Re: Alice's inheritnace tax proposals (a problem)

[Keith Wilson <kw503@york.ac.uk>]

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In response to Rab's point about the connection between inheritance tax and 
philanthropy, I'm not convinced this is as clear cut as he suggests. In 
practice, an increased or 100% inheritance tax might actually lead to 
increased levels of private funding large projects, such as museums, parks, 
hospitals, etc., and not the opposite. Faced with the prospect of their 
accumulated wealth passing into the hands of the state when they die, many 
individuals may choose to donate the proceeds of their hard work / good 
fortune to worthy causes in order to exercise some measure of control over 
what happens to their money after they are gone when it cannot be passed 
onto their family or offspring.

Similarly, those who have more wealth than they could possibly need for 
themselves may be more inclined to philanthropy during their own lifetimes, 
as this would at least allow them to enjoy seeing at least some of the 
results of their goodwill, rather than deferring it all until after their 
death. Again, this seems more likely and not less in a scenario where 
wealth cannot be inherited along family lines.

This leaves the remaining cases of those families, or dynasties, who have 
accumulated a vast amount of wealth over several generations -- much more 
than would normally be possible within an individual lifetime. Here, the 
effect of a 100% inheritance tax would seem to be that organisations, 
charities and companies (private and public) would be able to assume a 
similar role, provided of course that the state continued to allow 
individuals to donate their wealth to 'good causes' or ongoing business 
concerns (although so far I don't think anyone here is suggesting 
otherwise). I'll leave it open to debate which one of these alternatives is 
preferable, but replacing the dynasties with corporations and trust funds 
at least has the benefit of making them slightly more democratic and 
accountable, whilst retaining the ability to counterbalance other vested 
interests within government and the state itself.

Of course, there would need to be safeguards in place to ensure that the 
real beneficiaries of such goodwill gestures aren't just the deceased's 
friends and family, resulting in exactly the situation that inheritance tax 
is supposed to avoid, but in general, this sounds like a workable 
alternative. Indeed, E F Schumacher presents an argument in his book 'Small 
is Beautiful' that organisations and businesses should play a much greater 
part in funding 'public' projects in order to discharge their 
responsibilities as corporate citizens, and this may be something that as a 
society we should positively try to encourage.

In summary, then, higher inheritance tax may act not only as a 'leveller of 
opportunity', but as an incentive for greater philanthropy and generosity 
of the kind that benefits society as a whole, and not just those lucky 
individuals who happen to be born into fortunate circumstances.

Over to you...

- Keith


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