The inheritance tax is a tax that has never achieved to reach one of its main goals – reduce income inequality. Its effect nowadays on budgets of countries is negligible. Instead, the tax infringes individual rights to personal property and free will. We believe that the reasons to keep the tax present are not sufficient and the tax should be unconditionally abolished.
Let’s make clear what we are doing here. We are abolishing all taxes that directly reduce the amount of inheritance to the heirs of the deceased. We do not care which form does the tax take – whether the inheritance is taxed and then delivered , whether the inheritance is first delivered to the heirs and then taxed accordingly to the amount received, or whether both happen. We do not find the form relevant, because we are discontent with the very principle that the heir does not get the property he was supposed to get under the deceased’s will. We are repealing the laws wherever we find them – we do not believe that the principles according to which we base our case are any different in US or Lithuania.
All the Yes points:
- Argument 1
- Positive effects of wealth accumulation
- Equality of opportunity cannot be the leading principle in deciding upon inheritance in our society
- Caring for children and relatives is a driving force in our societies
- Efforts to reduce tax
- Inheritance taxes reduce entrepreneurial activity
- Summary of the proposition
All the No points:
In this opening argument of our case we are going to establish why engaging into free transactions between individuals especially in the form of inheritance is a fundamental freedom people should enjoy and how inheritance taxation infringes on it.
To begin with we want to emphasise that we regard leaving inheritance as not different from any other transaction between individuals happening in the form of giving gifts, such as giving an engagement ring to ones lover.. We don’t tax such things not only because it would be practically almost impossible to control all such micro level actions but, more importantly, because, we value the freedom of individuals in deciding who should benefit from ones wealth.
There are several reasons why we regard this freedom of fundamental importance. First and foremost, individuals should be able to choose the way of life they deem to be the most appropriate to them and thus bringing the most happiness. Choosing the way of life means deciding on where to live, what activity to undertake, whom to identify with, whom to help and many other things. All these choices are inseparable from the ability to freely use the wealth that belongs to an individual through property rights, because material things are most often the means through which the realisation of people’s choices is enabled.
Second, people are social beings and pursue happiness not only satisfying their own needs but also by helping others. This is particularly true about care that parent provide to their children or other relatives, with whom they share a special bond not only biologically but also emotionally. Free transactions enables individuals to guarantee prosperous and secure life for those who they care about. If exercising such right is restricted or lessened through taxation, a substantial harm is imposed to an individual, who feels less capable to and thus suffers emotionally
Third, what particularly concerns leaving inheritance, is that individuals self-actualize not only through actions made while being alive but also thinking of how the things they have created through out their lives are going to be treated in the future. Their emotional well being is lessened if they feel insecurity, for example, about whether the company they have created is going to be taken care by his children or will rather be sold and closed down because the inheritance taxes are to be paid.
Inheritance tax infringes on all those freedoms in two ways. First,by physically reducing the wealth the individuals could and may want to transfer to other. Second, by disincentives people to pursue actions they deem to be right, thus imposing emotianl harms.
Positive effects of wealth accumulation
It more than clear that there is a strong link between inheritance taxes and wealth accumulation. The higher are the taxes, the less wealth is transferred to the recipient, thus driving the total wealth possessed by the private individuals down. Knowing that most of the taxes collected by state are used up for short-run consumption / spending and not invested into capital, we can easily conclude that inheritance taxes directly lower the total wealth accumulated in the society (as opposed to usual effect of taxes which only redistributes wealth), as part of the wealth is taken away for short-run purposes.
In fact, this is not the only channel how inheritance taxes affect the total wealth (or, more precisely, capital) stock. The other channel is the propensity to save – inheritance taxes deter the willingness to accumulate savings. When individual knows that his private property will be taxed after his death before getting to his heirs, he is more likely to consume more today. The utility that an individual gets diminishes when the estate left to his heirs is taxed, because the net amount of inheritance decreases. Hence, he is very likely to substitute for some consumption. The money that would have been saved will be consumed. That has a negative effect on investment and capital accumulation.
Now, that we have established that inheritance taxes have a negative effect on wealth and capital accumulation, we will show what are the positive effects of wealth accumulation, and how, in fact, inheritance taxes have quite a devastating effect on the economy.
Economists have acknowledged the importance of savings in the society centuries ago, all conventional books on macroeconomics acknowledge that, too [[http://books.google.no/books?id=467QG5353JMC&pg=PA374&lpg=PA374&dq=importance+of+savings+macroeconomics&source=bl&ots=T_EM8XsYIX&sig=HYG2u_PJXKjwDPS8JKVKvHs3YI4&hl=lt&ei=hduYSp6wFeSZjAfciuWfBQ&sa=X&oi=book_result&ct=result&resnum=1#v=onepage&q=&f=false]]. When savings of individuals are put in financial intermediaries, businesses can borrow them and invest. Investment in turn builds up capital. Capital accumulation is one of the keys to prosperity – the more capital we have, the more output we can create with it. More production results in higher wealth of the people – each of us gets more goods and services than he used to get before. Hence, savings are essential for economic growth, as they work as a base for starting the cycle of the growth to prosperity. This is exactly why the third-world countries are lagging behind – they usually do not have a large capital stock, and this is exactly why most of the money piled in Africa and other countries as financial aid is mainly directed to building up infrastructure and other capital-intensive forms – this is the only way to ensure sustainable growth in the future. To sum up, wealth accumulation ensures that a society will be able to get more productive, and will not get poorer when the existing capital depreciates.
The second positive effect of wealth accumulation is the ability to sustain during tough economic times. Knowing that the “crisis examples” are very popular these times, we can’t help but bring up one. If one looks into the Baltic states, where the economic downturn was one of the most severe in the world [[http://www.wtnrradio.com/story.php?story=361]], she would notice that the propensity to save was very low, if not negative in this region. There was not real wealth accumulation, it was a consumption-based world. Thus, when the income went down and the lending bubble busted, the societies in the region suffered “quite a significant” shock . There was no wealth accumulated to help absorbing the shock. Now, if one looks into the countries least affected by the crisis (same article as above) – it’s Qatar, Yemen, Turkmenistan and Uzbekistan. One can easily guess why they were least affected – they had a lot of wealth accumulated from the oil exports. That wealth serves as a pillow to soften the downturn. Of course, the wealth from inheritance will never provide an effect of the same significance as does the wealth from oil exports due to difference in accumulation period and the magnitude itself, but the core principle is the same.
To conclude, we have shown that inheritance taxes lower wealth accumulation through two channels – propensity to save and direct wealth conversion to spendings. Then, we analyzed the effects of wealth accumulation to the economy, and showed that it both provides a base for sustainable economic growth and ensures that economies are not hit very hard during downturns. Thus, we conclude that abolishment of inheritance taxes will lead to sustainable economic growth which, after all, is one of the main goals for any government.
There are a number of troubling assumptions in this argument that result in a number of even more troubling flaws.
Firstly, this argument is an argument against any and every tax. Every tax would reduce the amount of wealth accumulated by an individual, and every tax would reduce their ability to save. However, we are not abolishing all taxes. They are pointing out the trivially true to note that taxes reduce the income in peoples’ hands; what is unclear is why we should get rid of inheritance taxes because of it.
Proposition then assumed that inheritance taxes are not redistributive, and are distinct from other taxes. Unfortunately we can not “easily conclude” that bit of analysis. States do not treat the types of revenue generated from taxes differently based on their source. In some rare circumstances the tax may be levied for a particular end, but usually not.
Finally, it is unclear why all saving all the time is an a priori good. While it is true that capital accumulation is a component of long-term economic growth, it is always necessary to look at the utility tradeoff between capital accumulation and consumption. Often necessary societal goods, such as welfare benefits and other social programs, can only be accomplished with short term spending. It is overly simplistic to assign absolute value to capital accumulation at all costs.
Equality of opportunity cannot be the leading principle in deciding upon inheritance in our society
It is usually contended that equality of opportunity is an admirable objective and should be pursued in our society. The proponents of inheritance tax tend to claim that the tax will make the situation among people more just and equitable, because your odds of success in the society will depend less on pure luck (the wealth of your parents) and more on your skill and talent. Why should you be wealthier just because you were lucky enough to be born in a prosperous family? – That is the rhetoric that usually comes from proponents of inheritance tax. Although we hold in esteem equality and we believe that it is valuable per se, we strongly condemn the atrocious attempts to limit opportunities for some people just for the sake of achieving equality. Taking away person’s inherited wealth to achieve equality of opportunity in comparison with others is equivalent to putting out all newborns’ eyes just because there was one who was born blind. We declaim against such acts of social engineering and find them unacceptable in a free and open society.
Another popular notion is that the heirs do not deserve the inheritance, because they did not earn it by themselves. But we definitely do not see the government as the worthy one to get a share of deceased’s property. In our society we generally accept the notion that a man is free, he has a free will and the ability to dispose his private property in a way he wishes to. This includes choosing who will get his property after his death. We believe that government is here to protect our fundamental rights. We do not see in what way taking away a share of inheritance is protecting rights. It is nothing less but an arbitrary act of coercion against the will of the deceased.
Proposition argues that an inheritance tax is wrong because it infringes on a right to property they think is absolute. Firstly, it is unclear that they hold this view in general if they are not opposed to other kinds of taxes as well. More importantly, it is important to realize that no right is absolute. Property is better viewed as an instrumental right to make society function in a useful way – for example, money is a way to incentivize work effort and provide a mechanism for trade. It is obviously not the case that the government can never infringe on one’s property rights – the government does it all the time for social outcomes it thinks is good, from implementing other taxes to fund welfare and unemployment insurance to exercising their right of eminent domain to build a highway.
Caring for children and relatives is a driving force in our societies
One of the fundamental powers driving human behavior is the care for relatives. Throughout life, individual tries to earn a fortune not only because he wants to have a shelter and some food, but also because there is a social circle of other people around him – a social circle that he cares about. Most of the people assert that family is something that is of higher importance than anything else in their life. A person devotes time to his family, helps in various situations; finally, he wants them to inherit his wealth after death. In a way, a child is a continuity of one’s life and a person is happy to leave his property the children or other relatives.
We believe that if individual was to care only for himself he would never want to work as much (and by this, create value for society as well). Ability to generate value not only for him but also for his children gives more incentives for an individual to work harder. This is beneficial for the whole society, because more work creates more value overall. However, by imposing an inheritance tax we reduce the incentives for a behavior which is beneficial for society. We discourage people from doing it. When tax is taken, money will end up somewhere else. But it is certain that people will never be as motivated to work for unknown person’s good as much as for their own relative’s good.
To sum up, by taking away a share of person’s property after his death, we are indirectly preventing him from creating value for the society, because he will know that what he earns will be spread over many strangers instead of relatives after his death.
It is extremely disingenuous to argue that inheritance tax reduces work effort. People are terrible about future planning, and thinking about inheritance taxes is a far less important factor that immediate factors, like consumption desires, as to be negligible.
The second part of prop’s argument is an extension of the freedom of property point – that if you want to look after your offspring, this is an end for which you should be allowed to use your wealth. Again, we think it reasonnable that the government be allowed to tax inheritances for social good, just like it taxes everything else.
Efforts to reduce tax
Much effort is spent on reducing and eliminating the inheritance tax. First, people establish trusts that are usually taxed at a lower rate than directly inherited wealth. One can also minimize the tax burden by transferring gifts that usually are untaxed until a certain level (as much as one million dollars over the lifetime in US [[http://www.irs.gov/businesses/small/article/0,,id=164871,00.html]]). The gift and inheritance transfers have lots of exceptions, such as education, charity, or other destinations. Many wealthy people use offshore tax havens to reduce the tax. Take the Russians for example, who find Cyprus a proper place to store their wealth. People who are subject to the inheritance tax are those likely able to find ways to reduce the burden, thus further weakening any positive effects.
What we find inappropriate is that people who are by no standards considered “the wealthy” are going to pay the death tax. The general level of wealth has been constantly rising and ever more people are subject to this “death tax”. For example, a pensioner, living in her well kept house that happened to be in the centre of a newly build financial centre in. Basically all people who have real estate in areas that are now very desirable would face the tax due to an unexpected appreciation of their property. Indeed, one of three British households (out of 24 million) would pay estate tax [[http://www.time.com/time/magazine/article/0,9171,1376184,00.html]]. The tax that was previously levied on the rich is falling on the shoulders of “ordinary” men, who have lesser opportunities to reduce the tax burden than the rich people, capable of employing legal and financial talents. Although this can be changed, what we find unacceptable is the arbitral nature of such taxation. It will be always debatable what is the threshold on which the tax is levied.
This is an argument about implementation of the tax, and not the tax itself. Prop argues that the tax is bad because people will try and break the rules, however, this can be corrected for by closing loopholes surrounding inheritance taxes. For example, most countries include all gifts made in a certain period before your death as part of your estate and tax them accordingly. It is inconceivable to us that an inheritance tax (at an “arbitrary level” just like every other tax) cannot be regulated in the same way as every other tax.
Inheritance taxes reduce entrepreneurial activity
One of the main forces that helped our society to become the way it is was entrepreneurial spirit of businessmen. The desire of theirs to make a fortune makes the lives of everyone easier and better. What we want to have in our society is a better environment for entrepreneurs where they can sustain their businesses – the businesses that are value-adding to the society as a whole. Estate tax is something that effectively destroys family businesses. We definitely do not claim that it is happening in all an every instance, but there are cases where such taxation is disruptive to businesses. Consider a family business of substantial value. It has been successful for many years, expanding at a rapid pace. The owner was happy to finance the expansion with retained earnings – but now he finds himself in trouble, because in case of his death, his son would not be able to pay without selling a share of his business. These are the situations we are extremely discontent with, because people who create the most value in our society are unjustly punished.
Scientific studies show detrimental effects of inheritance taxes to entrepreneurial activity. Holtz-Eakin finds evidence that entrepreneurs would decrease business expansion if they would be subject to estate tax after death. [[Holtz-Eakin, Douglas. “The Death Tax: Investments, Employment, and Entrepreneurs.” Tax Notes 84 No. 5 (August 2, 1999): 782-92.]]. A recent study shows that if inheritance taxes were eliminated, probability of hiring would increase by 8.6%, payrolls by 2.6% and investments by 3% in family businesses[[Douglas Holtz-Eakin, Changing Views of the Estate Tax, February 2009, http://www.nodeathtax.org/files/AFBF_Holtz_Eakin_2009.pdf%5D%5D. This is very plausible indeed – when business owners are subject to tax, they will not expand their business so much, instead, they will put away some money so that they could be used in case of owner’s death to pay the estate tax.
“Estate tax is something that effectively destroys family businesses. “
Let us take a look at what often causes small businesses to fail :
Poor planning, Inadequate capital, No prior business experience, Ineffective marketing, Competition, Poor customer service, Poor record keeping and financial controls, Limited product – services and/or clients, Opportunistic marketing only, Poor time management, Poor quality, and Burnout.
Note that what proposition seems to be driving at, that estate tax dangerously drains capital levels, is only one of 12 ways that a business would fail (by ensuring inadequate capital)). Let us examine how precisely this “family business” situation would pan out.
Entrepreneur Bob would like to start his own family business. He doesn’t have enough capital himself to carry start-up costs. Say someone in Bob’s family dies and he is due inheritance.
A: Bob has enough money from the inheritance (post-tax) to start up his business. His business can now start up, but can still fail any of 11 other ways.
This occurs if there is no tax, or the sum of money inherited is so large that it covers all capital costs. Tax is percentage based, not lump sum, so if he inherits relatively little he wouldn’t have enough capital anyway. Note that he could still fail in eleven other ways.
B: Bob doesn’t have enough money. The gross amount isn’t enough, or, as prop would posit, the tax is usurious. Well…
Let’s look at who pay’s estate tax.
“The average estate that paid tax in 1997 was worth $2.3 million. It paid about $390,000 in estate taxes, or 17 percent of the estate’s value.”
Unless Bob’s family business has about 2 million dollars in startup costs, we can reasonably expect Bob to be fine for capital accumulation, even with the tax.
But what if Bob is less well-off than the average taxpayer – don’t these taxes persecute the poor?
“The law allows the first $675,000 of an estate (twice that per couple) to be passed on to family members and others tax free, and because of special provisions for family-owned businesses, transfers to children through gifts and trusts, and charitable bequests, the government collects only a relatively small fraction of even large estates.”
Essentially, those with relatively low-value estates pay no tax. It is only those with highly valuable estates that end up paying appreciable amounts of tax. Even then, that appreciable amount, after deductions, comes to a scant 17-19% of total value. On the estates that actually qualify to get taxed, there should be more than enough left over to start a business (let alone continue one!).
But how much does it cost to start up a small business anyway?
“Solo entrepreneurs expect median startup costs of $6,000, while the median cost expected by team ventures is $20,000. More than 80 percent of the entrepreneurs studied expected to cover their startup costs without bank loans, although on average they had saved only $2,000 towards that goal.” 
So, if you’re in the lowest bracket for estates (675,000 or less) and tax free, you’ll probably have more capital than you need in order to start your business unless your family has no estate, you don’t inherit anything, or inherit very little. But in this case, your poverty has nothing to do with usurious taxes. It has everything to do with being poor. It is this sort of poverty that we want to combat with the funds from taxes, like estate tax, into social programs.
We on side opposition believe that poverty is a far greater threat to the “entrepreneurial spirit” than estate tax. We would even go so far as to say that estate tax helps maintain this spirit by providing the capital for social programs that allow those less advantaged to become the entrepreneurs of the future, rather than allowing corporate dynasties to monopolize the market.
Even if you’re in the median bracket (paying 390,000 in tax), you have more capital than you would need to start your business.
Even if the taxes were prohibitive (in the sense that you can’t start a business on inheritance ALONE), which the are not as shown above, one can always take out a loan. This is not even a particularly risky investment, as earnings quickly outstrip upfront capital costs.
“On average, solo entrepreneurs believe they will have business income of $90,000 in the fifth year of their venture.” 
Estate tax poses no credible threat to small business owners, or even to business owners in general.
“Only 2% of the 2.4 million people who died in 2001, or fewer than 52,000 estates, left behind enough wealth to owe estate taxes, according to the Internal Revenue Service.”
“The estate-tax exemption limit has been raised substantially, starting at $1 million in 2002 and rising to $3.5 million for 2009.”
“Under Obama’s plan, for example, 84% of the total taxes owed would be paid by estates worth more than $10 million” 
Remember that even on these properties that ARE taxed, the net amount taken by the government rarely exceeds 17 per cent. In 84% of cases, you could reasonably expect your inheritance to be more than 8 million dollars. It is hard to see how losing 17 percent of 10 million impacts an individual more than new educational resources or hospital beds influence the lives of others.
But what about the disincentive to invest? It turns out this too, is a bogeyman.
“”Essentially, the property and most investments in an estate get a new value for tax purposes when someone dies… For the vast majority of people, that means the increase in value of their estates never gets taxed, either when they die or when the property they bequeath to others is ultimately sold.”
Estate tax is not usurious, unfair, or unjustified. It is not a threat to entrepreneurship. Quite the opposite. It provides capital for the funding of social programs, which in turn creates a new generation of fresh entrepreneurs by providing opportunities that would not otherwise be granted. We believe that this is not only morally but economically beneficial, as it keeps the market competitive and prevents the centralization and monopolization of wealth by those fortunate enough to have “earned” it in advance.
In response to the work of Holtz-Eakin, opposition has several things to say:
Firstly, that we question the validity these findings. The sourced article has no empirical data to back this up. Holtz and Eakin do not describe the econometric methods they used to come to this conclusion, indeed if they used any at all.
If this sounds trivial, it is not. The primary assumptions one uses for the calculations of a economic model have fundamental impacts on the conclusions reached by that model. Holtz Eakin do nothing more than refer to tables, which often they themselves created. This should instantaneously make any discerning reader suspicious of the conclusions of such an article.
We can infer from the results of the Holtz-Eakin model (whatever it is) that they believe in some form of “trickle-down” economics, wherein giving capital to the rich results in ancillary benefits for the rest as the rich are prompted to “reinvest” in the economy by having all that extra money. This is where, we presume, Holtz-Eakin get their positive social benefits from.
The trouble with this is that “trickle-down” is just an assumption, and a shaky one at that. Assuming that giving a wealth person more money means that they are more likely to hire another worker intuitively sounds naive. It also doesn’t add up historically. The last 20 years have been tremendous in terms of growth (recession aside) for the West. Yet the income gaps in Canada , the United States , and the UK  are widening, in some cases worse than ever. Clearly the rich are not opening up their pockets.
Perhaps the most extreme example is the great depression. The set of financial laws prior to WW1 were fare more libertarian, the results of which can be seen in the “U-shaped” income dispairty curve from 1913-1998. This is a result of a shift from laissez-faire to Kenysian policy, and then a gradual shift back towards neoliberalism (present day). Note that this preWW1 disparity took the form of a few lucky individuals amassing incredible fortunes. What happened was not an increase in wages, employment, and social good, but quite the opposite . It was not until the government stepped in, and used taxpayer dollars to restimulate the economy, that the situation stabilized.
To place this information in the context of “the worst economic downturn since the Depression” and steady approach of income disparity to pre-WW1 levels, we can see a connection between laissez faire economic policy and eventual economic collapse. Those who have money tend to hoard, not to spend. This has been the historical trend, and we have every reason to believe it will continue.
Holtz-Eakin, other than their unexplained findings, give us no reason to believe any differently. We dispute the validity of their findings, and the philosophical basis of their model. Even if Holtz-Eakin are not laissez-faire proponents, the analysis here further strengthens oppositions’ case that monetary policy that favors redistributive justice is preferable to a laissez-faire system in which we rely on the altruism of the very wealthy to keep our society functioning.
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!
A Just Tax
We do believe in the principle of redistributive justice on side opposition.
What is the point of an inheritance? We think to ensure that our children and more generally our inheritors, have a good life. It ultimately is a guarantee of security. Most inheritance taxes in most countries are targeted at the richest segments of their society. While the occasional farmer with a lot of highly valued land will also be affected, usually it is the richest quartile. Why does this matter? Because the security that proposition is fighting hard to secure is that of the most well off. This is distinct from a general security that all individuals need and have. This is not of necessity but of privilege. This is for a sector of the population that is already “well-off”. Furthermore, a tax is not a 100% tax, so money will always still reach those inheritors of their family’s aristrocratic history and estate.
However, what we achieve on opposition is a greater redistributory effect. By having more money from the richest going towards coffers we can better ensure the quality of state-provided security to all individuals will rise. In a crude sense, it is imposing a little inconvenience on the top quartile of society to make the other 3 much better off.
If you believe in redistributive justice, why not redistribute income and wealth absolutely equally in the society? Following your logic, government can simply intervene into the lives of people whenever it finds it appropriate (whenever it finds some people too rich, too clever, or too beautiful) for the sake of some intangible common good. The opposition claims that no rights are absolute and they can just interpret them in a way that would benefit the society. This is exactly the kind of reasoning that had build socialist societies in the past. And as far as the history tells us, these societies did not endure for very long and they were not too successful.
Let us point out that the very essence of opposition’s argument is “Let’s tax rich, because they are rich”. First, the opposition has no sense of the essential human rights that are usually recognized in our society and there is an fundamental clash between our viewpoint and theirs. Let us note that we do not oppose taxation. We support taxation when it is equal for all people – for instance, flat income taxes or value added taxes – then the collection to create some form of public good and to correct for externalities can be justified. We defy taxation when its whole point is simply to tax the ones who are more wealthy than you. We defy taxation when it intervenes into the most private areas of our lives – transactions between us and our family members.
Second, the opposition has no sense to which extent the rich are already being taxed. For example, top 1% in the United States are paying more in income taxes than the bottom 95% [[http://www.taxfoundation.org/taxdata/show/24955.html]]. These are the people who already effectively finance the budgets of our countries with income taxes. The inheritance tax is a double taxation on the income that had been previously taxed. We do not believe that taxing the same thing twice is just, so do some other people – the EU, for instance, calls for elimination of double taxation in various instances [[http://europa.eu/legislation_summaries/taxation/l26038_en.htm]].
Third, the revenues from the tax, which the opposition find so important, are negligible, raising a question whether they exceed the administrative costs of the tax. This was investigated by scholars previously [[Munnell, Alicia H. “Wealth Transfer Taxation: The Relative Role for Estate and Income Taxes.” New England Economic Review (November/December 1998): 3-28.]]. Munnell contends that the costs are of roughly the same magnitude as the revenues raised. The revenues raised are small indeed – even in the US, which has one of the highest inheritance tax rates, 2008 revenues from inheritance tax combined with gift tax contributed only 1.1% to the federal budget [[http://www.heritage.org/research/features/BudgetChartBook/Social-Insurance-Taxes-Account-for-36-percent-of-All-Revenues.aspx]]. The opposition was quick to point out that if there is substantial evasion, there are various ways how to stop that – for example, taxing gifts. Such efforts will ultimately increase the administrative costs for something that has little contribution the country’s revenues. Finally, some scholars have concluded that raising more revenues from income tax instead of estate tax would enhance efficiency [[Holtz-Eakin, Douglas, and Donald Marples. “Distortion Costs of Taxing Wealth Accumulation: Income vs. Estate Taxes.” NBER Working Paper No. 8261. Cambridge, MA: National Bureau of Economic Research, 2001.]].
The bottom line is, even if we buy the opposition’s premise that the only important thing is governmental revenues (which we don’t, because of our value differences), the inheritance tax is a very lousy way of collecting these revenues.
For the summation of this debate, we would like to split the proposition argumentation into philosophical and practical components.
The philosophical arguments we hear for abolishing estate tax are those of hard-core libertarian values of property. According to proposition, property rights trump net societal utility, and trump moral obligations that we may have to those who are less fortunate. That besides, the violation of these rights constitutes severe emotional and existential harm.
There are multiple problems with this position. Most glaring is proposition’s complete lack of any philosophical analysis to support this vaulted position for property rights. Even more unfortunate is how such a hard-line stance in favor of such rights is consistent with a position for the abolition of estate tax alone. Opposition pointed out that much of their early argumentation was, at least philosophically, the position one would expect for an argument to abolish all taxation altogether. Not only is this not what we are debating, but from a practical standpoint this is clearly absurd. From a moral or utilitarian standpoint it is no better, for all social programs would instantaneously collapse and leave literally millions in the lurch. Either the harms that proposition claims are not nearly as severe as they claim and they are being disingenuous, or they genuinely believe these harms to be inconceivably severe, in which case they have not provided nearly enough philosophical argumentation for us to take seriously the suggestion that taxation is a harm so great it trumps both utilitarian and moral obligations.
Proposition then attempted to philosophically straw-man opposition into an “eat the rich” position. They suggest that we support this tax, “because your odds of success in the society will depend less on pure luck (the wealth of your parents) and more on your skill and talent. Why should you be wealthier just because you were lucky enough to be born in a prosperous family?” Well yes, opposition does support the tax, partly for that reason. It seems intuitively obvious that meritocracy is more desirable than a lottery. But let us take the meat of their objection, that “Following your logic, government can simply intervene into the lives of people whenever it finds it appropriate (whenever it finds some people too rich, too clever, or too beautiful) for the sake of some intangible common good.”
Opposition never claimed any of this. The estate tax has perfectly clear, non-arbitrary, and tangible reasons for existing. We have restated these reasons multiple times during the debate, but it essentially comes down to the fact that:
1) The rich are taxed because they can afford it. Obviously we cannot get the same taxes (in absolute value) from the poor or even middle class without severely impacting quality of life. The rich however can afford to have 2 million taxed on inheritance, because they still have another 8 million left. This is completely non-arbitrary and if at all discriminatory it is in a completely tangential and non-deliberate manner.
2) We believe in the concept of social redistributive justice, as we have stated multiple times throughout the round. We believe that it is more important that we fund schools, hospitals, and social programs designed to improving the lot of many than a millionaire’s heir gets his or her full 10 million rather than a ‘paltry’ 8.
(On the topic of social redistributive justice, it is interesting to note that proposition uses foreign aid in Africa as an example. We wonder where proposition believes this foreign aid comes from. If this is not an example of tax-payer dollars being used precisely in the methods that proposition dismissed (ie. long term investment in infrastructure and capital gains), we don’t know what is. Not only does this example illustrate how tax revenue can be used, it reveals that Proposition, at some level, concedes that sometimes redistribution is the only recourse to inequality.)
The remainder of proposition’s philosophical objections consist of the fact that individuals have an imperative to care for their families, and this law unfairly inhibits their ability to do so. Even if opposition were to accept the imperative to family, it would only serve to highlight the importance of the law itself. Society does not function if we exist in a Hobbesian state of nature in which it is every man (and his family) for themselves. Laws like estate tax help ensure that those who are not generously inclined will still help maintain and improve the society they live in. Without it, we would expect hoarding of wealth as each family tries to ensure its standing. Social programs not only provide for the poor, they encourage a freer and more entrepreneurial society by creating a safety net, an idea of communitarian mutual trust. A society in which members support each other is not only more ethical, but more productive.
Opposition has a clear idea of the type of society we wish to see, and a strong philosophical backing for our support of estate tax. Proposition has provided little more than assertion in lieu of analysis.
In terms of practical concerns, proposition was mostly concerned with a decline in entrepreneurial activity, and a lack of investment and capital accumulation. Opposition responded by pointing out that sometimes short-term consumption is, in fact, desirable. Investment is pointless if no-one is consuming. One cannot sell a product if no-one buys. We also thoroughly addressed the concerns regarding entrepreneurial failure. Essentially only the upper-middle class and higher pays estate tax. Of those that do, the vast majority (84%) have enough assets transferred in the inheritance (10 million or more) that they could take an estate tax two or three times the current rates (post deduction) and still have enough to open a business. Even those aspiring entrepreneurs who, for one reason or another, lack assets, can take out a loan and expected not only to repay the loan but make profits within five years. The expected startup costs of a small business are such that you would have to inherit next to nothing to be capital-deficient, in which case you would be well under minimum estate value to pay the tax at all. The assertion that family-businesses are groaning under the strain is bunk.
Proposition seemed to believe that taxation would cause an overall decrease in total wealth in society. As we stated earlier, it is not at all clear how precisely this would happen. If we all had piles of cowrie shells, some bigger than others, and someone came along and redistributed them so most people’s piles got bigger, but the biggest ones got slightly smaller, clearly the number of shells remains constant. Just because the biggest piles do not “invest” as much does not mean the other piles will not invest. Those who receive the redistributive effects will spend them, put them in a bank (in which case their money is reintroduced in the form of loans), or invest them. It is literally near impossible to take money “out” of the economy once you put it in. It is unclear how proposition came to the contrary conclusion.
On the two main points of practical concern in proposition’s case, we have provided more than reasonable cause to doubt their validity. There are other objections, such as the fact that people will evade taxes, but to say that because some people will break a law is reason to abolish it is a ridiculous precedent. Or others, like the fact that the revenue from estate tax is “negligible.” On the one hand, opposition has a hard time understanding the validity of ALL of propositions other points, practical and philosophical, if the fiscal impact of the estate tax is “negligible.” On the other we would say that some money is better than no money, and that opposition has never claimed we should drain the rich, merely that we should have a from of redistributive justice in place. We stand by our position that such funds help others more than they are missed by those we appropriate them from. The millions of dollars in revenue may seem small on a macro-financial scale, but on a more human level that translates into hundreds, if not thousands, of lives made better.
Because we believe that just taxation is both a sound philosophical and practical basis for social policy, and for the reasons we have given you to believe that the estate tax is so just, we proudly oppose.
We would love to hear what you think – please leave a comment!