Thursday, October 18, 2007

Disengenuous Defence of Inheritance Tax by a 'Non Dom'

Irwin Stelzer, a director of economic policy studies at the Hudson Institute and a columnist for the Sunday Times and The Spectator writes:

Listen to Adam Smith: inheritance tax is good” (Spectator, 17 October):

To meet the criteria of ‘evident justice and utility’, Adam Smith supported a tax on wealth inherited by children ‘who have got families of their own, and are supported by funds separate and independent of their father’. Which is why the Economist classifies Smith as one of the political economists ‘broadly in favour’ of the estate tax.”

I sent a short comment to the Spectator (London), quoting the reference made by Irwin Stelzer (not given by the columnist):

The death of a father, to such of his children as live in the same house with him, is seldom attended with any increase, and frequently with a considerable diminution of revenue, by the loss of his industry, of his office, or of some life-rent estate of which he may have been in possession.

That tax would be cruel and oppressive which aggravated their loss by taking from them any part of his succession. It may, however, sometimes be otherwise with those children who, in the language of the Roman law, are said to be emancipated; in that of the Scotch law, to be forisfamiliated; that is, who have received their portion, have got families of their own, and are supported by funds separate and independent of those of their father. Whatever part of his succession might come to such children would be a real addition to their fortune, and might therefore, perhaps, without more inconveniency than what attends all duties of this kind, be liable to some tax.”
[WN V.ii.h .4: ‘Appendix to Article I and II’: p 859]

Comment
Adam Smith discusses inheritance tax with his usual historical method to give I context. He begins with Roman law and continues through the ‘Scotch’law. In his comments come after differentiating between inheritance while the children still live at home and for them such a tax would be ‘cruel and oppressive’.

Next he discusses the case where the children have left home and set up their own homes. In the former case there is no doubt at his abhorrence of a ‘cruel and oppressive tax’; in the second case he speaks tentatively: they ‘might therefore, perhaps, without more inconveniency than what attends all duties of this kind, be liable to some tax’.

It is fair to assert that ‘might therefore, perhaps’ are less than enthusiastic endorsement on inheritance tax, especially if laid alongside his description of the other inheritance tax as 'cruel and opporessive'.

The context in which Smith discussed the ‘evident justice and utility’ of taxation did not include income tax anything like on the scale that it is in the 21st century. In fact there was none, contrasted with 40 percent income tax and 11 per cent National Insurance (= 51 per cent). To which we can add: Council Tax, Valued Added Tax (17.5 per cent), Fuel Tax, and scores of (stealth) taxes. The Excise has always been with us, plus Stamp Duties. In this context it is difficult to see why Stelzer is so sure of Adam Smith’s support for all inheritance tax.

Turn the page of Wealth Of Nations and Smith comments, with stunning relevance to the current government’s tax policies:

There is no art which one government sooner learns of another than that of draining money from the pockets of the people’ (WN V.ii.h.12: p 861)

It may be linked to the status of Irwin Stelzer as a ‘non-dom’ (non-domiciled), or someone earmarked by the Conservatives to be taxed to pay for the raising of the inheritance tax threshold to estates worth £1 million, which attracts 40 per cent tax.

I am not suggesting that his personal circumstances influence his judgement (heaven forbid), but I am suggesting that Irwin Stelzer is less than candid about Adam Smith’s views in their proper context.

Incidentally, Emperor Augustus imposed an inheritance tax of 5 per cent, not 40 per cent.

1 Comments:

Blogger Will Delaney said...

Smith wasn't politicking for or against it, you ass. He was explaining the concept to people who may never have heard of it.

If Adam Smith had any good sense at all (he obviously did), his views on any issue that he ever discussed can be boiled down to one simple statement: use your own judgement and gumption, retard.

Neither Smith nor any other historical thinker would encourage people, either in their own time or in the present, to adhere blindly to their views. If there is any exception to this at all, well, screw him.

5:08 pm  

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