What would the be the economic effects of raising inheritance tax to 100% and reducing income tax to 0%?

Arthur Laffer drew a simple graph on the back of an envelope to show the connection between tax rates and revenue for any given tax. The concept is very simple and elegant. If the tax rate is 0% then the revenue is 0%. If the tax rate is 100% then the revenue is also 0%. That is because nobody is that stupid. Somewhere between 0% and 100% tax rate is the sweet spot where revenues are maximised. It turns out that this spot, for capital gains and corporate and individual income is at around 25%. At 25% is is not worth spending money on tax avoidance and people feel the number has a fundamental fairness to it. After all, the Police and army has to be paid or we will not be safe.

It could be argued that inheritance tax is in a different category from any other in that this is money on which tax has already been paid. The amount it raises is small but it does create liquidity in the property market.

Disastrous, as income tax raises MUCH more than inheritance tax. Figures for you - last year's HMRC annual report https://www.gov.uk/government/uploads/system/uploa... shows, when you wind past all the guff to the Trust Statement on page 179, shows that income tax raised £162.1 billion, while inheritance tax (you'll have to wind on to page 186 to see this) raised £3.7 billion. (I used to audit the Inland Revenue General Account, as it was called then, as a member of NAO staff, so I know where to find this.)

Of course you would get a hugely inflated IHT planning industry because everyone's aim would be to die with no money at all. It would also mean that nobody would be able to leave their house to their children as the state would take it.

In the case of couples, it would be even more discriminatory than now against couples who choose not to get married. Spouses and civil partners get 100% exemption from IHT on anything they inherit from their "other half", while unmarried partners don't. Then everyone in an unmarried couple who dies first would leave their partner homeless because of having to sell the house to pay the tax, unless they left huge savings behind. That, by the way, was a major argument for same-sex marriage. If that had existed when Sir Nigel Hawthorne was alive, his partner wouldn't have had to move to somewhere smaller just because Nigel died. You would certainly get massive protests at virtually enforcing marriage when the whole thrust of government policy on the subject in recent years has been to end discrimination against the unmarried.

I am not in the UK but my guess is nobody would leave an estate. They would spend it all, gift it to family or charity rather than give it to the government. The family wouldn't have any reason to help sell the assets if they weren't getting anything and might carry off anything that wasn't nailed down.

The state would be bankrupt, as it would have virtually no income - it doesn't get much from inheritance tax.

All property rights would be moved offshore the next day. State collapse.

There aren't enough rich people to pay all of the bills.

The state would perish. Given that nobody pays tax on their income they would spend it all or give it away to their children before their death.