In an appropriate follow-up to his recent essay on capitalism, Michael Copeland discusses one of the great inhibitors of capitalism.
How Not to Build a Country — Inheritance Tax
by Michael Copeland
Uncle George (not his real name) died some ten years ago. He was in his late eighties, much afflicted by Parkinson’s, and had been in a nursing home for about a year. He had served in the army in the war, and for a while afterwards. Otherwise he had spent his life running a business. It was a business that his father had started from scratch, at a very difficult time in the Depression of the 1930s, when the firm he had previously directed had been obliged to close by the sudden loss of its export market.
Businesses are vulnerable: they can easily suffer loss and be forced to close, even well-known big firms like Woolworths, Wedgwood, Parker Knoll, and so on. The firm, a small one, relied heavily on the post for distribution, and was very nearly strangled out of business by the unions in the postal strike. Uncle, though not a natural businessman, steered the company through those stressful and difficult times. That can be regarded as his achievement, in holding on to the enterprise and guiding it in succeeding decades, though it affected his health. He used to stay at the office late in the evenings, where, he explained, he could work without interruptions. Much attached to his work, he remained at the helm much too long — until he was 80. He did not have a family: the firm was his whole life, and only reluctantly, as Parkinson’s took over, did he part with the company.
After retiring, Uncle kept a close eye on matters economic. He berated the house-price rush, and foresaw the financial crash some two years beforehand: “I am very worried about this,” he used to say; “I think there is going to be a recession. What are the people in the Treasury doing?”
Uncle lived simply, in a small flat. Parkinson’s prevented him from driving, so he gave up his car. At root insecure, he retained the proceeds of the firm’s sale towards health care, operations, and long-term care, which he paid for himself, and which, of course, are large costs, quite unquantifiable in advance. He already had his own savings, and had looked after the funds his parents had left him, but he was no landed Duke with rolling acres. He had what he had been able to save prudently AFTER paying business tax, income tax, capital gains tax, and after meeting expenses of living. But no, there is the further raid made by inheritance tax, at nearly half the value of all assets beyond the threshold. All assets means everything — flat, furniture, pictures, jewellery, savings, cash in the bank, investments — the works. He made some arrangements to mitigate the tax on his estate. In the event, when he died, those arrangements did not have effect.
The inheritance tax on his estate was considerable. It amounted to more than the sale proceeds of the firm — his life’s work. Gone. Taken. The question arises: what had he been working for? Where is the justification for penalising someone who has, at some stress, maintained employment for others and who has made provision for his retirement so as not to draw on taxpayer funds? He was an endangered species: an employer. Many families depended on him. His firm generated wealth: it produced things that were not there before, and which customers bought. It may sound easy to do, but it is difficult and stressful, exacting a health toll on those that perform it. Most unfair is it to inflict concerns about parting with funds on such people when they are elderly, infirm, and uncertain of the future.
Most people have little idea about how inheritance tax applies. Quite a number do not understand percentages. I rather wish the subject would appear in a popular television soap. Here is how it goes. Dear old widower Bill, quaffing ale in the pub, finds he has won 2.5 million on the Lottery: drinks all round. He gives a million each to his two daughters. Lots of drinks all round, and gifts to charity, for months to come. The daughters put their funds to good use for their families and houses. Nearly three years later Bill is taken ill and dies: sadness all round, funeral scene, tributes and so on. Bill still has some of his winnings left: together with the recently inflated value of his little flat he was worth £350,000. Before anything can be released the Revenue demands £800,000 “up front”. The reason is that Bill’s estate includes any gifts made within the last three years (yes, really, three years), namely the £2m given to his two daughters. His taxable estate thus totals £2,350,000. Each estate is allowed £350,000, but the tax, at 40%, applies to the rest, in this case the £2m given to his daughters. That results in £800,000 of tax, which means everything Bill still owned and £450,000 from his daughters: grief all round. That is how it works.
Inheritance tax is a blight: it penalises those who strive, while the state rewards those who do not. It requires a costly body of tax officials to administer. It has given rise to a sector of professionals advising how to mitigate it. The state offers a so-called caring kindly hand to those who have not made provision, who have spent everything they earned. It says, “We will look after you”, thereby removing the incentive to provide: it robs careful Peter to give to improvident Paul. It is not kindly: it is paralysing. This is how NOT to build a country.
I am not going to invest what Uncle left me in a firm, employing people. Why should I? Would you? What is the point?
For previous essays by Michael Copeland, see the Michael Copeland Archives.
Great and engaging reading of your explanation of this parasitic tax!
Americans should, to this point, feel blessed that there are legal exceptions around this as the sale of our family farm provided, through our Mother and Father’s foresight and preplanning.
But it is now in process that these U. S. exceptions are being done away as I write this. Gotta give the Krainian Koke Head money and feed the voracious appetite of our Military Industrial Complex… lest I forget the illegals flooding the country.
Jack Lawson
Member, Sully H. deFontaine Special Forces Association Chapter 51, Las Vegas, Nevada
Author of the “Civil Defense Manual,” “The Slaver’s Wheel,” “A Failure of Civility,” “And We Hide From The Devil” and “In Defense.”
“When the lies become commonplace, people believe them as fact… and when that “fact” is what is printed and known by most people it becomes “The Legend” …the real truth is gone forever… and what is left is ONLY “The Legend.”
Such is the case of Ernesto “Che” Guevara, whose capabilities and record were a total fabrication and who was a failure as a soldier and leader.” Not my words… these words are from the guy in my SF Chapter who helped hunt Guevara down and kill this evil human being in Bolivia. Author Jack Lawson
From Jack Lawson… an American in 1RLI Support Commando and attached to Rhodesian “C Squadron” SAS Africa 1976-79
I don’t understand. Was the business forced to be sold and shut down to pay the tax? Who inherited his estate?
In principle I agree with you that inheritance tax is a blight. I know here in the upper Midwest where I live many family farms are forced to sell assets to cover estate taxes after the parents pass away.
I also believe that inherited wealth and giant fortunes and endowments that the extremely wealthy leave behind are a terrible weapon in the hands of the unscrupulous which such fortunes inevitably seem to pass into. For example, Soros’s vast fortune is in the many tens of billions, larger than the GNP of many nations. His son is by all accounts just as evil if not more so than daddy. Fortunes like that, which are almost entirely ill-begotten, need to be destroyed and prevented from being passed on to be used for evil and destructive purposes.
I don’t have the answer except that for smaller businesses and family businesses where they intend to continue the operation there shouldn’t be inheritance or estate taxes, or perhaps there should be some kind of arbitrary limit to inheritance like a maximum of a hundred times the years wages of the lowest paid employee. It would ensure that the employees were paid properly and that the heirs had enough to live upon but wouldn’t be enough for causing societal mischief.
Uncle could not, mentally and physically, continue in charge of the business. The hideous irony is that had he stepped back and allowed someone else to run it while still remaining owner it would have qualified as business assets, which (at long last) do not attract Inheritance Tax. As it was, he was a wicked capitalist with funds in the bank. They are what attracted the Tax.
Uncle was a single man. He left his estate to nephews.
Your Uncle should have put his estate and all earnings into a nice small bank Swiss account like my family did a long time ago, I still have that account and will not give Uncle Sugar one red cent of it. Most of you here need to do the same, after the EU eventually falls and the Euro goes kaput, the Swiss Franc will thrive and survive. Same goes for the dollar.
I forgot to add that I don’t believe those fortunes should go to the government either. They already got their cut in taxes over the creator’s lifetime. Better if it was just stacked in a vast pile and burned, like the Viking kings buried in their longship alongside their wealth, or shoved out to sea and set on fire. The fortune needs to end with its creator lest it be put to evil uses.
THAT is an excellent analogy. Given what the government does with the money, it would, indeed, be better off burnt or buried.
The more I think on it, the more I like the idea of severely limiting the amount of wealth that can be passed on. It encourages it to be put to productive use in one’s lifetime and discourages greed. Just what exactly does Warren Buffet or Bill Gates or Jeff Bezos need so many billions for anyway once their dead? For phallus measuring? If Bezos couldn’t pass on more than a hundred times what his lowest paid Amazon employee made in a year, his heirs would be putting great pressure on him to pay his employees better. Perhaps it would severely discourage offshoring to avoid paying higher wages.
In old legends, vast amounts of wealth attracts dragons. And it could be an allegory for the untold suffering that is caused by these foundations that the elites of every era are allowed to create and outlive their passing to continue to work their evil even after they are long gone.
Nothing wrong with offshoring, you should do it, save you a ton of cash, even if you are of modest means. As for the evil men do with their vast riches, you are correct, but if there is no one to inherit that wealth? If you get my drift, like with Soro’s wretched family? If none are left?
All western countries the same. System gives more to those who drink and gamble their money away than those who accumulate and save. In Australia, better to never work and have illegitimate children then you get basic income, subsidised housing etc etc.
Legal system also favours bludgers. They don’t have to pay fines, they get better family court deals and also inheritance shares are bigger for losers.
We used to have an inheritance tax in Australia. The idea was originally to tax the very rich. But, of course, inflation made everyone “rich”. My parents were unskilled labourers, and eventually my father needed the invalid pension. But the inheritance tax still applied. I particularly remember how they got me to write my name in the books they owned so that they wouldn’t be included in the estate. There were stories of people getting rid of a collection of bicycles as soon as the owner died, as they would be taxable. Fortunately, one lone Member of Parliament led a campaign for its abolition before it applied to us.
IRS Form 706, utterly obscene, 29 pages, largely the same “features” as the UK edition described in this article. https://www.irs.gov/pub/irs-pdf/f706.pdf The instructions are a separate document of 54 pages, here’s a portion of the table of contents:
Specific Instructions . . . . . . . . . . . . . 5
Part 1—Decedent and
Executor . . . . . . . . . . . . . . . 5
Part 2—Tax Computation . . . . . . 5
Part 3—Elections by the
Executor . . . . . . . . . . . . . . 10
Part 4—General Information . . . 15
Part 5—Recapitulation . . . . . . . 17
Part 6—Portability of
Deceased Spousal
Unused Exclusion
(DSUE) . . . . . . . . . . . . . . . 17
Schedule A—Real Estate . . . . . 19
Schedule A-1—Section
2032A Valuation . . . . . . . . . 20
Schedule B—Stocks and
Bonds . . . . . . . . . . . . . . . . 22
Schedule C—Mortgages,
Notes, and Cash . . . . . . . . . 24
Schedule D—Insurance on
the Decedent’s Life . . . . . . . 25
Schedule E—Jointly Owned
Property . . . . . . . . . . . . . . 25
Schedule F—Other
Miscellaneous Property . . . . 26
Schedule G—Transfers
During Decedent’s Life . . . . . 27
Schedule H—Powers of
Appointment . . . . . . . . . . . 29
Schedule I—Annuities . . . . . . . 30
Schedule J—Funeral
Expenses and Expenses
Incurred in Administering
Property Subject to
Claims . . . . . . . . . . . . . . . 32
Schedule K—Debts of the
Decedent and Mortgages
and Liens . . . . . . . . . . . . . 33
Schedule L—Net Losses
During Administration
and Expenses Incurred in
Administering Property
Not Subject to Claims . . . . . . 34
Schedule M—Bequests,
etc., to Surviving Spouse
(Marital Deduction) . . . . . . . 35
Schedule O—Charitable,
Public, and Similar Gifts
and Bequests . . . . . . . . . . . 38
Schedule P—Credit for
Foreign Death Taxes . . . . . . 39
Schedule Q—Credit for Tax
on Prior Transfers . . . . . . . . 40
Schedules R and R-1—
Generation-Skipping
Transfer Tax . . . . . . . . . . . 43
Schedule U—Qualified
Conservation Easement
Exclusion . . . . . . . . . . . . . 47
Schedule PC—Protective
Claim for Refund . . . . . . . . . 49
Continuation Schedule . . . . . . . 51
And at the other end of the spectrum is Medicaid making claims against the estate of the deceased lower/middle class taxpayer who probably never had any idea he/she was even being enrolled in Medicaid. Hospital financial counselors say “sign here for benefits from the Health Program”, it’s not even called Medicaid and who’s going to read the fine print anyhow? After death, bureaucrats peruse the death lists and swoop in. I suspect that the swooping is not uniform; the well-connected are probably allowed to slip through the cracks. Such an estate typically consists mainly of the family home (if the deceased had had investments, they would have been disqualified from Medicaid). Example: Home sells for $125,000, Medicaid lodged a claim for $105,000,. Minus attorney and real estate commission the family received $4,000. The smart ones would have transferred ownership to a Trust years earlier and avoided this situation.
The medical establishment is a terrible racket with so many deceptive practices one doesn’t know where to begin in categorizing them.
Not posting upfront prices for procedures or allowing outside purchases of supplies, meals, etc. Or $5000 ambulance rides when you didn’t call for one, $50,000 helicopter flights. And these things done under duress.
Having seen enough old people with terminal conditions going in and out of hospitals spending untold sums of money without knowledge of or informed consent of who will pick up the tab; and this to gain a few days or weeks of life. Would it not be better to allow them whatever pain medication they needed, or opium, pot, etc, and allow them to remain at home and die comfortably and without pain or tubes running from every orifice and doctors making herculean efforts to buy a few more hours of life?
As I said, it’s a terrible racket and grift, and gets away with it because it can run it’s extortions and grift under the cover of good purposes.
this is only half of the story, now you should also explain how the company equities at wall street are passed from one generation to another, without paying a single penny.