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 fish-eaters and the fasters

With a population split between whites and Asian Muslims, in some ways Nelson in Lancashire feels like similar-sized towns in Ulster: two communities separated by a gulf of non-communication.

In the late afternoon of local election day this month, the chairman of Nelson Town Council was working the terraces of old cotton weavers’ houses on his patch. Sajid Ali was wearing a red rosette and a navy blue cardigan over his capacious white shalwar kameez, and what looked like his dancing shoes.

This was not the forlorn ritual of unanswered doors, blank looks and curt responses habitually experienced by Labour canvassers even in more promising political times. Along these streets Sajid is a figure of some consequence: a jolly fellow and, as one opponent put it, an “interesting character”.

Almost everyone was in; Sajid knew almost all of them; and they in turn understood what was required. Sometimes a quick burst of Lancy Punjabi did the job: “Salaam alaykum, yoong maan, how yer doing? What time yer coomin’ to vote?” To older voters his spiel would be entirely in Punjabi and the response would often be a head-wobble, that characteristic south Asian gesture, which, when given to Westerners, can be baffling, but in these cases clearly signified solid intention.

The Labour candidate in the Brierfield and Nelson West division of Lancashire County Council, Mohammed Iqbal, held his seat comfortably on the day his party lost control of the county. And he did so on a poll of 58 per cent: a far higher turnout than in any of the other, whiter areas of Pendle; the highest in Lancashire; and higher than wards with these demographics would usually expect even at a general election. The average across Lancashire on 4 May was 37 per cent. It seems reasonable to conclude that the votes from those of ­Pakistani heritage, marshalled by Sajid, were wholly responsible.

Nelson is a strange, sad, divided, forgotten old cotton town, not without beauty. The weavers’ houses are stone not brick, which, elsewhere, might make them rather chic. A few minutes from town is wonderful Pennine countryside, and to the north the view is dominated by Pendle Hill itself, brooding like some sleeping sea monster.

Pendle is both the borough council and the constituency, where the mix of urban and rural has delivered it to the winning side in seven of the eight general elections since its creation 34 years ago. (Labour took it, five years prematurely, in 1992.) No one seriously believes the 5,400 Tory majority is in play. Nonetheless, Nelson can explain a lot about British politics in 2017.

“This was a cracking town,” said John Bramwell (“John the Fish”), who has been purveying cod, haddock and non-stop banter to Nelson for 41 years, first on the market, now from one of the last white-run, independent shops in the town centre. Nelson had a football team that played fleetingly (1923-24) in the old Second Division, what is now called the Championship. And in 1929 the Lancashire League cricket team, flashing cash in a manner that baffled the national press, signed Learie Constantine, the most gifted and thrilling West Indian all-rounder of his generation.

“When he arrived, no one in Nelson had ever seen a black man close-to,” said Derek Metcalfe, the club’s historian. “People would cross the road when he passed by. But he grew into their affections. He was a highly intelligent man as well as a great player.” Constantine, after a post-cricket career in the law, Trinidadian politics and diplomacy, finished life in the House of Lords as Baron Constantine of Maraval and Nelson, Britain’s first black peer. In July 1943 the Imperial Hotel in Bloomsbury accepted his booking but not his presence, and he promptly sued. His victory at the high court the following year was an early landmark in the fight against racial discrimination.

It was the 1950s before Nelson would get used to seeing non-white faces again, when the mill owners, battling labour shortages and overseas competition, turned to Pakistan to find biddable and affordable workers. They found them in Gujrat District, which is not one of the more worldly places, even in the rural Punjab.

“The first group were young men who in many ways integrated better than they do now. There were no mosques. They went to the pubs with their workmates and knocked around with local women. Then they had to go to the airport to collect the intended wives they hadn’t met yet,” recalled Tony Greaves, the Liberal Democrat peer who is deputy leader of Pendle Borough Council.

The mills disappeared, gradually but inexorably, but the Pakistani community kept growing and has now reached its fourth generation. The young men do not normally spend time in pubs; indeed, in a town of 30,000 people, there are only two left, plus a couple on the outskirts. It is hard to imagine anywhere that size in Britain with fewer. There are, however, at least a dozen mosques. The 2011 census recorded 40 per cent of the population as Asian, but on market day in the town centre the proportion seems much higher. The most prominent retail outlets are two bazaars: the Nelson (the
old Poundstretcher) and the Suraj opposite (the old Woolworths). Few white faces are seen in either: the saris and hijabs are beautiful but of little interest. They are all imported to this textile town from south Asia.

The white people have retreated, either out of the town altogether or to the semis of Marsden, on the hill. In the visible life of Nelson, they are clearly a minority. Population change on this scale can be accommodated, if not always easily, in large cities. It is a different proposition in a small town that was once tight-knit and, despite its closeness to larger places such as Blackburn, Accrington and Burnley, largely self-contained.

Even after 60 years, hardly anything has melted in the pot. The early migrants were villagers who placed little value on education. Recent history has led Muslims all over the world to turn inwards, to their own religion and culture. This is being exacerbated by white flight and by the advent of religious free schools, a disaster for anywhere in search of cohesion. The old Nelsonians have turned away. “Nelson is not multiracial or multicultural. It is biracial and bicultural,” says Greaves. “I would love to tell you that I go round to Abbas’s house to have chicken jalfrezi and he comes to mine for steak pudding and chips,” says John the Fish. “It’s just not like that.”

Unemployment is high at 18 per cent; there is no shortage of taxis. Educational attainment is patchy. Teachers at the two high schools fear their best pupils will be creamed off further by the promised grammar-school boom.

The vicar of Nelson, Guy Jamieson, and at least some of the local imams do their utmost to make connections between the communities. In certain respects Nelson feels like similar-sized towns in Ulster: two communities separated by a gulf of non-communication. In other ways, this description is unfair. When Burnley, just four miles away, suffered riots in 2001, Nelson stayed quiet. I could sense no threat, no active tension, merely resigned indifference on both sides. “There’s a poverty of confidence,” Jamieson said. “They don’t know how to sit down and engage.”

***

A modern English town council, subordinate to Brussels, Westminster, county and district, is an improbable power base, but Sajid Ali seems to be making Nelson’s work. Its precept is only £330,000 a year but this is not capped, so it suits both district and town if Pendle offloads smaller assets: parks, play areas, community centres. It is a minimalist form of devolution, but harks back to the days when Nelson was a borough in its own right, and looks forward to an improbable future when our towns might again be allowed to take their own decisions as they do in more grown-up countries.

But the council votes on party lines, Labour’s 16 councillors trumping the Tories’ eight. “They won’t work with us,” Sajid says flatly. “They don’t run it fairly for the town itself,” says the Conservative Neil McGowan. “If we put something forward for Marsden, we are always outvoted. One council official told me they’d never come across a town like it.” In Tony Greaves’s words, “The
politics in Nelson were always sour.” In the 1930s it was known as Little Moscow.

When I first met Sajid, however, he was outside a polling station doing a stint as a teller and laughing merrily along with his blue-rosetted counterpart, Arshad Mahmood. Yet things were not quite as they seemed. Mahmood was part of a mass defection of Pakistani Lib Dems to the Conservatives which appears to have nothing to do with Brexit, extra taxes for the NHS or Maymania. What it does have to do with remains elusive even to local politicians: “clan politics” and “personal ambition” were mentioned. It may be even more complicated than that. “So you’ll be voting for Theresa May next month?” I asked Mahmood. “Oh, no, I like Jeremy Corbyn. Very good policies.”

Perhaps this helped Sajid maintain some enthusiasm for the bigger campaign ahead, though he was daunted by one fact: the general election coincides with Ramadan, and dawn-to-dusk fasting comes hard in these latitudes when it falls in summertime. Still, he was impressed by all the new members Corbyn had brought to Labour: “The way I see it is that each new member has five, ten, 15, 20 people they can sell the message to.”

This seemed a bit strange: it implied he thought politics in the rest of Britain worked as it did in these streets. He had boasted earlier that he knew everyone. “All over Nelson?” “Oh, no,” he had backtracked. “In the English community nobody knows their next-door neighbour.” Which was an exaggeration, but perhaps not much of one.

There were no posters along Sajid Ali’s streets – not one. The information about which house to choose was on the canvass return and, more significantly, in his head. Just once he got it wrong. A little white girl opened the door and then a tattooed, muscular figure in a singlet barrelled towards the door. He wasn’t aggressive, just brisk. “Naaw. I doan’t vote.” End of. It was a sudden reminder of the norms of modern British politics.

***

Another norm is that, at any local count, no one ever thinks much of the big picture. The rise and fall of prime ministers, earthquakes and landslides are no more than distant rumours, of surprisingly little interest to the principals; what matters is the here and now. Where did that ballot box come from? How big is the postal vote? Any chance of a recount? When the five seats for Pendle were counted the next day at the leisure centre in Colne, one stop further up the clanking branch line from Nelson, no one was talking about the Tory takeover at County Hall.

Here there was something for everyone: Mohammed Iqbal won, just as Sajid predicted. Azhar Ali took the other Nelson seat even more easily for Labour. Both results were greeted with more effusive male hugs than would be considered seemly in Berkshire. In Pendle Central the Tories knocked out the sitting Lib Dem, but – heroically, in their eyes – one of the Lib Dem candidates grabbed a seat in the rural division.

But the most interesting result came in the most trifling contest: a twinned by-election for two vacancies in Nelson Town Council’s lily-white ward of Marsden, so electors had two votes each. The seats were won by a Conservative married couple, the Pearson-Ashers, who got 426 and 401; the single BNP candidate had 359 votes, with one Labour candidate on 333 and the other on 190. The first of these was called Laura Blackburn; the second Ghulam Ullah. This suggests a good deal of vote-splitting that Labour might find rather unpalatable.

In fact, Marsden already has one far-right relic: Brian Parker, who sits on Pendle Borough Council, is the last survivor in the top two tiers of local government of the BNP mini-surge that took them to 55 council seats across the country by 2009. Of Parker, two opposing councillors told me: “He’s actually a very good ward councillor.”

Curiously, Ukip has made little impact in Nelson or in Pendle as a whole. So there is not much scope for the party to fulfil what appears to be its immediate destiny: as a way station for Labour’s historic core voters to catch their breath on the arduous journey into Theresa May’s arms. According to John the Fish, whose shop functions as a kind of confessional for white opinion, they may no longer need a stopover: “I’m getting plenty of people, staunch Labourites, telling me they can’t stand Corbyn.”

I asked him how many Pakistani regulars he had. He broke off from chopping hake and held up five fingers. On 8 June the fish-eaters of Marsden can be expected to rouse themselves more energetically than the Ramadan fasters across town.

***

Seedhill, the cricket ground graced by Constantine, is pretty Nelson rather than gritty Nelson, even though a chunk of it, including the old pavilion, was lopped off years ago to form an embankment carrying the M65. Upstairs in the pavilion is a wonderful picture of the great man, eyes ablaze, down on one knee for a full-blooded cover-drive. It would have made a better monument in the town centre than the 40-foot weaving shuttle that has dominated Market Street since 2011. I thought it was a torpedo; children think it’s a giant pencil.

The packed houses that watched Constantine lead Nelson to seven league titles in nine years have dwindled now: there were only a couple of dozen to watch his successors play Accrington recently. But it was a drab day with a chilly breeze and Burnley were at home to West Brom in the winter game down the road.

And generally the club thrives better than the town. Given the lack of hotels and pubs, the pavilion is much in demand for functions, and the team remains competitive. Nelson fielded four local Asians for the Accrington match, which suggests that, in one activity at least, integration is just about where it should be.

It seems unlikely that a similar situation would apply at the crown green bowls or the brass band, or any other of the long-standing recreations in Nelson (though small but growing numbers of Pakistanis are now taking allotments). The knee-jerk liberal reaction might be that this is somehow the fault of the white Nelsonians. I think this attitude is a grave oversimplification that has done much damage.

In one respect the incomers have re-created the old life of Nelson. In the hugger-mugger stone-built terraces, the neighbourliness, the power of extended families, the external patriarchy and the internal matriarchy, the vibrancy, the sense of communal struggle . . . that is exactly what this cotton town must have been like a century ago. 

This article first appeared in the 18 May 2017 issue of the New Statesman, Age of Lies

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