Tuesday, March 02, 2010

Dying to cut the deficit

With all due respect to the Independent’s economics editor, Sean O’Grady, his remarks here about inheritance tax betray a woeful ignorance of basic supply-side economics:

In the proposals by the shadow chancellor George Osborne… the threshold would be raised from the present £325,000 to £1m. That means the yield would drop below £1bn – compared to £3.9bn taken in inheritance tax in 2007 – raising questions about where the Conservatives might make up the shortfall as they seek to tame the budget deficit

Oh dear. Allow me to set him straight.

If you make dying cheaper by cutting the taxes wealthy people have to pay to do it, then more of them will be incentivised to pop their diamond-encrusted clogs. This increased death rate will then actually lead to an rise in the overall inheritance tax take, even as the amount payable on any individual estate falls.



Liam Murray said...

Tee hee.

p.s. please, please tell me you haven't actually seen or read anyone (Tory or otherwise) use that yield argument in support of IHT?

Tom Freeman said...

No, it's pure larking around. I think it's generally accepted that the price elasticity of death is really rather low...

(Although I suppose you might see a rise in impatient heirs killing their parents. It's a little-known fact that the spate of society murders documented by Agatha Christie followed a rise in the IHT threshold similar to that now proposed by the supposedly 'family-friendly' Tories.)

chris said...

There is some empirical evidence on this question:

Chris said...

When US heirs contemplate that estate tax is going to jump from a temporary reduction to zero back up to 55%, they may very well get ideas about deadlines.

Tom Freeman said...

I am completely agog. Reality has defeated my sense of humour.

Hughes Views said...

Talking of death, are you aware of the Conservative's plan to rescue pension schemes?

By reverting the NHS to 1997 levels they're convinced they can ensure that those pesky pensioners will soon stop their irritating habit of drawing incomes into lengthy old age.

Hence they'll help protect the commission and bonuses paid to all those Tory supporting fund managers....