Inheritance Tax

If nothing is certain except death and taxes, why not get them out of the way at the same time? I’ve often wondered why an estate or inheritance tax is not used in Australia. To me it seems a logical and comparatively fair way of performing the burden of taxation. Income taxes make generating wealth more difficult, so why not shift the burden off those actually generating new wealth and place it increasingly on to those who are getting it merely due to chance of birth?

Surely raising taxes this way is more efficient? Taking it off those who have windfall gains rather than those who are actually generating the most must be more efficient. In principle I can’t see any arguments against it that don’t also apply to income tax. I can understand there may be considerable practical difficulties in actually doing this, but this does not seem to be the reason people are against it.

So can anyone give me a good reasons for not having an inheritance tax in exchange for lower income tax? Or is it just a fantastic idea that we should go back to?

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4 Responses to Inheritance Tax

  1. Sacha says:

    A practical issue with inheritance taxes would be the period before death in which gifts would be subject to inheritance taxes. But this could be dealt with.

  2. Steve says:

    Sacha it could be but it does complicate things. As with everything else tax distorts behaviour as people seek to avoid it.

  3. Ron says:

    Inheritance tax is also a double tax – consider that you have already paid income tax in the process of accumulating wealth.

    With income tax rate X and inheritance tax rate Y, for every $1 you earn now, you can only leave to your kid $(1-X)(1-Y) – why bother working hard or saving?

    More often than not, people doing good things not for social welfare but for the welfare of themselves and their families. Depriving them of the ability to influence things after they die will make people acting more on short-term objectives, which may not be good.

    Inheritance tax for lower income tax – will it really tax the riches more? It may just lead riches to spend all they earned (even more because of low income tax) on exotic stuffs before they die 🙂

  4. Brett Keller says:

    I think inheritance taxes make sense. Doesn’t the government often write off whatever debts you have when you die? Why should you expect your children not to inherit your debt, but to inherit your wealth too? Hmm..

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