Wednesday, 15 April 2015

On Inheritance Tax and the history of tax


Much has been written about Inheritance Tax, since the Tories suggested they would raise the limit and UKIP announced they would abolish it all together. Many people see it as the state taxing someone twice (despite that person being, by definition, dead, and therefore it is the inheritors who are taxed once). Others see it as a punishment for those who have done well (although, again, those who inherit have not earned it), or the politics of envy.

These ideas go against how tax has been visualised by governments from around 1714, however.
After 1714, successive government increasingly preferred to rely on indirect taxation (VAT would be a modern example of this). This included excise duties, and taxes on home produced commodities. So long as a commodity had a steady demand, it was a relatively easy way to collect revenue. 

More recently it has been argued that these taxes were deliberately progressive – at least to an extent- in that, by design, the burden tended to fall on the rich. This was because items such as wealth and luxuries were taxed. As a result, most of the tax burden was felt by the middling orders and landed classes. Historians such as O’Brien have pointed out that this was a deliberate policy, that the authorities sought repeatedly and deliberately to avoid taxing necessities too heavily, as to avoid unnecessary hardship for the poor. Thus beer, candles, coal and soap, were taxed lightly, if at all, as an exception to the general rule. In the French Wars, at the end of the eighteenth century, this had become the norm, wealth and luxuries – such as coffee tea, silk, and wine, bore the heaviest levies. In theory at least, this ensured that each section of society contributed to the war effort to a reasonably fair and proportionate degree. As such, it has been calculated that over 60 per cent of the extra taxation gathered during the French Wars came from the ‘incomes, and spending patterns of the rich.’

This is not to suggest this was popular, attempts to extend tax to a wide range of goods caused a political crisis in 1733, and when cider was taxed in the 1760s it caused riots, yet despite this, it became a ‘major prop of government finance.’ 

So why does this relate to Inheritance Tax? Because tax has long been recognised as something which should be disproportionately levied upon those who can afford it, to help those who cannot. Inheritance does exactly that. It is levied on amounts which are far above necessities, and is used by the government to invest in those services which benefit society as a whole.