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Getting Rid of Inheritance Tax

David Runciman (LRB, 2 June) mourns George W. Bush’s repeal of the federal estate tax, ‘the most progressive part of the American tax system’, which ‘had been on the statute book for nearly a hundred years’ and ‘took from the relatively few to relieve the burden on the very many’. Wrong. The US estate tax provided only 1.7 per cent of federal revenues in 1996. The ability of such a minor revenue raiser to relieve the burden on the very many is minimal.

There are two important reasons for getting rid of inheritance taxes which conservatives have been reluctant to emphasise. The first is that the revenue they raise is pitiful, bearing in mind the elaborate machinery required to collect them. The second is that they are easily avoided: one estimate is that even after leaks in the US estate tax were mended, in 1986 only $36 billion of an estimated $123 billion of inter-generational wealth transfers were reported in estate tax returns.

As an Australian lawyer specialising in tax, I have experience of Australia’s abolition of death duties, as we called them. They were first repealed in Queensland, and by the early 1980s there was complete repeal at state and federal level. Before this, the main burden of death duties had been on the middle class. The wealthy avoided inheritance taxes by discretionary trusts, offshore tax havens, governing directors’ shares and so on. More than two decades on, some death duty avoidance structures are still in place because they make it easier to minimise income tax.

A simple way of avoiding a death tax is to give your assets away while you are alive. An effective death tax therefore has as its ghostly companion a tax on gifts between living people. The US allows annual gift transfers of $10,000 or less per donee to be excluded from the gift tax base, which is part of the estate tax base. However, recurring annual gifts require liquidity and long-range planning which is beyond the capacity of many older testators, particularly if funds are tied up in a family business or farm. All of this may or may not stifle job creation, but it certainly makes estate planning complex, and may stop bequests being made to those who need the money, if it’s thought they might die soon, thus causing double tax.

Runciman suggests that raising the exemption threshold in America, which before 2001 was $675,000 for an individual, would have alleviated the impact of estate tax on family businesses. But inflation erodes thresholds and politicians can’t be relied on to maintain them. In 1916, the US estate tax exemption was $50,000, the equivalent of $11 million now.

Runciman worries that the repeal of death taxes is the prelude to an attack on progressive income tax. Australia’s top marginal income tax rate is 48.5 per cent, higher than in the US and UK, both of which have death taxes. In Australia we’ve been waiting more than 20 years for the other shoe to drop.

Geoffrey Lehmann
Sydney

David Runciman cannot quite hide his rather British disapproval of the American attitude to wealth. It reminded me of a saying popular in the 1950s: ‘When an American worker sees his boss drive past in a Cadillac, he dreams of the day he will have a Cadillac. When a British worker sees his boss drive past in a Rolls-Royce, he dreams of the day he can pull him out and make him walk like everyone else.’

Victor Black
Lahitte-Toupiere, France


No Apartheid in Israel

Ilan Pappe writes of ‘white’ Israelis and ‘dark’ and then ‘black’ Palestinians, implicitly to suggest a comparison with apartheid South Africa, as Palestinian propagandists frequently do these days by referring to the ‘Apartheid Wall’ and so on (LRB, 19 May). As it happens, the Israeli of median coloration has a darker skin than the median Palestinian. Of substantive importance – unlike pigmentation silliness – is the continuous exercise of democratic representation on the part of Israeli Palestinians whose votes elect the many Israeli-Palestinian mayors, town and regional councillors, and members of parliament. If that had been true of apartheid South Africa, with one-man-one-vote representation at the local, regional and national level, the word ‘apartheid’ would signify the accomplishment of political equality, instead of its opposite. Moreover, a few brave and very imperfect experiments aside, Israeli Palestinians remain the only Arabs anywhere who do have civil rights and democratic representation.

Edward Luttwak
Chevy Chase, Maryland


The Right Toolkit

Partha Dasgupta assures LRB readers that the way many economists approach environmental problems is ‘the correct way to evaluate public policy … a policy should be accepted if and only if it is expected to lead to an increase in wealth per capita’ (LRB, 19 May). I am exasperated by such imperiousness, which will serve only to isolate economics further from the environmental debate. ‘There is no evidence’, Dasgupta continues, that Jared Diamond ‘even realises he doesn’t have the equipment to hand with which to study our interactions with nature’. He worries, too, that Diamond’s readers will ‘not even notice they haven’t got the tools’. The ‘tools’, ‘equipment’ and ‘toolkit’ to which Dasgupta refers are those of ‘modern economics’.

The vast majority of politicians, policy-makers and opinion-formers have no understanding or interest in intricate technical stories. More important, there’s little evidence that these technical stories have any influence on the thinking even of those who understand them. Market economists are supposed to respond to customer demand, not rebuke customers for failing to have the right toolkit.

Economists might begin by recognising the limitations of economic analysis. Dasgupta is right to emphasise the uncertainties that plague attempts to quantify natural capital, but wrong to imply that the solution is less ‘biased’ quantification. Since Keynes, most applied economists have accepted that genuinely uncertain outcomes cannot be quantified. Only the most austere Bayesians believe everything has a probability. Setting problems of uncertainty aside, quantification remains spurious. We would think it absurd to invoke cost-benefit analysis to justify say, homeland security policy. Environmental security should not have to pass such a test either. Bush and Blair know that cost-benefit analysis cannot legitimise their military expansion plans; they must appeal to morality. In this respect at least, environmentalism can learn from them.

Jonathan Aldred
Emmanuel College, Cambridge


Blood for Oil?

Retort cast doubt on the idea that oil resources might be reaching their peak (LRB, 21 April). They say, correctly, that oil statistics are notoriously unreliable, but then list a number of elements which they do not evaluate – indeed, which one cannot evaluate, as things stand – to support a ‘rather different picture’: ‘vast’ resources in the West African Gulf States, deep-water fields in Mexico and Brazil, Canadian tar sands, the Caspian, and ‘the emergence of Russia as an oil superpower’. However, the existing figures, despite their unreliability, still point clearly to a durable predominance of Middle Eastern oil. The BP Statistical Review of World Energy 2003 estimates that Mexico has reserves of 13 billion barrels, Brazil has 8 billion, Angola 5 billion, Nigeria 24 billion, Russia 60 billion; in contrast, the figures for Saudi Arabia and Iraq are 262 billion and 112 billion respectively. As to the idea that ‘new technological advances’ are about to redraw the map of energy resources, the techniques referred to are fraught with unresolved problems. Deep sea drilling, for example, risks disturbing volatile methane hydrate beds, while transforming tar sands into oil requires colossal quantities of water, sand and clay. The ecological impact of both systems is far more dramatic than that occasioned by conventional drilling.

Mat Pires
University of London Institute in Paris


Mr and Mr

James Davidson does not discuss an element of Alan Bray’s The Friend that to my mind comes across powerfully: the religious dimension of sworn brotherhood (LRB, 2 June). Bray suggests that this found its greatest expression in the writings of Aelred of Rievaulx, a Cistercian abbot of the 12th century. His ‘On Spiritual Friendship’ has been regarded as a beautiful, but exceptional, account of the ideals of medieval monastic life. Bray, however, sees the work as one which would have made sense to many people over several centuries. According to Aelred, ‘spiritual friendship’ was a love for another of such intensity that it afforded the two friends a glimpse of the love of God. Paradoxically, this divine love was experienced particularly on the death of the friend, since then the surviving friend would come to know the joy of his friend’s spiritual (internalised, we might say) presence. This is the union finally celebrated in the shared grave, and anticipated when the friends shared holy communion and the kiss of peace as the ritual seal of sworn brotherhood. The religious context is significant for public reasons, too: it gave the relationship social weight – in the same way that marriage did. It was the loss of the religious context for such friendship in modernity that made sworn brotherhood largely unintelligible and contributed to its disappearance. But it is not clear that Bray’s work can easily be recruited in support of gay marriage today. Rather, it shifts the ground on which both the religious conservatives and liberals stand: on the one hand, the fact that sworn brotherhood is ancient undermines traditionalists’ rhetoric; but, on the other, there is scant support for liberal arguments in these spiritual friendships.

Mark Vernon
London SE5


Look north

Nicholas Guyatt writes that ‘the Founding Fathers of the United States were mainly Southerners’: he lists Washington, Madison and Jefferson (LRB, 2 June). But Benjamin Franklin of Pennsylvania, John Adams of Massachusetts and Alexander Hamilton of New York are usually considered Founders. One could also add Tom Paine, who lived for some years in Pennsylvania and died in New York. It was Hamilton who proposed the first Constitutional Convention and Gouverneur Morris of New York who wrote the final draft of that document.

Carol Hamilton
Pittsburgh


Tell me where I’m wrong

David Elstein’s claim that ‘hanging was commonplace in Kenya’ at the time of the Mau Mau rising is no doubt right, but it is wrongly based on the claim that during the period in which 346 Mau Mau were hanged for murder, 247 non-Mau Mau were hanged for the same crime (Letters, 2 June). This is not so; the correct figure is 99. This information is available in the capital punishment returns in the National Archives, CO 822/1256. The real point to be made from the figures is the extensive use of capital punishment under the emergency regulations for offences which would not normally have attracted a death sentence – between the declaration of emergency in October 1952 and September 1959 there were 744 such executions. These included more than 50 people executed for taking part in oathing ceremonies.

A.W. Brian Simpson
Sandwich, Kent


Do you have my book?

In his review of Lee Harwood’s Collected Poems, August Kleinzahler describes the activities of Stuart Montgomery’s Fulcrum Press in the late 1960s and early 1970s (LRB, 19 May). He doesn’t mention Montgomery’s final publication, my collection For the Flames (1974). This is hardly surprising because Montgomery’s bankruptcy coincided with a flood in his basement: almost the entire stock of For the Flames was drowned. A few copies did survive, though, and I would be interested to hear where they ended up.

Donald Gardner
Amsterdam