MKs Solodkin and Yacimovich have proposed law that would put 10% tax on estates greater than NIS 10 m.
By ASHER MEIRPublished: MARCH 5, 2010 11:52Advertisement
For almost 30 years there has been no estate tax in Israel. But recently MKs Marina Solodkin (Kadima) and Shelly Yacimovich (Labor) have proposed a law that would put a 10 percent tax on estates greater than NIS 10 million.Proponents of the estate tax say it is an unusually fair tax because a person is able to enjoy his wealth his whole life, and it is only taxed when it goes to his heirs. Since wealth is disproportionately correlated with income, an estate tax is by nature a highly progressive tax, even if the estate tax is flat. If the estate tax is progressive, then it is an extremely progressive tax. It is also claimed that the estate tax inhibits the perpetuation of de facto hereditary classes.Opponents say the estate tax is unfair because it is double taxation since taxes were already paid on the income; it is easy to evade; it is not as progressive as it seems since the heirs are not as wealthy as the deceased; it dampens the incentive to work and save. A very common claim is that the estate tax does not bring in much income.Proponents of the estate tax say it is an unusually fair tax. I think their arguments are cogent, but even if they are wrong, we seem to be left with a somewhat fair tax. Governments are always in need of revenue and they are always imposing taxes of various nature. The VAT is definitely double taxation since the purchaser already paid tax on the income. It is highly regressive and certainly creates a disincentive to work. But virtually all countries use it because it creates revenue for the government. Taxes don’t have to be “unusually fair” to be justified.The opponents of the estate tax say it is not an unusually fair tax, but that is an unreasonable bar. The claim that it is easy to evade strikes me as bizarre; that should be an argument in its favor. Some people call the US estate tax an “idiot tax” because it is so easy to evade. But what that seems to be saying is that people who actually end up paying estate taxes don’t really have much objection to them, so it seems to burden no one.It may not be as progressive as it seems, but it is certainly extremely progressive, so this, too, is a red herring. The claim that it doesn’t raise much revenue is also beside the point. A tax isn’t bad just because it doesn’t create much revenue; the question is if its benefits outweigh its costs.Another point that is seldom discussed is that even if the estate tax creates a disincentive to work and save for the deceased, it creates an incentive to work and save for his heirs, who will have to work harder to maintain a high standard of living. It seems to me this could easily swamp the disincentive of the older generation.Most revenue is raised from income tax and value-added tax. No one questions whether these taxes have salutary effects on society; everyone recognizes that they are a burden on people and that they create a disincentive to work and save. But the government needs revenue and these taxes do a good job of providing it.Many people believe an inheritance tax is unusually fair and has unusually low disincentives. I think many of these reasons are convincing – as long as the tax is not so high as to be confiscatory.Others find reasons to doubt that the tax is so perfect. But I findno convincing reasons to suggest that an estate tax is more sociallyburdensome than the tax mix we have now. A 10% tax on large estateswould seem to be a prudent addition to Israeli tax firstname.lastname@example.orgAsherMeir is research director at the Business Ethics Center of Jerusalem,an independent institute in the Jerusalem College of Technology (MachonLev).
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