Benjamin Franklin famously wrote to a friend in 1789 that “in this world nothing is certain but death and taxes.” The late Queen Elizabeth couldn’t escape death – but taxes were something she largely avoided.
In addition to a title, a new job and control of the Crown Estates, King Charles will also inherit his mother’s vast personal fortune. And the new king doesn’t have to pay any inheritance tax for it.
In the past, all taxes went to the monarch – so there was no point in taxing the monarch. This rule persisted even after crowned heads ceased to rule.
But in the 1990s, with the royal family not quite as popular in the UK and taxpayers footing the bill for the renovation of Windsor Castle after a fire, the British government came under pressure to take something from the royal family.
In a deal with then Prime Minister John Major, the Queen agreed to pay a voluntary income tax on her income from her estates. In return, she was assured that no taxes would be due on inheritances from sovereign to sovereign. In other words, everything she left her son. This was to avoid the possibility of the monarch’s personal wealth being diminished by successive tax claims on the deaths of successive sovereigns.
The Irish Commission on Taxation and Welfare may not have been so generous to her.
Their report, released last week, recommended raising inheritance taxes. This caused some outbursts of outrage. Michael Healy-Rae claimed we were “taxed to death”.
Tánaiste Leo Varadkar was also critical of the commission’s report. He claimed that some elements could have been removed “straight from Sinn Féin’s manifesto” – although some recommendations, such as a higher tax on alcohol and a new one on processed foods, seem a little too childish to be endorsed by any political party other than the to come green.
Income tax may make us want to work less, but what does inheritance tax change?
And it’s not true that populists like Sinn Féin or the left-wing parties would find so much in the commission’s report. She is not calling for a wealth tax, but instead proposing an expansion of the wealth tax, which Sinn Féin is campaigning for the abolition of. Sinn Féin wouldn’t be stupid enough to support a bunch of new taxes, either.
Varadkar’s comments suggest the government will be in no rush to fully implement the report. And it shouldn’t.
The report has a long-term goal of balancing tax sources and broadening the base – so we don’t remain dependent on potentially volatile corporate taxes.
The Commission is not claiming to offer a quick fix – and little did it know that its report would come out at precisely the time when the cost of living became Ireland’s key issue.
We don’t know if it was the inheritance tax proposal that prompted the Tánaiste to liken the report to a Sinn Féin manifesto – but the proposal to “significantly lower the threshold” above which we start paying taxes on gifts or inheritances begin has been a cause for concern in Fine Gael. It shouldn’t.
The Commission says that gift and inheritance taxes are among the best taxes. They don’t distort behavior.
Income tax might make us want to work less, VAT might make us consume less – but what does inheritance tax change?
The most common objection is that this is a form of double taxation. Having worked hard all her life and paid taxes on her earnings, Mary will now be taxed again on that earnings on death. That’s hardly fair.
There is something wrong with this argument.
First, everything we do is double or triple taxed. I earn my salary and pay taxes on it. Then I buy a bag of chips and pay the VAT on it. The shopkeeper then pays taxes on his profits, so does the chip manufacturer… I could go on.
Often, much of Mary’s wealth comes from the appreciation of her home, which she has never had to pay taxes on. So this is the first cut of the state.
Second, the dead don’t pay taxes. In Ireland, tax is not even payable on the estate. As the philosopher Martin O’Neill pointed out in an essay on inheritance tax, money is not subject to tax—transactions are. So Mary’s estate is not taxed, but the transfer of wealth from Mary to her children is.
If the state wants to forgo income from inheritance, where should it compensate for this?
And what is fairer: that Mary’s children pay high taxes on income from work and no taxes on a windfall that is given to them – or vice versa?
And if the state wants to forego income from inheritances, where should it be compensated? People who tend to have heirs are older, usually in their fifties, and relatively wealthy. The alternative is to tax the boys and girls
Politically it should be a no-brainer.
Although some of us have been lucky enough to receive enough inheritance to pay tax on it, the vast majority of people in Ireland will never pay that tax.
And if you—like me and Leo Varadkar—believe in markets as a good mechanism to produce what society wants and needs, an inheritance tax helps avoid the accumulation of large fortunes that market power to a small elite push.
It reduces the incentive for the children of the rich to lead idle lives.
It is fashionable even in the billionaire class to swear to give away their wealth rather than leave it to their children.
If Leo Varadkar is serious about his motto of a “Republic of Opportunities,” the inheritance tax is exactly the kind of tax he should support.
Eoin O’Malley teaches politics and politics at Dublin City University
https://www.independent.ie/opinion/comment/state-taking-inheritance-cut-from-idle-rich-is-a-no-brainer-41997171.html State cuts in inheritance for the idle rich are child’s play