A columnist called Abi Wilkinson suggested in
The Guardian yesterday that the government should fund the welfare state with a
100% inheritance tax. It's a nice idea, but like many nice ideas it reeks of
confusion regarding the consequences of such a short-sighted brainwave: consequences
that would hurt the people the policy intends to help - the poor.
To understand why the policy is a bad idea, it's
important to understand the difference between money and resources. A 100%
inheritance tax would send a message to anyone with any equity along the lines
of "Your loved ones cannot inherit any of your wealth, so you might as
well spend all your money before you peg it".
But that's another way of saying "Hey,
consume more raw materials while you still have half a chance - oil, steel,
timber, etc - and leave fewer resources for others". Encouraging more
reckless and less prudent spending to avoid being taxed at 100% on your death
means consuming more resources that are then no longer available for others to consume, or are more
expensive with which to build factories, and machines, and equipment, and schools and
buses. This ultimately hits the poor hardest in terms of the opportunity costs
of fewer jobs and more expensive goods and services.
A 100% inheritance tax encourages us to swim
against the tide of progression we've enjoyed in the past decades. All the
technological advancements, the innovations, the research, and even the
increased capacity to help those worst off in society through welfare payments,
have come from job creation, which came from using raw materials in an
effective way. Part of what made that possible was the availability of
resources when people with equity were able to conserve their assets -
something they'd be disincentivised from doing under Abi Wilkinson's idea for
daylight grave robbery.
You may be tempted to argue that if we allow
inheritance then wealthier people may consume less but their heirs will consume
more, so the result is pretty much the same. But that's not true - judicious consumption
delayed is still better than ostentatious and injudicious consumption in the here and
now, as UK
A tax that encourages any transactional behaviour
that is (at best) sub-optimal and (at worst) tantamount to reckless
overconsumption is going to be a bad tax, and one that will hit low earners and
jobseekers hardest, as in many cases it will have the knock on effect of
increasing prices and decreasing job opportunities.
