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IHT still has important role, says leading professor

Inheritance tax may be unpopular but it has an important role to play in the tax system and is unlikely to be scrapped, according to a leading economist.
Speaking at the Institute for Fiscal Studies annual lecture, professor of economics and law at the University of California Alan Auerbach said slashing IHT is not particularly desirable.
He said removing taxes on capital income- such as IHT or capital gains tax- gives up much more revenue than simply eliminating the tax on the normal return to new saving and does little for the cause of equity.
Auerbach said IHT has important advantages compared to other capital taxes as it imposes a more uniform burden on the returns, it taxes the unintended bequests people leave when they die earlier than expected and by falling on individuals rather than companies eliminates some important opportunities for avoidance.
Leading Blairite Stephen Byers recently opened up the IHT debate calling for it to be scrapped and describing it as a penalty on hard work, thrift and enterprise while a high profile national newspaper campaign has also called for IHT to be axed.
Auerbach said: It might seem that modifying our current system simply by eliminating capital income taxes would be desirable. This outcome, however, is not likely, nor is it particularly desirable.

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