The Problem With A 100% Inheritance Tax

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It seems so simple, doesn’t it? Take all the money off the dead people and get government to spend it on all the live ones. After all, who does want to live in a society where the lucky sperm club decides whether you can eat meat regularly or not?

There being ever such a small problem with this. We’ve had 100% inheritance tax societies before. And they’re not what we tend to think of as being the sort of society we desire to have:

In the Ottoman system it was the Sultan who owned the freehold to all, Pashas merely having lifetime access to an asset.

Now, perhaps it’s true that people shouldn’t prefer passing on wealth to their own children rather than to the society more generally. But those experiments in societal organisation across history tell us that they do. Do to such an extent that they will curtail current consumption in order to invest for the long term where their children benefit and won’t when it’s society.

We do need to be organising matters to deal with the raw clay we have available – us humans – rather than whatever it is people might hope is true of those who don’t exist.

At least Piketty is right about one thing, his proposal isn’t radical at all. Returning to the inheritance – and thus investment – patterns of Istanbul circa 1750 AD really doesn’t sound anything other than distinctly conservative, reactionary even.

At which point this idea of confiscatory inheritance taxes can be put to bed. We’ve tried it, it doesn’t work, next idea please.

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Boganboy
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Boganboy

Obviously you’d try to spend all of your money before you died.

Of course, you could give your children a gift, but no doubt they’d tie you up and dump you in the Bosporus for defrauding the Sultan.

Phoenix44
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Phoenix44

We are all descended from people who put their children first. Those who didn’t left fewer (perhaps no) descendants in each successive generation. Not sure why anybody would deny the science?

Bloke in Germany
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Bloke in Germany

Can I have the choice? The state gets all my dosh upon my death in return for lower income taxes while I am alive. What’s not to like?

Jim
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Jim

They’d never fall for that one. There’s no incentive to leave anything for the State to inherit. The quid pro quo would have to be the State had control of your finances post 60 say, in order to ensure that its assets don’t get wasted on riotous living. And they might want to demand you worked harder while younger, in order to generate more savings for them later on as well.

Bloke in Germany
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Bloke in Germany

Their risk to take, innit. Besides, if I’ve wasted the cash on riotous living, as I intend to, they’ve got all that VAT off me, and a bunch of other income consequent on my stimulation of the economy.

Michael van der Riet
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Michael van der Riet

And the riotous living lets them get their hands on your cash a few years earlier.

Spike
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Spike

“Lower than what?” Sir, your taxes are mighty high, but they would have been even higher if you had not agreed to the 100% inheritance tax. Unfortunately, though, the next year there was scary weather that was probably man-caused, plus a spate of racial injustice.

“You don’t lower taxes by raising taxes,” Gov. John H. Sununu, speaking to an auditorium full of bureaucrats in NH’s capital. Nor do you deal with the devil.

Tristram Fuller
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Tristram Fuller

What also seems to overlooked is that the vast majority have already paid tax on the wealth they choose to pass on so inheritance tax is really double taxation – who thinks that’s really justified? Also what it really means is that the really rich generally don’t pay inheritance tax they just set up trusts, can afford to pay top accountants and/or claim they live in a different jurisdiction (say Switzerland) to avoid paying.