Abolishing the death tax in Britain

Death duties are now only a minor source of revenue – about 1.5 percent of Inland Revenue receipts – to the British Exchequer, and few committed advocates remain. Nevertheless, they
persist, mainly because of inertia.

A recent analysis concluded that the tax should be abolished based on the concept of saving in perpetuity – saving that is never drawn down, whether or not it was initially planned as perpetual. The perpetual saver is a public benefactor because he or she provides the rest of society with a permanent loan at rates chargeable for loans with maturity dates. Taxing perpetual saving – which the death tax does – will reduce its supply, thus resulting in losses to the rest of society.

Thus, the death tax should be abolished for the following reasons:

A tax on giving or bequest always causes a social loss, and this social loss (or wealth destroyed) always at least equals the revenue yield.

Because the perpetual saver prefers the shadow of potential use to the substance of actual use, the rest of society enjoys a permanent loan at rates chargeable for loans with maturity dates.

A tax on saving in perpetuity must be expected to reduce its supply: there are no countervailing influences, and the rest of society loses as the saver in perpetuity shifts to spending.

Capital prosperity can vary independently of income prosperity, and should be nurtured and cultivated, not neglected, damaged or destroyed.

Finally, the inheritance tax cheapens the spending of the rich taxpayer relative both to his own saving and to the saving and spending of the poor. The inheritance tax increases the inequality of spending and may increase inequality overall. It does immense economic damage, and should be abolished.

Source: Dr. Barry Bracewell-Milnes, Euthanasia for Death Duties: Putting Inheritance Tax Out of Its Misery, The Institute of Economic Affairs, 2002.

For more information http://www.iea.org.uk/record.php?type=publication&ID=189
For more on Estate Taxes http://www.ncpa.org/iss/tax/

FMF Policy Bulletin\3 September 2002