Darwin Tax not Death Tax

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Ian Williams
One of the cleverest moves the Republicans have made was to label inheritance tax the "death tax", - an unscrupulous move which in the UK the Conservatives unusually stole a march on New Labour by adopting.

It is clearly not a tax on the deceased, who are beyond even the IRS's intrusive reach. It is a tax on their heirs. As a con trick it is on a par with persuading 70% of Americans that Saddam Hussein was behind 9/11. Untold millions of voters, whose only chance of amassing the $4m that is exempted under current rules would be to win the lottery, went into a panic about their post-mortem taxes. Since only 2% of estates fall under inheritance tax, their families' chances of being affected are not that far from their chances of winning the lottery.

Many of their estates will be hard put to pay their funeral costs, never mind approaching the taxable limits. (Personally I think a real death duty - a heavy excise duty on embalming fluid would be an environmentally and socially useful fiscal measure, but that's another issue.)

Perhaps because so many Democratic leaders have ancestral financial advantages - think Gore, think Kennedy - they have not seized upon the appropriate response, and called inheritance tax the "Paris Hilton tax", or the "idle legacy and remittance duty".

Money already talks too loud in contemporary America, and it speaks with forked tongue. When a congressman talks about reducing taxes, they do not rush to raise the tax thresholds on earned income so that already struggling working Americans will escape taxation. In response to the very rich people who pay for their campaigns, most of the relief goes to those who already have lots of money. The dividend tax cut, for example netted Wal-Mart's notoriously shy Walton family hundreds of millions. It is no surprise that they are now leading exponents of a repeal of the inheritance tax.

Wal-Mart is not, of course, a struggling family business. It is a public company in which the Walton family happens to own lots of stock (and on whose board Hillary Clinton once sat). For better or worse, it will not close down if they have to sell their shares. Indeed it may well improve if the dead hand of a family that thinks taxes are for little people is taken off.

There is certainly room for discussions to take the family home out of the equation, or even the family farm (although agribusiness has already pretty much taken most of them out of the discussion) and even to discuss the threshold. But if the bloated rich really care about their heirs, we should watch with interest to see how many of them put "do not revive" or "no heroic measures" clauses in the living wills for 2010, the year when the wrestling in Congress sees the inheritance tax set at zero. After all, Wal-Mart did not hesitate to declare additional dividend pay to take advantage of the reduction of the dividend tax.

In 2010 we should watch the actuarial progress of the Walton family and their peers with interest but few expectations for signs of self-sacrifice. After all, they have bankrolled a party that wants to give them hundreds of billions in tax relief but thinks that paying for health insurance for nine million poor kids would break the Federal Reserve.

In fact, the inheritance tax should really be called the Darwin tax. Anyone with enough money to get caught by the IRS is stupid enough to a) believe that they are immortal, or b) think that they are clever enough to dispense with the services of estate planning accountants and lawyers. The gene pool and society are enhanced if their offspring don't get large dollops of free money. With the very real educational and social advantages that wealthy parents give their progeny, windfall inheritances just deprive them of the get up and go urges that free-marketeers always urge on the unemployed.

This is a view clearly shared by some of the more entrepreneurial souls including Conrad Hilton, who obviously thinks that his daughter can provide for herself by using her own distinctive skills. Warren Buffet and Bill Gates likewise have put their fortunes to use for good works, and Buffet gets years lopped off purgatory by giving his to the Gates Foundation rather than by bidding for nominal immortality with his own eponymous foundation.