Thursday, 17 February 2011
Death and Taxes
So enough of that for now, and onto today's topic; life's two constants - death and taxes. More specifically I'm going to talk about death taxes, and nearly death taxes. Not surprisingly these are not commonly called that but softer terms instead like 'care costs', 'inheritance tax' and other such euphemisms. The elderly are in the news at the moment - it appears we are not treating them properly in hospitals and elderly care facilities and at the same time they are all vastly wealthy landowners spongeing off the state for their never-ending Indian summers. Nobody has yet proved a causal revenge-based link from the latter to the former yet, but the motive's there in plain sight.
The reason I'm writing today is the worrying language coming out of the Government. Lord Warner, who is in charge of drafting plans for the reform of funding for the elderly, talks about how to exploit the "big chunk of potential" locked up in housing. This is deeply concerning. The Tories in Opposition were all against, and rightly so, having to sell one's assets to pay for Government care in old age. They proposed a one-off optional levy of £8,000 on retirement as opposed to Labour's horrific 'percentage of estate' levy on death. More in a mo...
An example is the easiest was of explaining the current system - Couple A and B earn exactly the same over the course of their lives. Couple A save up and invest in a house, paying off their mortgage as they age. To do this they forgo fast cars and foreign holidays etc. The Government encourages this activity - saving is a positive in society, it brings stability. Couple B spend every penny they earn. They have lots of holidays and cars. They have no house on retirement. Couple A and B have a few years in retirement then both fall ill in their later years and have need of care.
Couple B have less than £23,000 in assets so they immediately qualify for free Government care when required in old age. Couple A have a £150,000 house, well over the threshold, so have to pay for their care. Only, Couple A don't have any cash. So they have to sell their house, and pay for their care (estimated at £25,000 pa per person until they are below the threshold). So, after about 2 1/2 years, the house they bought is long gone, the inheritance they wished to pass on with it. They finally are now poor enough (have under £23,000 of the £150,000 cash from the house left) so the state starts paying for them.
So, what do we learn? Frankly, if you look like you're dying and bothered to save anything, either kiss it goodbye or take a long walk off Beachy Head. It is a disgusting system. It not just encourages carefree 'someone else will pick up the tab' living (though there is always that to an extent with a tax-payer funded welfare system), it positively punishes those who have acted correctly throughout their lives. To minimise the draw of the former lifestyle, one has to extol the benefits of the latter not punish it. Yet, after 2 1/2 years, the couple who have forgone luxuries and saved and prepared for the future have had everything taken from them. The couple who were capricious in their spending are rewarded for having nothing to their name. If you haven't read the wonderful Aesop's Fable "The Ant and the Grasshopper", it is put even more simply there. By way of precis, the Ant works all summer saving for the winter, and the Grasshopper plays instead. Come winter, the Ant is fine, and the Grasshopper is screwed. The moral of the story appears obvious; "idleness brings want", only in most versions, the Ant bails out his lazy friend, which rather skews it for me.
The problem is that we have a Governmental system here that says the Grasshopper is right to have not bothered to save anything, and punishes the Ant for his hard work. Now I am not one of the non-mathematical utopian types (Labour) who think everything not only should be free to all people, but will be forever because of the unending supplies of everything they (I assume) have simply forgotten to tell us about. We live too long now for our tax income to support everything else Government does and 100% free care for 100% of the population. Ditto NHS in general. As medicine has advanced and general living standards improved, this problem has and will hit more and more areas - retirement ages for one.
So, funding must come from somewhere, but the current system is nothing short of abhorrent. If ever there was an anti-aspirational system it is this or one other (just a sec). Perhaps the £8,000 voluntary payment model will work - evidence from France suggests it may do - but either way, talking about Baby Boomer wealth as a resource to be tapped is plain wrong. Remember this - if they have accrued enough to not qualify for free care, there's every chance they have contributed to the cost of their eventual care many times over. Compare that to all Britain's Grasshoppers before you sermonise about paying your way if you can afford to.
The other policy to top the anti-aspirational ladder, a paradoxical idea if ever there was one - surely it should be measured by depth into the pit of despair - is inheritance tax. Whereas the one slight reasoning for taxing Couple A over Couple B is that they are both receiving something exact. That is, if Couple A didn't require care, they would not be forced to pay for it. This saving grace is totally absent from the concept of inheritance tax, the catch all 'screw you for saving' tax. I shall keep this one brief, but this is in fact the absolute in anti-aspirationalism.
The excuse of redistribution of wealth is as hollow as a NewLabour election promise (you see they've dropped the 'New' part in time for the regression into leftist trade union-based class war). The rich (or indeed down to just the moderately well off) in this country are taxed to high heaven, for generally less in tangible recompense. This is certainly one way of doing it - one can easily argue that their benefits are elsewhere (the luxury goods multimillionaire makes little money in a restless, warring state), in stability and general country well-being. So we have a progressive tax system whereby those with most give the most and usually receive the least, both relatively and absolutely, and the poor give the least and take the most. I sign up to this one in moderation.
Not only does this policy become folly economically when we overburden the rich (try almost any credible economist on maximum levels of taxation to encourage growth and therefore to maximise tax revenue), but it becomes morally and socially wrong. It becomes non-progressive. Inheritance tax is entirely non-progressive. The wealth you or I choose to pass on is ours. It has already been taxed. If we have decided to save what little we had left over, that is as much our business as if we chose to spend it on strippers and poker. When last I checked (through asking a disreputable friend) there is no tax on a pole dance or a hand of Texas Hold'em, so why does the Government think they have a right to tax the saver? As much as we need money pumped into all areas of the economy (and pimps' and pit bosses' money is as good as anyone's on the high street), for all of those who want to wizz their money up against a wall, a solid and stable economy needs savers. Yet we punish them. Again. And again.
In all honesty, if the only two things certain in life are death and taxes, maybe the Grasshoppers are right. We've all got to die, and if the Government is adamant you can't take it with you or leave it to your own, we may as well live for today only. Now I don't believe that yet, but I wonder how many do. This Government has a job to make sure it encourages a nation of Ants, because at the moment, it's hard to see the point of not being a Grasshopper.