existing inequalities.