Summary of the proposition

The whole opposition case boils down to a primitive line "Governement needs more revenue, so let's tax the wealth transfer between individuals. Why exactly this process? Because it takes place and... government needs more revenue." Throughout the debate they failed to understand that in our society we do not establish taxes just to raise revenues. If it were so, we could tax any arbaitrarily chosen things, for instance, daily sun exposure of the riches. There should be some underlying principles according to which we base our decision on what a tax has to be put. If the opposition wants to tax inheritance, they should be able to give some very good reasons why exactly inheritance and not other arbitrary processes such as sunbathing should be taxed or why it is superior to simply increasing the rate of income tax. Throughout the debate we did not manage to hear any single reason for this. Because we think that taxing inheritance is not fair, we oppose it on moral grounds. We believe that the mechanism of inheritance taxation is fundamentally wrong. In its essence, it is a tax on a gift from one individual to another. We do not think that the state has to right to intervene into family and start demanding its part whenever a something is passed on between family members. It sets a bad example – the state shows that it does not care about family as a unit. The tax infringes the basic liberties of an individual – the right to free will and the right to dispose one’s property in a way he wishes to. It limits the ability of people to pursue happiness through taking care of their relatives, guaranteeing economic safety to their children or making sure that their established business is going to be givent into good hands after their death. We say that inheritance tax is most certainly different from other taxes. Say, income tax is paid in proportion to your income, which is a proxy for the usage of public goods that have to be provided by the government. These taxes are needed, because people have to pay for the infrastructure of the state, legal system – the basic public goods that they actually use. We do not think that the same applies to inheritance tax – it is simply a tax on income that had been taxed previously. The only reason opposition has presented in the debate was that the tax helps to redistribute wealth. Instead, we can say quite certainly that the tax does not really help wealth redistribution. First, we often tax capital-rich, but income-poor people. When an old pensioner with no income, but with a valuable house, is subject to inheritance tax, his children are likely to wind up in an unpleasant situation where they will have to sell the property just to pay the tax. The numbers of these cases are just increasing as the property prices are growing. Second, the real income-rich people have more potential to avoid the tax – they simply have money to hire lawyers who would help finding loopholes in legislation. However, it is not so easy for capital-rich and income-poor people: neither they have the money to hire legal advisors, nor they have the expertise and time to do it themselves. Finally, from administrative point of view, it would be much easier to increase the income tax rate and collect revenues from there. No additional institutions would be created; wasteful spending on administrating the tax would be limited. Income tax is more difficult to avoid – then there would be no need to create such taxes as gift tax for preventing evasion and there would be no need to administer them, too. In fact, the whole case of the opposition falls apart when we look at what part of budget usually inheritance tax constitutes (usually less than 2% of a country’s budget). When we sum up administrative costs and indirect costs (people trying to avoid taxes instead of creating value), the actual contribution to the budget is ridiculous. A useful tip: if opposition likes random taxes which are there just for the sake of taxing the rich, they can also try to implement some other taxes: taxing their daily word usage or the number of countries they visit during a year. Then they could use the revenues to, in their words, make society function in a useful way. Finally, there are numerous practical economic reasons for abolition. One problem of inheritance taxation is that it has a negative effect on wealth accumulation in our society. The money is not saved, but instead consumed, because individuals substitute from savings to consumption. This leads to a lower capital accumulation, which is the basis of all economic activity because it provides means for production. As a result of lower capital base, the overall economic growth is reduced in the long run. Opposition pointed out that it is applicable to all taxes, because they all reduce the disposable income of an individual. While we certainly agree that they decrease income, it is also obvious that not all of them decrease incentives to save. When, for instance, income tax is applied, individual’s income decreases, but he does not get any further disincentive to save, because the earnings will stay in his or his heir’s disposal. However, once he is taxed with an inheritance tax, he has an incentive to consume that wouldn’t have been there without the tax. This is what troubles us economically and the opposition was very myopic to claim that this tax is no different than any other taxes. Another economic problem with inheritance taxes is that they reduce entrepreneurial activity. Because of the costs imposed when the risk of owner’s death increases, businesses will invest less to avoid possible financial distress. This will cause poorer employment prospects, less growth and less value-added. As simple as it gets. Please, note how desperate the opposition was in attempting to rebut our argument – this is too good to be left out. The notion that there are many reasons why small businesses fail and, because of this, estate tax should not be taken seriously is utterly absurd. This is equivalent to claiming that just because there are 10 factors causing cancer, nutrition or clean environment become not important. One of the flaws that opposition makes in its reasoning is that it takes means and medians as support for their illustrative case. In our argument we already agreed that inheritance tax is not the major problem in every instance. What we were discontent with were various special cases where circumstances were far from average situation. For instance, American Family Business Institute has a collection of such stories[[http://www.nodeathtax.org/resources/testimonies]]. The opposition claimed that they can use the money to support other social programs and other businesses. Well, you can also attempt to create perfect income equality, but as we know, this is just not so good in creating wealth, is it? The opposition thinks it is perfectly fine to take money out of functional profitable businesses just for the sake of some vague opportunity. Disincentive to invest is called a bogeyman by them – as a proof for this we get a quote which carries no relevance to investment incentives, in fact, it is about increase in value of estates not being taxed. Finally, the opposition doubted the validity of our cited study. To be honest, we also doubt it. There are no studies that would be perfect – and you never know anything with 100% confidence, and this is especially true for social sciences. We gave our economic reasoning, and we also gave some scientific evidence to confirm it (and there are many papers that confirm similar results[[http://www.nodeathtax.org/resources/studies]]). Opposition merely tried to deny our evidence while never tackling our argumentation and this is where they failed. Abolishing inheritance taxation would strengthen the incentives to create value and use the wealth in a sustainable manner. Caring about the well-being of one’s offspring is definitely one of the driving forces in human’s behavior. It is quite certain that people would try less hard for somebody else’s good. Opposition emphasized the importance of current consumption. What we contend is that future consumption is also as important: it is not only important for the people living in the future, but also for the people living right now, because they want their children to live decent lives. The case for abolishing inheritance taxation is rather clear. There are no fundamental principles supporting the tax, it is morally repugnant, and economically unsound. Because of that, we are proud to propose!