Most in a society will always tend to favour a safe, pleasant life, if they can get it. So individuals who act to take risks and experiment are vital. By taking risks and attempting to innovate entrepreneurs add value to the world around them. They help create new technologies or organisational structures which change the way we live our lives. Ultimately they help unleash the storms of Creative Destruction which have helped create the tremendous wealth we see around us. Even as the price for this has been tremendous suffering. 
The TaxPayers’ Alliance have a new report which attempts to attack Inheritance tax from a new angle. They have proposed that our Inheritance Tax is a bar to entrepreneurship and job creation. In a recession, job creation is vital to recovery and so this tax and they argue this tax should be scrapped. This is a nonsense argument for a number of reasons.
Won’t someone please think of the Children
Firstly we will consider their argument that Inheritance Tax reduces the incentive to experiment, invest and save because it reduces the amount you can pass on to your children. This argument is dealt with well here and here. The TaxPayer’s Alliance claim that taxation on income, savings and inheritance lead to an effective tax rate of 90% and reduce the incentive to interest, start a business or innovate within an existing one.
Anyone who knows any entrepreneurs or the literature on entrepreneurship in general, will know that analysis of future inheritance tax rates rarely figure in the list of reasons businesses are started. You don’t consider your death before you have even lived.
Dropping bags of Money from Hearses
A second argument which has been proposed is that Inheritance is an effective method for providing low cost capital for business start ups. Forgive me for saying this of the TaxPayer’s Alliance (who I lampooned here and there only today) but there is a reasonable level of logic behind this argument.
It has been suggested by Dani Rodrik and James Galbraith and others that the market produces less entrepreneurs than is optimal. In other words, investment for entrepreneurs is undersupplied because, although the benefits are widespread, those who invest are not able to capitalise on all of this increase in wealth. Investors therefore do not provide as much capital as is best for society overall.
However there is no evidence or theory which suggests that allocating resources at random throughout the population, by virtue of birth alone, is a better way of stimulate entrepreneurship than a more redistributive system. The TaxPayers’ Alliance propose that creating a tiny minority of arbitrarily enriched individuals will boost entrepreneurship in the most efficient way. This is not ture.
It is, in fact, yet another reason to ask: Who fund the TaxPayers’ Alliance? What are their links to the Tory Party? Why don’t they target corporate tax avoidance? Why are they so obsessed with Inheritance Tax when it affects only 6% of estates? And why don’t they stop pretending to represent you and I?
 Unfortunately, one factor which is always ignored by the pro-entrepreneur anti-redistribution right is that those employed by entrepreneurs are taking every bit as much a risk as the entrepreneur themselves. If a company fails then employees are in almost as precarious a position as the entrepreneur. Conversely, if a company is a success then they usually obtain at best a very minor share of the payout.