People like the myth of the ‘self-made’ man or woman. Donald Trump, for example, appeals to his followers as an ordinary guy who built his business empire with only a “small loan” of one million dollars from his father. The truth, however, is that Trump received upwards of $400 million from Fred Trump over his lifetime. The point being: it’s much easier to make money if you start rich.
Wealthy people have inbuilt advantages over the less prosperous: they can afford better education and healthcare, they have easier access to capital if they want to start a business, they have greater opportunities and better life chances. Most people are comfortable about wealth disparities in society, as long as the game feels fair (i.e. they accept unequal outcomes as long as there are equal opportunities).
In 2018, when we spoke to Adrian Wooldridge, a British journalist and columnist for The Economist, he argued in favour of inheritance taxes as a way to keep the game fair:
[…] We’re seeing extraordinary concentration of wealth in the hands of a few people. There was a day last week when Jeff Bezos’ wealth increased by more $1 billion in a day. You have these gigantic Silicon Valley fortunes. I would say [we need] an inheritance tax. That means that some of these giant fortunes don’t exist forever.
What do ours readers think? We had a comment from Kimmo, who argues that inheritance tax is a form of double taxation because the income has already been taxed at the point it was first earned. Why should it be taxed again?
To get a reaction, we spoke to Karlyn Bowman, Senior Fellow at the American Enterprise Institute, a conservative think tank based in Washington, D.C. How would she respond to Kimmo’s comment?
That’s certainly what American public opinion suggests; they do believe it is double taxation and that Americans shouldn’t be taxed a second time. So, that’s where the American public is on that issue overall, and that’s been true historically; we’ve had a lot of [polling] in the United States about inheritance taxes, and they just are not popular. And it’s not because most Americans think they themselves will be wealthy or are going to be wealthy – they don’t – but they think it’s possible for their children, and they don’t want to see that inheritance taxed twice.
For another perspective, we put the same comment to Adam Corlett, Senior Economic Analyst at the Resolution Foundation, an independent British think tank established to improve the standard of living of low- and middle-income families. How would he respond?
Firstly, there are lots of ways in which double taxation can happen: for example, we have income tax in most countries, and then people also pay VAT or other consumption or transaction taxes, or one person can pay tax on their income and then use that income to pay other people, who then pay tax on that income, and so on. So, it’s hard to pin down exactly what ‘double taxation’ is and why it’s a bad thing.
Secondly, I think attitudes towards inheritance tax depend a lot on whether people view it as a tax on giving or on a tax on receiving the money. If you view it as a tax on the recipient then it seems quite reasonable to me; we tax people when they receive money for working, so it’s only fair that we should tax people when they receive money by virtue of inheritance.
Next up, we had a comment from Duncan, who said that when a wealthy person inherits money they can invest it into making them (and their children) even more advantaged, meaning that inequality perpetuates. Is this a problem?
How would Karlyn Bowman from the American Enterprise Institute respond?
Yes, I think that it is true that inequality is perhaps getting worse in the United States overall. There are many different ways to calculate it, but again people with very large fortunes can pass that along to their children and grandchildren, giving them an exceptional advantage overall.
That said, Americans are not confident that government knows enough about how to address inequality. One of the pollsters has asked a question three times that asks Americans whether the federal government should be involved in trying to reduce inequality, or should the federal government stay out – in part because the government doesn’t know enough about how to do this – even if inequality gets worse. And in all three of those questions you have a very divided public in the United States with the weight of opinion being very barely on the view that government doesn’t know enough about how to address inequality. People know that it’s real, and that it’s serious, and that it’s growing, but they’re just not sure the federal government can do a lot to address it through taxation and other means.
Finally, what would Adam Corlett from the Resolution Foundation say?
I think inheritances certainly do pass on some inequalities from generation to generation. Especially in the UK, the very richest might have been rich for many generations, and for a lot of people in the UK their chances of buying a house, for example, are increasingly dependent on their parents’ wealth and their grandparents’ wealth, so that’s definitely not good for social mobility.
I think another problem is a sense that the very richest don’t actually pay inheritance tax. So, even within inheritance tax people on medium-to-high incomes might feel that they are actually paying more inheritance tax than the very richest, who are able to organise their affairs so they pay less tax. That’s partly what’s caused a lot of resentment about inheritance tax in the UK, so it’s important that any inheritance tax system is progressive both in theory and in practice.
Are inheritance taxes unfair? Does it represent a form of double taxation? Or is inheritance tax an effective way to reduce inequality? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!
Are inheritance taxes unfair?
Inheritance tax does not affect the billionaire class of people. They hedge to make it impossible to tax them fairly in any way at all. And until governments deal with that swindle we shall all go on getting poorer by the minute.
no. inequality compounds over generations.
It should be up to each EU member state to democratically decide for itself.
So first they tax your income, then they tax the products you buy and if you manage to save some money for your kids they are going to tax that as well? Whew let me get a yellow vest first..
this is the kind of thing yellow vests were protesting against, though (well, at least some of them as they never really built a common platform). Money makes money, and the more you have the faster it grows. The result is widening inequality of wealth, driving up e.g. housing prices and the price of good education. Inheritance taxes usually only kick in if you are going to leave millions to your relatives. (One can discuss what the correct proportions should be, of course)
well in some countries there are kick in even for a small apartment and when there’s no will… oh boy you don’t want to know, also if you don’t ” resign ” from your inheritance rights even if your relative have no fortune at all it’s quite possible that you are going to pay your relative’s depths anyways!!
Yes, just found out yesterday ..60% inheritance tax….so if you only have 5000€ to leave to a friend …he gets only 1500€ ….can you imagine…starting to see yellow now…
Also, you probably don’t pay any tax if you leave 5000€. If you were to leave 5,000,000€, then there would be a tax
No, I have to pay that tax. Went to see the notary (notaire) yesterday to inquire about leaving a small amount of money to a friend because that is all I have …and this is what he said…here in France.
in Greece if your parrents had a house to leave for you ,you have to prepay the tax for transferring it to your name go thru a kind of trial, pay any taxes they didn’t payed because they died and then taxed AGAIN according to what they call ” objectives values ” which means that for a house that has real market price about 20000€ you are going to pay taxes for a house 90000€ which means that such policies are beneficial only for the rich who can prepay all those taxes as for the land that’s is” declined ” it’s returns to the state only for some lawyer to claim it for his own a decade later
It’s unfair, whatever belongs to me belongs to my children
Yes, they are, but they’re also a matter for national parliaments and not for the EU.
Not only unfair, but outright theft is also what it is. Double tax.
inheritance taxes are unfair because who receives them, almost always descendants of the deceased, must pay what the person who bequeaths in inheritance has paid in other taxes
Again, this is not a simple yes/no question, but too complex! Even challenging for the average tax adviser! Probably, it will only benefit the rich(er)- not the poor(er) if abolished! Why not ask an algorithm?
Who is really behind to abolish inheritance tax?
Which other tax will replace any tax shortfall? Government usually wants more taxes to cover its deficits, not less= Fake/false question? Is it maybe a matter to enrich the richer on behalf of the less richer & fuel inequality?
Why not ask: – since “tax evasion” is illegal and a felony/crime, why are tax havens still tolerated, not abolished & these stashed (hot) moneys not repatriated. penalized & fully taxed?
Will the EU Members in unison dare to make the first move to restore some (global) tax ethics, fight corruption and prove not only to pretend to support tax fairness & honesty, but will act decisively to achieve it?
Inheritance tax paid by the super rich (evaded in tax havens) is probably near zero at the moment. Exposure & notice should be given that these “heavenly” funds need to be legalized & repatriated. Alternatively be nationalized (see leaked/hacked records) and put in a “National Investment Trust”- used only for “national social purposes”- in perpetuity.
The man in the street is too poor to worry about preserving his little wealth he accumulated during his life time to pass on. With the increase of child less “partnerships” in the EU there might only be cats, dogs, canaries or NGO’s left to be bequest.
For the rest, a well structured and valid will with the existing tax exemptions & allowed donations will probably suffice. Therefore the poor(er) are hardly liable to inheritance tax either!
More effluent & financially astute persons are probable utilizing legal “tax avoidance”, to separate/preserve their assets in “Trusts”/Foundations. These can easily be passed on to nominated beneficiaries by “Resolutions”. It is however a more costly effort needing professionals like accountants & trust attorneys. Provided, legislation will allow such “entities” to exist forever.
It is the dirty rich individual with their dirty tricks that need scrutiny and not exempted from any tax! That would be a good reason why this tax should not be abolished!
That money was already taxed in the lifetime of the deceased person. The whole point of inheritance is so that the family can benefit from the wealth of the deceased person. Now the person dies and before the casket is closed the tax man shows up and rips off grannys gold chain and slams the casket shut and says so now you can bury her. Get real!
Who does the money belong to?the deceased person and after death it belongs to their children and grand children or as specified in their will. It does not belong to the Government. The very idea of taxing dead people for being dead is obscene.
Of course it is an attempt to victimise those who cannot defend themselves, how is a dead person supposed to protect their money from this?
Politicians will always devise some scam to get the money of the people. I can see that conversation now ”Wouldn’t it be nice if we could finance…..”, ”yes and imagine if we could tax the dead lmao”,” wait a minute, what if we did tax the dead?”, ”we’l just say it’s about social justice or some other feel good crap, the point is we get their money!”, ”you really think we’l get away with that?” , ”did George W Bush lie about weapons of mass destruction, invade an entire country based on those lies and get away with it?”.
The rich will have lawyers who protect them against inheritance laws through trusts and other legal loopholes created specially for them. The middle class and lower will get screwed, why should my kids pay tax on a house and a 100,000 inheritance? I have paid tax on all of that, it is double taxation, plain and simple