Tuesday, August 22, 2006

The Byers plan deliberately ignores obscene inequality

Polly Toynbee is dismayed by Stephen Byers' call for the abolition of inheritance tax. For once I agree with her: how can you have a meritocracy if wealth cascades down the generations, creating or reinforcing an artistocracy as we now see developing in the US? The children of rich parents are already bought massive advantages in education, healthcare and other factors that make a huge difference to people's life chances.

A bundle of good ideas is in the air. The Institute for Public Policy Research wants to band inheritance tax so people pay very little at first: nine out of 10 would pay less, yet it would raise £150m more. Social democratic Sweden recently abolished inheritance tax, but has a property tax instead. The Bow Group, a Tory thinktank, calls for a 1% levy on all property over £70,000, with a 38% flat tax to simplify the whole system and make it more socially just at the bottom. Simpler flat taxes need not be regressive: the Joseph Rowntree Foundation has just published a report from the poverty researcher Donald Hirsch and the Institute for Fiscal Studies, which suggests a flat rate of 35% could lift many out of the poverty trap at the bottom. Foolishly the Liberal Democrats are ditching their best policy - to add a 50% top rate on earnings over £100,000, which would bring in £6.5bn just from the top 1%.

I believe another important idea is to extend Capital Gains Tax to capital transfers, so that inheritance tax cannot be avoided simply by transferring assets at least seven years before death.

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