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Death, taxes and…bingo!

20 May 2013

Margaret Thatcher was not a Tory. She was a hedgehog; and her one big idea was that everyone should be able, through hard work and ability, to progress as high as they could in society. That I think is a laudable idea. She also thought that the unfettered free market was the best tool to achieve that goal. That I think was not so good an idea, although it is not so bad as many on the left suggest. Market forces can be hugely powerful locomotives, and while we know that runaway trains can crash, it is better simply to tweak them slightly, to reset the points when required to avoid a disaster rather than to put regulators on board with a mission to stop them burning coal. They usually end up burning everything else on board and crashing into the same unseen obstacles.

To return to Thatcher’s big idea: here is one logical consequence which she never quite got to, possibly because it outdoes even the poll tax for unpopularity, and is guaranteed political suicide. Having observed how many Twitter followers I lose each time I make a post on this site, I can only put this idea forward as the Kamikaze Blogger. But that doesn’t mean it’s a bad idea – just a profoundly unpopular one.

It is quite simple: 100% death duties. State confiscation of the entire estate of everyone when they die.

Of course there would need to be some provisions for specific circumstances. A de minimis limit for low value personal chattels would be sensible to avoid the expense of selling off worthless items. Marital homes which are jointly held would of course pass to the survivor, and some transitional arrangements would be needed for long-term carers.

But think of the positive effects. The funds flowing into the government’s coffers would permit a substantial reduction in general taxation. By levying tax on the dead, who do not feel the burden, we reduce the burden on those that do. Further the appearance on the market of a steady supply of houses, paintings and other scarce assets would bring prices back to sane, sustainable levels. Many people think that the price of housing (particularly in London) is one of the main evils of society today (and we view with dismay the Chancellor’s recent “Help to Buy” scheme, which distorts the market and further inflates the bubble). A measure which brings housing within reach of the next generation must be good for all of us in building a fairer society.

There is a similar benefit in lowering the prices of old master paintings, in making it possible for more of us to acquire them – and for our museums to do so.

Copyright would end with the death of the author, not 70 years after, returning the law to its role of providing incentives for creators, not the enrichment of their offspring or of the investors who speculate in such rights. And without in any way condoning the appalling acts by which art has been looted, not just in the second world war, the principle would make a major contribution to resolving the complex issues of restitution.

What this proposal involves is a fundamental repricing of assets. Instead of a discounted net present value of future streams, of which the principal or sole component is the future capital value (which grows without limit when based on expectation alone), we reset that future value to zero. The price someone will pay for an asset turns into a simple estimate of its amenity value. So I will buy a house for no more than the rent I’d be prepared to pay to occupy it. And I will pay for a Poussin no more than what I want to pay to look at it every day. There won’t be much point in putting it in a bank vault.

Why is this Thatcherism? Because it means that people who work hard can have the chance to enjoy their success without having to compete with previous and future generations. There is nothing to stop them parading their wealth if they want to, but that ostentation will lead to price differentials closer to those you see with motor cars than with houses. You can buy a perfectly good motor car today for a lower multiple of average earnings than 30 years ago, while a house or a Poussin is now relatively (as well as absolutely) vastly more expensive.

Why won’t it work? Because there is a deep-seated cognitive error which distorts the apparent value of childrens’ 1/2.4th share in the parental house, delivered once, and makes it seem much greater than a smaller share in the far larger national wealth which would be distributed annually by this measure. This joins the myth of ever-rising house prices as the perfect formula for winning elections.

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From → Justice, Tax

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