Everything is better than donating to the government? Well, you don’t have to!
For many people, one of the key arguments against inheritance taxes lies in its recipient: “the state”, or “the government”. This has been put nicely by one Quora user:
“[…] it is obviously preferable to do almost anything with money other than donate it to the Government”
Well, the good news for state-sceptics is: Don’t worry, you can have a 100% inheritance tax rate regime without any inheritance taxes being paid to the state. This is how: You simply donate your wealth for charitable purposes. This will usually allow for tax-free transfer of your wealth to NGOs or your own charitable foundation. As an additional advantage, your donations can reduce your taxable income so that in an optimised case you don’t pay any penny taxes on this income but take the money straight from earning it on the market to a charitable cause of your choice. It also means that you can influence what happens with your money.
For some, this does away with another concern they have about inheritance taxes, a position that may be expressed like this: “I have built up this property, have paid my taxes on it, and now it is my good right to do with it whatever I want. No one has to interfere with that.” Donating to charity, especially if its your own charity, allows to control what happens with your wealth, even beyond death.
For others, it is exactly this way of “power beyond death” that is worrying them and that appears to them as utterly anti-democratic. Imagine if all billionaires of this world would pool their money into one big charitable foundation that sponsors research and thereby influences public debate around current political issues. They will have a huge influence, and there will be no democratic control. I believe this worry is justified to some extent and it may call for limits on size and power of NGOs just as we have for companies; however, I still believe private charity is a good competition and complement to the welfare state.
How about family property with personal value?
Another line of state-sceptical arguments is more worried about what happens to family property that is of high’ family value’ in the sense of personal beyond economic value. Here, we have two categories: The type of property that only has personal value but little or no economic value (e.g. grandfather’s model railway or mother’s drawings). Such kind of personal-value property would always fall below some kind of threshold value or tax allowance that would come with any inheritance tax – no matter how radical – in order to reduce the administrative burden of handling value estimates of such small-value goods.
The second type of personal-value/family-value property has some substantial economic value, such as family businesses, family homes, jewellery, art, land ownership, forests, farms, etc. It can thus not simply be ignored or put under a tax allowance in any ambitious inheritance tax regime. However, 100% inheritance tax doesn’t mean children cannot take over any of this personal-value family property and family business. The simple solution here: They just need to buy it; during lifetime from their parents, or after that from the state. The can have a preemption right upon death of their family members, being able to take over family property by paying the 100% inheritance tax to the state under very favourable conditions (zero-interest tax loan, life-long repayment time, etc.).
As explored in a seperate article on the relationship of family and inheritance, it is very well possible to have ambitious inheritance tax regimes and at the same time still allow for core family institutions to continue to exist. We can value family businesses and acknowledge the personal value of family property and make succession of this property possible. However, not free of charge.
How to best spend the money:
education and a universal basic inheritance
Last but by no means least, there is yet another very powerful answer to the question guiding this article: Yes, the state does need more money, especially when your goal is to create more equal opportunities. Abolishing inheritance flows is already a great step; it eliminates one of the essential drivers of unequal starting positions in life. However, starting positions in life remain unfair, due to the many non-financial advantages a child from a wealthy family enjoys: network, family-internal education, reputation, health, etc. In order to attempt to make up for these, a brilliant, free-of-charge public education system starting from nursery up to higher education is essential. Extra attention and care need to be delivered to those from the most simple or precarious backgrounds. All this needs to be funded.
Of course, there are other areas in which most welfare states could benefit from increased investments, such as the ecological transition to climate-neutral economies, digitalisation, public infrastructure and public transport, etc. However, assessing how to best use inheritance tax income is beyond the scope of this work and highly context-specific, and ultimately a political choice. The point that is being made here is that there are very good ways to spend inheritance tax income, education being the prime choice because both abolishing inheritance as well as investing in education increases equality of opportunity.
For those hard-core state-sceptics who wouldn’t even want the state to invest into better education (e.g. because they might claim the state will use the money inefficiently), there is one more alternative to offer that minimises state involvement: use inheritance taxes to fund a universal basic income. This would be a very simple redistributive measure that wouldn’t require much state involvement (little bureaucracy, little room for inefficiency). It’s not a very crazy thought after all: instead of the current situation in which some people are born rich, some few are born insanely rich, and the majority is born poor, in the future everybody would be born with a moderate yet helpful basic endowment. And this being fully compatible with meroticratic, liberal values.
Before anyone gets in rage about this allegedly communistic proposal: high inheritance taxes are something very different from high income taxes; calling for equal starting positions in life is not at all the same thing as equalising outcomes.