Pondering some of the recent stories about changes to UK inheritance taxes (the government’s ‘cut’ is in fact less impressive than it first appears), it occurs to me that there is one fairly respectable argument for worrying about huge inheritances, namely, that if people who work incredibly hard watch as other folk sail into positions of power and business wealth through the pure luck of having a rich family inheritance rather than through merit, it can be demoralising and encourage resentment against the broader capitalist system. Hence, so the argument goes, even though inheriting wealth per se is not wrong – it is the right of X to transfer legitimately acquired property to whomever he or she wants, period – it is sensible to foster an economic environment in which people feel they get a fair shake at what life has to offer.
I once was quite attracted by this idea of taxing inheritance to encourage some sort of ‘level playing field’, but I am no longer so sure. For a start, if an economy is expanding rapidly, it is hard to see how the presence of rich kids really demoralises less fortunate people. The economic process is not a zero sum game. Arguably, a sense of anger (“I’ll show those rich bastards”) may even spur the latter group to work incredibly hard to overtake the former. Rich kids may find they have to work harder, too, to impress people in certain ways who resent their wealth, and so on (I have seen this in action).
If a society is a closed one and the state controls most, if not all, of the key parts of an economy, then the existence of a small but influential case of rich people able to pass on their wealth without hindrance might also be a problem, but the solution to that is not to tax inheritance, but shrink the state.
A final point worth repeating over and over is the old example provided by the late Robert Nozick, the Harvard philosopher. He famously trashed egalitarian attacks on inherited wealth by rejecting the model that egalitarians use of society as a justification for their views. He said, if memory serves, that egalitarians tend to view life as a closed circuit, like an athletics track, and that if a person inherits a fortune, it is like an athlete starting a race 10 yards ahead of his fellows. But there is no fixed end to which people in society are racing, as they are in a 100m sprint. Instead, society is simply the short-hand term we use to describe the network of relationships between people exchanging things with each other to get what they want. To say that if I inherit my father’s dashing good looks or wealth means I have an “unfair” advantage over X or Y is meaningless in the context of an open society.
There are many practical, utilitarian reasons to object to inheritance tax (although other taxes are arguably even worse). But the moral case against it also needs to be made and the collectivist, zero-sum assumptions on which anti-inheritance views are made also need to be challenged for the errors they are. We cannot expect that job to be done by George Osborne.
(Update: over at the left-wing blog Crooked Timber, a contributor argues that the focus for inheritance tax, which is regarded as a good thing, should be on the beneficiaries, not the bequesters. But of course; if you are an egalitarian, it is natural to want to push the focus away from the right of people to dispose of their property to those that receive it. But the comment makes no reference whatever to why inequality that may arise from inheritance is in and of itself a bad thing. Such inequality is just assumed to be a bad thing, period. No actual argument, from first principles, is given as to why).
