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James Graham has done the short version of the Georgist objections to Conservative Plans over Stamp Duty and Inheritance Tax and, whilst I have blogged in the past about why we should indeed abolish IHT completely, I spotted this yesterday on "The First Post" which I think highlights a common confusion about IHT and, in particular, "real property" - ie your home...

Arguments for and against inheritance tax:

ARGUMENTS FOR (abolition/reform):

Inheritance tax no longer fulfils its original intention. Initially designed to raise money from the very wealthy, it now penalises more and more members of the middle classes. The very wealthy, however, can often afford financial guidance and find ways to avoid having to pay.

If that's what people are basing the inherent unfairness of IHT upon then I think they are wrong. Whilst one cannot argue with the second sentence (and the LVT solution would solve that fairly) I am not at all sure from the history of the various Estate Duty, Capital Transfer Tax and then Inheritance Tax regimes leading up to now that the tax was in fact "initially designed to raise money from the very wealthy".

In 1857 tax was due on estates above £20, though apparently rarely collected unless the estate was over £1,400. Using the RPI these two sums equate to just £1,200 and c£90,000 in 2006 prices, or £33,000 and £857,000 using average earnings indices. No, given the discussions around the various ways of levying land taxes in the People's Budget of 1909, I believe that death duties were intended to capture land value increases in a way that would not impact on the owner while they were alive.

It just so happens that around the turn of the 20th century, most land was in the hands of the "very wealthy" - landlords and large real estate holdings. Now, whilst it is much more widely spread, the increase in land values, seen especially in the past decade, are still a problem which the lifting of IHT thresholds will not address, in fact as James Graham points out, will exacerbate.

One other of the arguments for abolition in the First Post article goes as follows:

In taking a share of money from people who have already contributed income and capital gains taxes, inheritance tax is a form of double taxation.

This too is to misunderstand the nature of property price rises, where the increase in values comes from and so on. The property owner has not paid tax on the capital gains in their first home at least. Nor have they paid income tax on that increase. They may (but not necessarily I suppose) have paid income tax on the money used to buy the property in the first place. Nor have they contributed much, if anything, to the increase in value. That comes about because the location becomes more popular - more people need to have access to that location or ones like it. It is a monopoly profit in a zero sum market. Contrast this with the profit made from healthy economic investments such as equity in companies which only arise because someone, the company, is creating additional wealth.

Yet in attempting to take the family home out of IHT the Tories are doing precisely the opposite of what is fair and equitable. The monopoly "real property" profit the family is allowed to keep, whilst healthy investment assets are more likely to be taxed, if anything is. Of course I do not believe in waiting till someone dies before collecting the land value from the estate. It should be, as Adam Smith, Milton Friedman and Winston Churchill suggested the main or only form of taxation. Such would keep house prices down, allow people to save the rest of their income in productive assets instead, and be difficult to avoid, even for "non-doms". Then abolishing IHT would make sense, taking all the other productive capital assets out of what is a pernicious tax.

There's a lot of chatter in the media today about this:

ConservativeHome's ToryDiary: Lowering and simplifying tax for small business

George Osborne is giving a speech to the Chartered Institute for Personnel and Development and the British Chambers of Commerce today, about simplifying the administration of income tax, national insurance and VAT.

Here's the original:

Liberal Democrat Manifesto for Business (2005)

Liberal Democrat top policies for business:

• Carry out the biggest act of deregulation by scrapping the DTI.
• Carry out independent impact assessments on new regulations.
• Introduce a sunset clause on new regulation.
• Reform business rates with an allowance for small businesses.
• Simplify the tax system to ease the burden on small businesses in particular
• Focus on increasing skills of the workforce.

You can read the rest on the Lib Dems' publicly accessible policy pages. Cut and paste as much as you like George!

In The poor and the dispossessed Simon Mollan on Inner West writes about an horrific scenario in which an underclass in Britain is trapped in a downward spiral of "violence, poverty, food insecurity, substance abuse, anger..." and so on and wonders whether there are any possible solutions.

I have to say I wrote an essay not too dissimilar to that at school. My teacher gave me nineteen out of twenty but wrote in his comments that it was "worse than Hitler". It took me many years to work out what he meant. And I only became aware really a couple of years ago. He was condemning me for an assumption that these people were irredeemable, that they were born into it and had no chance of escape. Castigating me for a lack of hope.

But I do believe there is a possible solution. I can't claim credit for it - I heard it expounded on This Week a couple of years back maybe now, by Tom Conti, the actor. The symptoms were just as Simon so eloquently and I for one think accurately described. Dependency, fecklessness, down to the next generation, leaving them unteachable with no hope, little future prospects and a complete inability to take responsibility for ones-self.

What Conti suggested, if memory serves, is that there is now a generation that belongs nowhere. Home is hostile. And without that basic need addressed they cannot grow. He suggests massive extra expenditure on education (300/400% massive), such that at the very youngest, class sizes are very small indeed - half a dozen at most at age five and actually rising slowly as you go through school. The idea is that the teacher becomes the surrogate family, that school becomes a place of refuge. That the very basics of life can be taught in a family type environment at the very start of education.

He believes that over the course of a generation this could cut most other social safety net type costs in half or more as people grow up taking more responsibility for themselves, respecting themselves, simply "able to cope" often. Aside from the obvious savings in reducing costs of crime and disorder such as Simon witnessed on the train, he was talking about basics like people knowing how to tell the difference between a common cold and something more serious and stop using up valuable medical professionals' time on trivialities, and longer term know about how to look after ones-self better - all those self esteem issues that so often drive bad health and consequent spiral of employment problems and dependency.

As I write it down though, I begin to doubt it somehow. In one sense clearly, it can be seen as the uber-nanny of all states. But can it be dressed up in those liberal clothes such as leveling the playing field and preventing or removing "enslavement by poverty, ignorance or conformity"? I think it can. Can it be afforded? I don't see how it can't, the price for not doing so is horrible.

...but we shouldn't be surprised that the rich, as they always have done, seek influence through their wealth in the corridors of power.

We are either guilty of wishful thinking or collective amnesia if we think there was some golden age where those with the most voluntarily agreed not to want to rule over us. I suspect somewhere around the first half of the twentieth century and the rise of the Labour movement we might have thought that we had finally reached enlightened democracy of universal suffrage and equal political status. How ironic that it should take the longest "Labour" government in all that time to highlight that the tendency to oligarchy is still alive and well.

The concentration of power in the hands of such a few in government structures is to blame. The few are so much easier to flatter, influence and dominate than the many.

"Why should we be beggars with the ballot in our hands?"

Because we have never resolved the land question and its close relative the monopoly power of the creation of money.