Death and taxes

Political philosopher Martin O'Neill looks at the thinking behind a political issue of the day. In h

In a letter to his friend Jean-Baptiste Leroy in 1789, Benjamin Franklin famously opined that “in the world nothing can be said to be certain except death and taxes.” Franklin was surely right about this, just as his judgment was sound in so many other matters – after all, this was the man who told us that “beer is living proof that God loves us and wants us to be happy”. But it is astonishing how often passions become enflamed, and good sense goes out the window, when we encounter the heady mix of mortality and tax.

Recent events have borne this out. No matter when the next election is held - obviously it's now later rather than sooner - Inheritance Tax (IHT) will be one of the key issues, with Tory plans to raise the IHT threshold from £300,000 to £1,000,000 promising to be their most popular single policy.

David Cameron and George Osborne have found a policy that resonates with the fears and aspirations of many of their fellow citizens, who hold IHT in suspicion and opprobrium. IHT is seen as a despicable “death tax”, which hits families just when they’re down. Moreover, it is seen as especially illegitimate, given that it is a form of “double taxation” (“why should the government take my money, when they already taxed me when I earned it?”).

IHT is viewed as the manifestation of government in its most sinister form: cold and rapacious. But it is actually quite puzzling as to why IHT has quite such a bad image. It’s a fair and progressive form of taxation, that should be popular with both social democrats and free marketeers, for reasons that I’ll explain below. Labour shouldn’t be at all defensive about IHT (and certainly shouldn’t follow Blairite outrider Stephen Byers’s eccentric advocacy of its wholesale abolition), and instead should be prepared to proclaim its myriad virtues from the rooftops.

Here’s why we should learn to stop worrying and learn to love inheritance tax:

(1) Most People Pay Nothing (or at any rate not very much…)
At the current £300,000 threshold, only the richest 6% of estates pay anything. One common form of misjudgement is that many people who will not be affected IHT nevertheless think that they will be. A striking example of this kind of thinking comes from the U.S., where the Estate Tax threshold kicks in only at $2,000,000, or for the top 1% of estates. Nevertheless, Bush’s attempt at repealing the estate tax enjoyed widespread public support among the less well off. Surveys found that 20% of Americans believed that they were in this top 1%, with a further 20% expecting to come into this bracket in the near future!

Even those who fall within the threshold often don’t pay as much as they worry they will. Is Granny worried that her house is now worth £500,000, and the grandchildren are going to lose out? Well, under current rules, Granny can give them £3,000 a year each without any tax implications. Short of liquid cash? Then she can release some of the equity in her property with an equity release mortgage. Moreover, given that the first £300,000 is zero-rated, even if Granny eventually departs leaving an estate valued at, say, £400,000, the tax liability is only £40,000 – leaving a generous £360,000 for the grandchildren. The complaint that IHT stops people from “leaving something to make their descendants lives a bit easier” thus seem rather exaggerated.

(2) Arguments About ‘Double Taxation’ are Bad Arguments:
Perhaps the strangest, and yet most pervasive, aspect of opposition to IHT is that many people say that ‘double taxation’ is intrinsically unfair. But, if this were true, then it would be intrinsically unfair to levy any form of tax on the expenditure of post-tax income. Yet, we pay VAT, fuel taxes, alcohol duty, and stamp duty when we spend our hard-earned cash, without the same kinds of complaints about ‘double taxation’.

This sort of objection to IHT, if carried to its logical conclusion, would preclude the existence of any kind of system of taxation. To see why, just think that any discrete amount of money might be involved in a plethora of separate transactions over time, being subject to different forms of taxation at each point, depending on the nature of that transaction (employing someone, buying a product, bequeathing in a will, etc.).

The ‘double taxation’ argument suggests that, no matter how long this train of transactions, taxation can happen only once in the chain. The idea seems to be that once my money has been taxed once, it cannot be taxed again. Hence, we’d need to know the complete transaction history of the economy in order to know whether any element of taxation was legitimate or not.

This is, I may hazard to suggest, a crazy way to think about taxes. An objection to the aims or level of some tax, including IHT, needs to be made in a way that’s more careful than simply invoking this kind self-defeating ‘double taxation’ argument. The money and property that we legitimately hold is in part defined by, and results from, the operation of the whole complex web of tax rules and regulations.

We can criticize elements of that system, of course, for a wide variety of reasons, but a simple appeal to the illegitimacy of the government expropriating “my money”, simply short-circuits reasoned debate about tax. Yet, this “libertarian intuition”, as philosophers Liam Murphy and Thomas Nagel call it in their book The Myth of Ownership, is pervasive, and difficult to budge. Clear thinking about IHT, as about all taxes, demands that we do budge this ‘libertarian intuition’ aside.

(3) If not Inheritance Tax, then what?
Inheritance Tax is a tax that falls disproportionately on the old (the typical case is of 60 year-olds inhering from 80 year-olds) and the rich. If we wish to repeal it, or raise IHT thresholds, then, unless we want to reduce government expenditure, the shortfall needs to be raised elsewhere. The chances are that it will be raised to a greater degree from those who are younger and poorer than those affected by IHT. Many of the opponents of IHT would be less sure of their position if questions about IHT were framed in a different way. Instead of “Would you like inheritance tax to be reduced?” the question should be “Would you like to replace inheritance tax with increased income tax or corporation tax?”. Here again, thinking of IHT as part of a tax system, rather than in abstract isolation, helps to make the issues clearer.

Cameron and Osborne suggest that their reduction in IHT can be met by levying an annual £25,000 charge on ‘non-domiciled’ UK residents, who pay no tax on their non-UK sourced income. This is a problematic proposal in a number of ways. First of all, one may doubt that it would bring in anything like the £3.5Bn that would be lost by the IHT changes proposed by the Tories. Secondly, many of the UK’s “non-doms” are not Russian oligarchs, or well-paid City workers. Some are simply Polish plumbers, who don’t want to pay tax on their non-UK income. So, some non-doms just could not pay the charge, or would de-register as ‘non-domiciled’ if the charge were imposed. Thirdly, the Tory position seems wholly unprincipled.

Surely either non-doms should pay UK tax in the same way as domiciled tax-payers (in which case we should tax them in the normal way rather than imposing an annual charge), or they should be exempt (in which case current arrangements are fine). It is difficult to see what the justification for the half-way house of a £25,000 ‘residency levy’ might be. Fourthly, let us assume that the Tories are right that we should be doing more to tax non-doms, in one way or another. Well, then, why don’t we do so in order to reduce income tax rather than in order to reduce IHT; or, indeed, why not tax non-doms in order to invest more in health in education? Given these other options, reduction in IHT is not a reasonable priority.

(4) Why Free Market Conservatives Should Love Inheritance Tax
Inheritance Tax is often seen as a policy of the Left rather than the Right, and it’s certainly true that there are lots of good egalitarian reasons that support IHT. But this is only half of the picture. Those on the Right, and especially those who believe in the usual justifications for the free-market, should be just as enthusiastic as the staunchest socialist about the preservation of IHT.

Here’s why. Let us assume that we believe in the glories of the free market economy. If we give people responsibility, and set them on their own two feet, then they’ll work hard and prosper. A free market in trade and employment gives us, let us suppose, a dynamic, innovative and thriving economy. It does this by incentivizing hard work, and letting economic rewards flow to those with the best ideas and the greatest capacity for hard graft.

But, if this is our vision of society, we surely must admit that the unearned windfall gains of inheritance tax distort this picture. Large inheritances distort the level playing field which would allow the dynamic and innovative to prosper. If welfare payments cause listlessness and sap dynamism, then we can only assume that large unearned windfalls will do likewise. Indeed, these were precisely the sorts of arguments given by Teddy Roosevelt when he proposed an American federal estate tax in 1906. As Andrew Carnegie (another proponent of IHT) put it “the parent who leaves his son enormous wealth generally deadens the talents and energies of the son, and leads him to lead a less useful and less worthy life than he otherwise would.” One need hardly point out that neither Roosevelt nor Carnegie were approaching these issues from the left.

The solution? Inheritance tax can be used to fund education so as to create that level playing field and broad opportunities, or, perhaps, used to fund capital grants to young entrepreneurs. This is exactly the sort of scheme favoured by Bruce Ackerman and Anne Alstott, in their book The Stakeholder Society, where they advocate capital grants to each individual of $80,000 at the start of their working lives, funded by a progressive estate tax. One of the interesting features of this sort of scheme is that it is all about using the state to facilitate individual responsibility and to create opportunities, rather than simply doling out welfare. This is a much purer vision of a free market society than societies that are gummed-up and ossified by inherited advantage.

(5) Why the Left Needs To Be Less Defensive about Inheritance Tax
Just like the Democrats in the US, the Labour Party has tended to be somewhat defensive when reacting to proposals to abolish or reduce IHT. Rather than simply emphasizing that not all that many people pay IHT, Labour should be trying the difficult task of transforming public opinion on the issue. Perhaps the strongest arguments for IHT appeals to ideas of reciprocity and fairness that are very commonly shared.

Teddy Roosevelt took the view that “The man of great wealth owes a peculiar obligation to the State, because he derives special advantages from the mere existence of government.” There would be no good in being wealthy if one could not enjoy stable property rights, the protection of the police, and the peace of a well-defended country, all of which need to be paid for. And individuals do not make their money in a vacuum, but by building on a broad history of innovation and development. This sort of reciprocity argument is also made by Bill Gates, Sr., father of the Bill Gates of Microsoft, in his book Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes. This sort of argument can get broad purchase with those of every political stripe, as is demonstrated by the fact that Roosevelt and Gates are hardly “soak the rich” firebrands or loonie lefties.

When one looks clearly at inheritance tax in terms of a concern with fairness and opportunity, it’s difficult to see why it has become so unpopular. Perhaps it is significant that many of those whose families would lose out most massively from a fair system of inheritance tax are precisely those who own some of our most influential newspapers, and who have the spare resources to exert political influence through lobbying and political donations. If so, that gives one more kind of democratic argument for why IHT is a vital policy in a fair and progressive country.

To return from abstract arguments to concrete policies, what should Labour do about IHT, in reaction to the Tory proposals? The answer comes from an unexpected direction. The American philosopher John Rawls, in his final book Justice as Fairness, suggests that a just society should have a system of IHT that taxed beneficiaries rather than estates. In that way, inheritance could be taxed much more like income, and hence inheritance tax could be made progressive, through orienting it towards receivers rather than donors. Large estates need not attract any taxation, as long as they were dispersed among a number of relatively disadvantaged recipients. At the same time, even small estates could be taxed heavily if they were all left to others who were themselves already wealthy. Under this system of IHT, there could be no objection that the state was stopping middle-income families from “setting something aside” for their children. But, at the same time, this form of IHT would prevent wealth-transfers which greatly widened existing inequalities.

Such a system of beneficiary-centred IHT could command easier public support than the existing system, and which would be deeply progressive in its effects. Best of all, under such a revised system, Granny need not worry at all, as she would be free to pass on her estate to her modestly well-off grandchildren (although not, perhaps, to those of her grandchildren who were already millionaires). Recipient-centred IHT would be a system of progressive Inheritance Tax that would be worth having, and worth arguing for. It might also help to undercut some of our common irrationalities about death and taxes.

Martin O’Neill is a political philosopher, based at the Centre for Political Theory in the Department of Politics at the University of Manchester. He has previously taught at Cambridge and Harvard, and is writing a book on Corporations and Social Justice.
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The French millennials marching behind Marine Le Pen

A Front National rally attracts former socialists with manicured beards, and a lesbian couple. 

“In 85 days, Marine will be President of the French Republic!” The 150-strong crowd cheered at the sound of the words. On stage, the speaker, the vice-president of the far-right Front National (FN), Florian Philippot, continued: “We will be told that it’s the apocalypse, by the same banks, media, politicians, who were telling the British that Brexit would be an immediate catastrophe.

"Well, they voted, and it’s not! The British are much better off than we are!” The applause grew louder and louder. 

I was in the medieval city of Metz, in a municipal hall near the banks of the Moselle River, a tributary of the Rhine from which the region takes its name. The German border lies 49km east; Luxembourg City is less than an hour’s drive away. This is the "Country of the Three Borders", equidistant from Strasbourg and Frankfurt, and French, German and French again after various wars. Yet for all that local history is deeply rooted in the wider European history, votes for the Front National rank among the highest nationally, and continue to rise at every poll. 

In rural Moselle, “Marine”, as the Front National leader Marine Le Pen is known, has an envoy. In 2014, the well-spoken, elite-educated Philippot, 35, ran for mayor in Forbach, a former miner’s town near the border. He lost to the Socialist candidate but has visited regularly since. Enough for the locals to call him “Florian".

I grew up in a small town, Saint-Avold, halfway between Metz and Forbach. When my grandfather was working in the then-prosperous coal mines, the Moselle region attracted many foreign workers. Many of my fellow schoolmates bore Italian and Polish surnames. But the last mine closed in 2004, and now, some of the immigrants’ grandchildren are voting for the National Front.

Returning, I can't help but wonder: How did my generation, born with the Maastricht treaty, end up turning to the Eurosceptic, hard right FN?

“We’ve seen what the other political parties do – it’s always the same. We must try something else," said Candice Bertrand, 23, She might not be part of the group asking Philippot for selfies, but she had voted FN at every election, and her family agreed. “My mum was a Communist, then voted for [Nicolas] Sarkozy, and now she votes FN. She’s come a long way.”  The way, it seemed, was political distrust.

Minutes earlier, Philippot had pleaded with the audience to talk to their relatives and neighbours. Bertrand had brought her girlfriend, Lola, whom she was trying to convince to vote FN.  Lola wouldn’t give her surname – her strongly left-wing family would “certainly not” like to know she was there. She herself had never voted.

This infuriated Bertrand. “Women have fought for the right to vote!” she declared. Daily chats with Bertrand and her family had warmed up Lola to voting Le Pen in the first round, although not yet in the second. “I’m scared of a major change,” she confided, looking lost. “It’s a bit too extreme.” Both were too young to remember 2002, when a presidential victory for the then-Front National leader Jean-Marie Le Pen, was only a few percentage points away.

Since then, under the leadership of his daughter, Marine, the FN has broken every record. But in this region, the FN’s success isn’t new. In 2002, when liberal France was shocked to see Le Pen reach the second round of the presidential election, the FN was already sailing in Moselle. Le Pen grabbed 23.7 per cent of the Moselle vote in the first round and 21.9 per cent in the second, compared to 16.9 per cent and 17.8 per cent nationally. 

The far-right vote in Moselle remained higher than the national average before skyrocketing in 2012. By then, the younger, softer-looking Marine had taken over the party. In that year, the FN won an astonishing 24.7 per cent of the Moselle vote, and 17.8 per cent nationwide.

For some people of my generation, the FN has already provided opportunities. With his manicured beard and chic suit, Emilien Noé still looks like the Young Socialist he was between 16 and 18 years old. But looks can be deceiving. “I have been disgusted by the internal politics at the Socialist Party, the lack of respect for the low-ranked campaigners," he told me. So instead, he stood as the FN’s youngest national candidate to become mayor in his village, Gosselming, in 2014. “I entered directly into action," he said. (He lost). Now, at just 21, Noé is the FN’s youth coordinator for Eastern France.

Metz, Creative Commons licence credit Morgaine

Next to him stood Kevin Pfeiffer, 27. He told me he used to believe in the Socialist ideal, too - in 2007, as a 17-year-old, he backed Ségolène Royal against Sarkozy. But he is now a FN local councillor and acts as the party's general co-ordinator in the region. Both Noé and Pfeiffer radiated a quiet self-confidence, the sort that such swift rises induces. They shared a deep respect for the young-achiever-in-chief: Philippot. “We’re young and we know we can have perspectives in this party without being a graduate of l’ENA,” said another activist, Olivier Musci, 24. (The elite school Ecole Nationale d’Administration, or ENA, is considered something of a mandatory finishing school for politicians. It counts Francois Hollande and Jacques Chirac among its alumni. Ironically, Philippot is one, too.)

“Florian” likes to say that the FN scores the highest among the young. “Today’s youth have not grown up in a left-right divide”, he told me when I asked why. “The big topics, for them, were Maastricht, 9/11, the Chinese competition, and now Brexit. They have grown up in a political world structured around two poles: globalism versus patriotism.” Notably, half his speech was dedicated to ridiculing the FN's most probably rival, the maverick centrist Emmanuel Macron. “It is a time of the nations. Macron is the opposite of that," Philippot declared. 

At the rally, the blue, red and white flame, the FN’s historic logo, was nowhere to be seen. Even the words “Front National” had deserted the posters, which were instead plastered with “in the name of the people” slogans beneath Marine’s name and large smile. But everyone wears a blue rose at the buttonhole. “It’s the synthesis between the left’s rose and the right’s blue colour”, Pfeiffer said. “The symbol of the impossible becoming possible.” So, neither left nor right? I ask, echoing Macron’s campaign appeal. “Or both left and right”, Pfeiffer answered with a grin.

This nationwide rebranding follows years of efforts to polish the party’s jackass image, forged by decades of xenophobic, racist and anti-Semitic declarations by Le Pen Sr. His daughter evicted him from the party in 2015.

Still, Le Pen’s main pledges revolve around the same issue her father obsessed over - immigration. The resources spent on "dealing with migrants" will, Le Pen promises, be redirected to address the concerns of "the French people". Unemployment, which has been hovering at 10 per cent for years, is very much one of them. Moselle's damaged job market is a booster for the FN - between 10 and 12 per cent of young people are unemployed.

Yet the two phenomena cannot always rationally be linked. The female FN supporters I met candidly admitted they drove from France to Luxembourg every day for work and, like many locals, often went shopping in Germany. Yet they hoped to see the candidate of “Frexit” enter the Elysee palace in May. “We've never had problems to work in Luxembourg. Why would that change?” asked Bertrand. (Le Pen's “144 campaign pledges” promise frontier workers “special measures” to cross the border once out of the Schengen area, which sounds very much like the concept of the Schengen area itself.)

Grégoire Laloux, 21, studied history at the University of Metz. He didn't believe in the European Union. “Countries have their own interests. There are people, but no European people,” he said. “Marine is different because she defends patriotism, sovereignty, French greatness and French history.” He compared Le Pen to Richelieu, the cardinal who made Louis XIV's absolute monarchy possible:  “She, too, wants to build a modern state.”

French populists are quick to link the country's current problems to immigration, and these FN supporters were no exception. “With 7m poor and unemployed, we can't accept all the world's misery,” Olivier Musci, 24, a grandchild of Polish and Italian immigrants, told me. “Those we welcome must serve the country and be proud to be here.”

Lola echoed this call for more assimilation. “At our shopping centre, everyone speaks Arabic now," she said. "People have spat on us, thrown pebbles at us because we're lesbians. But I'm in my country and I have the right to do what I want.” When I asked if the people who attacked them were migrants, she was not so sure. “Let's say, they weren't white.”

Trump promised to “Make America Great Again”. To where would Le Pen's France return? Would it be sovereign again? White again? French again? Ruled by absolutism again? She has blurred enough lines to seduce voters her father never could – the young, the gay, the left-wingers. At the end of his speech, under the rebranded banners, Philippot invited the audience to sing La Marseillaise with him. And in one voice they did: “To arms citizens! Form your battalions! March, march, let impure blood, water our furrows...” The song is the same as the one I knew growing up. But it seemed to me, this time, a more sinister tune.