Recently there has been an attempt to rehash the debate as to whether we should abolish inheritance tax. From Nigel Farage to fellow student blogger, Lewis Worrow, it is interesting how the Right are utilising the current economic climate to argue that those at the top should contribute less. Where I agree that the inheritance tax system is not as efficient as it should be, I fundamentally disagree with the idea that it should be scrapped in the hope that more would be raised through VAT as a result of increased spending.
I believe that such a move would be wrong for three reasons. Firstly, to accommodate for the loss in revenue, an increase in VAT would be likely to make up for the missing £2.9bn (amount raised by inheritance tax in 2011/12) - an increase which would disproportionately impact those in lower socio-economic positions. Secondly because putting emphasis on VAT to generate revenue lends support to the dubious notion that those at the top of society should be paying the same as the bottom. And thirdly because abolition of inheritance tax would remove one of our only safeguards against aggressively entrenched wealth inequality.
Where I freely put my hands up and admit that the system, as it stands, is inefficient - with 70% of people paying the tax only meeting the threshold of £325,000 through inheriting £500,000 or less - there is little merit as a result to have the whole tax abolished. In 2011/12, the £2.9bn raised was done so by taxing less than 4% of the population. From such a small proportion of the public paying into society such an impressive amount, whilst retaining the majority of what was arguably never theirs in the first place, it is somewhat surprising to hear the conclusion that the whole system should be thrown out. As far as I can see some cause to increase the threshold, the fact that the tax will likely never be paid by the vast majority of people makes this debate seem frivolous.
Mr Worrow, in his case for the abolition of inheritance tax makes the claim that the government would not lose out because VAT is by far a more effective means through which to generate revenue. Where this is essentially true, it does, however, miss the point of why we have an inheritance tax. It is not so much how much money is raised, but rather how and where it is coming from. Since it is a tendency for those lucky enough to inherit large amounts of wealth to remain risk-averse, I have difficulty seeing where the sudden £2.9bn worth of VAT eligible spending is going to materialise from. Sure, inheritors would spend more, but assuming they'd spend an amount equivalent to that taken by inheritance tax is speculative at best. If, as Mr Worrow argues, the lost revenue ought to be raised through VAT in the name of 'fairness', it will probably result in increases of VAT. A move which I could hardly call 'fair'.
It is no secret that there is a great divide between the rich and poor throughout the world and not just in Britain. As was reported earlier this year, the richest 1% now own as much as 48% of global wealth, which is forecast to only increase. This massively unequal allocation of wealth is a dire problem for liberal societies because it directly impedes social mobility. By perpetuating a system whereby those at the top continue to accumulate assets with little to no redistribution, you are contributing to a world whereby the poor get poorer. Asking, therefore, the bottom 99% to pay the same as the top 1% when the pool of resources is so disproportionate, in the name of 'fairness', is ludicrous.
I strongly suspect, if we did scrap the tax, that the supposed increase in revenue generated through VAT would likely to do little to offset the damage caused by the wealthiest aggressively growing their real estate portfolios. As our house prices rise year on year, those who can afford to own a home are increasingly just those at the top - further pushing prices up and keeping first time buyers out. The amount of money the government would have to spend to offset this inflation would vastly overshadow any new VAT generated revenue. That is, if the poor had not quite been bled dry yet. Who knows, maybe this would leave us no choice but to introduce the dreaded mansion tax. Where this is obviously 'worst case scenario', it is not entirely unfathomable and as such, we should be cautious.
The fact that there is a disproportionate distribution of wealth gives inheritance tax its legitimacy. If we were to chuck it out now the only result would be that those at the top having even less to stop them snowballing their wealth. Even as an imperfect system, it ensures that at least some of the massive amounts of wealth locked away by the rich finds its way back into circulation to support those in need. It's time to face up to reality. Trickledown economics is wishful thinking and it is time we made a concerted effort to make society more just.