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Dr Stuart White of the Department of Politics and International Relations, Oxford
Dr Stuart White of the Department of Politics and International Relations, Oxford

Dr Stuart White is a political theorist at the Department of Politics and International Relations, Oxford, with an interest in ideas and their application. His research analyses political ideals such as social justice, equality and liberty and considers the kind of policies and institutions that advance these ideals. Recent work has focused on the ethics of the welfare state, freedom of association, and the theoretical and practical arguments for inheritance tax. A unifying theme is the concern to explore visions of society that are at once anti-capitalist and opposed to authoritarian forms of socialism.

Tom Paine’s proposal

In 1797 the great democratic thinker and politician Tom Paine published a pamphlet, Agrarian Justice. In it, he argued that every citizen reaching 21 years of age should receive the capital sum of £15. This was to be financed from a tax on the wealth people left at death.

Paine’s proposal was not taken up. But it kept resurfacing, and two hundred or so years after Paine wrote, Bruce Ackerman and Anne Alstott, professors at Yale University, published The Stakeholder Society (Ackerman and Alstott 1999). They argued that every US citizen should receive an $80,000 grant in early adulthood, financed from a tax on wealth and inheritance.

The proposal is for a citizens’ inheritance: tax a portion of the wealth that is passed between the generations and use this to finance a capital grant in early adulthood for every citizen.

According to Paine: ‘It is not charity but a right, not bounty but justice, that I am pleading for’ (Paine 1985, p.482).

Is Paine correct? Is a citizens’ inheritance something we should have if we want a just society?

Comparing two imaginary societies

To explore this question, let us think about how inheritance works in two different societies. We’ll call them society A and society B.

In A, inheritance works like this. People build up wealth during their lives. Some manage to build up a lot of wealth. Others are much less successful. In the next generation, people receive inheritances entirely based on what their parents (or grandparents) have to give, and on what they decide to give. In this first society, the institution of inheritance is entirely private or family-based.

In B, all of the wealth people leave at their death, along with any gifts to others they make while alive, is taxed at 100% and goes into a special community fund. When members of the rising generation reach adulthood, they receive a grant from this central fund. Every young adult gets the same grant. (In some versions of society B, people get all of their grant at age 18. In some they have to wait a bit longer, perhaps getting a portion at 18, another at 25, and so on. The details can vary.)

This society also has an institution of inheritance – people do get inheritances – but it is obviously structured very differently to that of society A. In B, the institution of inheritance is entirely community-based.

Now, which of these two societies, A or B, is best?

Obviously B has some serious drawbacks. If all gifts and inheritances are fully taxed then there is no longer really any freedom to give people gifts or leave them some wealth at all. This seems wrong. Also, trying to tax all gifts would require a huge amount of monitoring and intrusion which we don’t want. It is also possible that if we eliminated the freedom of parents or grandparents to help their relatives with gifts and inheritances, this would remove one incentive to work and save. Ultimately, we might all suffer as a result.

However, B also has some clear advantages over A.

For one thing, in society B, everybody is guaranteed to get an inheritance. This is not true in A. And this matters because inheritances are useful things. The wealth they provide can be very important in giving people a fair opportunity to get training, higher education, to start a business, to help buy a house, or simply to fund some time-out from work to get useful life experience. By guaranteeing everyone an inheritance, B will probably score better than A in terms of equality of opportunity. And, in one respect, it also scores better in terms of personal freedom. Everyone has a creative freedom to start their adult lives on the basis of their inheritance.

Also, B has the advantage that the inheritance is predictable. Given the rules of the scheme, people will know when they can expect to receive an inheritance. They can plan around this. This is much less the case in A, where getting an inheritance depends in part on the unfortunate occurrence of someone’s death. In A even if people get an inheritance, they might not get it until well into their adult lives when many of their crucial life-shaping decisions about education and work have already been made. In addition, in society A, what people receive depends entirely on what other individuals choose to give them. If children fall out with their parents, for example, their parents might cut them out of their will. This can give some family members power over others: ‘Do what I want or I’ll cut you out of my will!’ But in society B, this is not possible. What you get does not depend at all on the discretion of other family members. You stand as a citizen to get an inheritance in your own right.

So it looks as if neither A nor B is entirely desirable. Both have their pros and cons.

Toward a citizens’ inheritance?

Luckily, however, we do not have to choose between them. Societies A and B are the two extreme points on a spectrum of possibilities. It is perfectly possible for us to choose to have a system of inheritance that mixes the two. So some proportion of gifts and inheritances could flow to people in the manner of society A. At the same time, some proportion could be taxed and then allocated to people in the manner of society B. We will then have both a degree of private, family inheritance and a Paine-style citizens’ inheritance. The best of both worlds?

Although we have an inheritance tax in the UK, it is not well designed and it takes in quite a small proportion of wealth transferred across the generations (gifts and inheritances). The UK is almost certainly much closer to the extreme pole of society A than it is to the extreme pole of society B. However, one proposal in 2000 suggested that if we were to tax around 25% of the wealth passed through inheritance and lifetime gifts (excluding transfers between spouses), this would suffice to pay every adult citizen at 18 a capital grant of £10,000 (Nissan and Le Grand 2000, pp.7-9). Note that even this would still leave us considerably closer to pole A than B.

So, should we guarantee every citizen a grant of wealth on reaching adulthood? Should we increase inheritance tax to help fund this? What level of grant (if any) would be appropriate? If we have a grant, at what age or ages should be people be eligible to receive it? And, if we have such a grant, should people be free to do what they like with it, or should it be available only for some uses?

Further Reading:

Ackerman, Bruce, and Alstott, Anne, The Stakeholder Society (New Haven, Yale University Press, 1999).

Nissan, David, and Le Grand, Julian, A Capital Idea: Start-Up Grants for Young People (London, Fabian Society, 2000).

Paine, Thomas, Agrarian Justice, in Isaac Kramnick and Michael Foot, eds., The Thomas Paine Reader (Harmondsworth, Penguin, 1987), pp.471-489.

White, Stuart; Maxwell, Dominic and Paxton, Will, The Citizen’s Stake: Exploring the future of universal asset policies (London, Policy Press 2006).

 

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2 Comments

  1. Neil
    December 16, 2013 at 10:03 pm — Reply

    “Obviously B has some serious drawbacks. If all gifts and inheritances are fully taxed then there is no longer really any freedom to give people gifts or leave them some wealth at all. This seems wrong.”

    I think it might have been useful in considering this question further if the writer had explored why (for him) not being able to pass on any wealth via gift giving and inheritance ‘seems wrong’. Instead we have an important judgement based apparently on gut instinct alone.

    In my opinion the problem is not so much the institutions of inheritance and the gift per se, but rather the considerable potential in a capitalist society they provide for the constant accumulation of wealth in the form of capital and status goods, which of course increases inequality through the generations. Inheritance and gift exchange were of course common in pre-capitalist society but they did not possess the institution of private property, especially in relation to the means of production. Inheritance and gift exchange were embedded in social relations and ideologies of reciprocity which set inherent limits on accumulation and inequality. We don’t have these embedded characteristics. I am not convinced that the limited form of inheritance tax suggested plus a Citizen’s Inheritance grant would be strong and effective enough institutions by themselves to tame and civilise the capitalist monster.

    • Stuart White
      March 27, 2014 at 2:31 pm — Reply

      Neil: many thanks for your comments, and apologies for taking a while to reply.

      On your second point, I agree that a citizens’ inheritance system by itself is not enough ‘to tame and civilise the capitalist monster’. I would argue for it only as one amongst a range of initiatives to try to do that. The ‘Democratic Wealth’ series here at Politics in Spires and openDemocracy discusses a range of other ideas that I think are relevant in this way.

      On your first point, I think the idea is that there is some value in terms of expressing love and friendship in being able to make gifts and leave things to people as inheritances without worrying about a tax liability. To take the extreme case, it would be a pretty miserable world where we had to pay 100% tax on someone buying us a cup of coffee or giving us a birthday present, which is what full taxation of all gifts and inheritances requires. I think that (a) even if feasible and (b) even if it doesn’t intrude excessively on privacy, such a policy is wrong in principle because of the burden it places on gift giving and the like as expressions of love and friendship. Of course, it is a long way from this thought to the idea that we should be free from tax to transfer unlimited amounts of wealth to relatives. I think the love and friendship argument carries some weight, but not enough to justify anything like 0% tax on gifts and inheritances.

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