Low income tax – High inheritance tax

Purple

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Many people have a problem with inequality in society. One of the major reasons that they cite it an uneven distribution of wealth.
It does seem unfair that some people can live in comfort and riches because their parents, grandparents or great grandparents (etc) were clever/industrious/lucky/hardworking.
It also seems unfair that people who work hard now have so much of the fruits of their labour taken away and given to others.

One solution is lower income taxes and higher inheritance taxes.
I know this poses a problem for people with family farms and family businesses so how about a 60% inheritance tax with a 1.5% reduction for each year that the beneficiary has worked in the business/ on the farm with a maximum reduction of 40% (a minimum payment of 20%)?
There should be no exemption levels for family homes etc. In effect the state takes less from you when you are alive but in effect it is just deferring the balance ‘till you die.

That way we get a much more even playing field for society without dis-incentivising hard work in fact it is encouraged because people know that they will be retain the fruits of their labour while they are alive and their children know that they won’t get a free ride in life.

Would this work?
 
With all respect, it is a crazy suggestion.

It would bring us back to the days when you had to work for 30 years in daddy's business or farm before you got to own it, and you had 60 year olds working in family firms with their lives on hold until their 85-90 year old parents passed away. You could call this the Prince Charles Syndrome.

It would also make it virtually impossible for any family business to ever afford to transfer its ownership within the family to the next generation, as most firms have their equity tied up in working capital or generally illiquid assets.

And that's before we even start thinking about how a 60% inheritance tax rate would work for homes and other inherited property, which would be in effect confiscated by the State on death. How many people have got the equivalent of 60% of the value of their parents' home in ready cash?
 
With all respect, it is a crazy suggestion.

It would bring us back to the days when you had to work for 30 years in daddy's business or farm before you got to own it, and you had 60 year olds working in family firms with their lives on hold until their 85-90 year old parents passed away. You could call this the Prince Charles Syndrome.

It would also make it virtually impossible for any family business to ever afford to transfer its ownership within the family to the next generation, as most firms have their equity tied up in working capital or generally illiquid assets.

And that's before we even start thinking about how a 60% inheritance tax rate would work for homes and other inherited property, which would be in effect confiscated by the State on death. How many people have got the equivalent of 60% of the value of their parents' home in ready cash?

I’m not sold on the idea myself, I’m just putting it out there for discussion.
OK, so 60% mightn’t work but what would?
In principle is it better to have lower income taxes and higher inheritance taxes?

Why should 60 year olds put their lives on hold waiting for their elderly parents to die? They get an income from the business/farm as an employee and will continue to do so. If it has to be sold then they will get the cash benefit of the balance of the sale.

Why should anyone feel entitled to inherit their parents wealth (including the family home)? Do remember that their parents will have more wealth because income taxes were lower.

that's before we even start thinking about how a 60% inheritance tax rate would work for homes and other inherited property, which would be in effect confiscated by the State on death.
Yes, instead of confiscating it when they are alive through taxation.
 
Sorry, if you're not sold on the idea yourself, its only a waste of time asking the rest of us to debate it :(
 
Sorry, if you're not sold on the idea yourself, its only a waste of time asking the rest of us to debate it :(

Why?
It sounds like a good idea to me but I haven't thought it through enough to say it's sound.
 
Why?
It sounds like a good idea to me but I haven't thought it through enough to say it's sound.

It occurs to me that the last government had started rolling back the inheritance exemption. So, an inheritor can only inherit about €350k from parents before paying CAT, that's a lifetime limit. What about the large wealth that is transferred by other means, e.g. trusts etc? If the taxation scenario changes dramatically, people will motivated to find other ways to avoid tax and, indeed, nursing home charges. Shouldn't people to able to leave a house to their children?
 
It does seem unfair that some people can live in comfort and riches because their parents, grandparents or great grandparents (etc) were clever/industrious/lucky/hardworking.

Why? I hate inheritance tax, absolutely hate it. If I choose to work hard all my life and want to then leave the fruits of my labour to my children why should the government of the day get a chunk of that? I earned it, I paid my tax along the way, it's mine now to pass on as I see fit as far as I'm concerned.
 
Why? I hate inheritance tax, absolutely hate it. If I choose to work hard all my life and want to then leave the fruits of my labour to my children why should the government of the day get a chunk of that? I earned it, I paid my tax along the way, it's mine now to pass on as I see fit as far as I'm concerned.

The proposal is to lower income tax by the same amount so there's no net loss of revenue to the state.
Why should your grandchildren start life well off because you worked hard?
 
Why should your grandchildren start life well off because you worked hard?

Because the person decided to work hard so that you could leave them 'comfortable'. That is the spending choice of the person who earned the money and should not be treated more severely in tax terms than if they bought a car, a holiday or a wine cellar.
 
Why should your grandchildren start life well off because you worked hard?
I find that bizarre logic Purple. If I choose to give my grandchildren a headstart in life that is my choice. I would be paying tax as I earn so the money I save for my grandchildren is already nett of tax. Why should it be taxed a second time?
 
Hi Purple

I fully agree with you on both counts!

Tommy said:
Sorry, if you're not sold on the idea yourself, its only a waste of time asking the rest of us to debate it
Absolutely not. We need new ideas. No one has a monopoly of ideas. When people put forward ideas, they should be open to discussion. The pros and the cons. I have come up with many ideas. After analysis, some of them have turned out not to be workable. Others have been good ideas and have worked. Often an idea which turns out to be impractical sparks a variation which turns out to be practical.

On the main proposal...

I am a single person with no children. I would gladly accept a 100% CAT in exchange for a significant reduction in income tax. That is speaking as a tax payer. I would have more money to spend now.
Many people have a problem with inequality in society. One of the major reasons that they cite it an uneven distribution of wealth.
Society is very unfair. It is not right that someone born in Foxrock should get a gift of a new car when they are 18 and a nice apartment when they are 21 while someone born in inner city Dublin will probably be in a low paid job all their life. Someone born in Foxrock is probably going to have a huge advantage in terms of education and job contacts anyway. Why should this advantage be furthered by them getting huge gifts and legacies?

There are practical problems with tax.
It would also make it virtually impossible for any family business to ever afford to transfer its ownership within the family to the next generation, as most firms have their equity tied up in working capital or generally illiquid assets.
These administrative difficulties should not prevent a good idea from being implemented.

I would guess that few people have all their wealth in the family business. Most would have other assets such as the family home which could be sold off. Parts of the business could be sold off in some cases.

If the business is very valuable, they could borrow on the basis of it to pay the inheritance tax. Or the tax could be paid on a phased basis over 10 years.

If I was offered a business worth €10m but I had to borrow €6m to pay the CAT, then I would do so. I would probably look for some other investors to reduce my borrowings. Maybe I could be allowed to use the profits of the business to repay the loans in a tax efficient way?

The big disadvantage of a 60% inheritance tax would be its impact on behaviour
If someone can't pass on money to their children, would they tend to squander it? Would they tend to work less hard? I suspect that this would be marginal. And maybe it would be a good thing. I have seen elderly people living in poverty so that they can leave a legacy to their children. They would be much better off spending their money on themselves.
 
I find that bizarre logic Purple. If I choose to give my grandchildren a headstart in life that is my choice. I would be paying tax as I earn so the money I save for my grandchildren is already nett of tax. Why should it be taxed a second time?

I'm not proposing that it be taxed a second time. Read my first post again.
 
It is being taxed twice. If you earn money as a PAYE worker and save 100K that is after tax income. If you leave the 100K to your child you are proposing it be taxed so that's a second tax.

What would be the incentive for people to save and do their best for their children or grandchildren's future?
 
It is being taxed twice. If you earn money as a PAYE worker and save 100K that is after tax income. If you leave the 100K to your child you are proposing it be taxed so that's a second tax.

The suggestion is that you pay less tax on income but more is charged on inheritance. In effect the income tax is deferred 'till death.
Since money now is worth more than money later it wouldn't quite balance out but it should be close to it.
The net result is that you keep more of your money when you are alive and your kids get less (as a proportion) when you die.

What would be the incentive for people to save and do their best for their children or grandchildren's future?
The idea is to remove the incentive to leave lots of money to your children or grandchildren. Instead the big benefit you could give them is a good education and skills. They would start off on a more even playing field and would retain a greater proportion of their own efforts during their lives. The net result would be a more productive and egalitarian society due to more equality of opportunity.
 
I'm not proposing that it be taxed a second time. Read my first post again.

Yes you are Purple - unless you can suggest how current assets/savings (that have already been earned nett of current income tax rates) can be made exempt from an increase in inheritance tax!
 
Yes you are Purple - unless you can suggest how current assets/savings (that have already been earned nett of current income tax rates) can be made exempt from an increase in inheritance tax!

I agree that it would have to be implemented over time and there would be a lot of details to be sorted out.
 
Wouldn't a much fairer tax (I know that is a contradiction in terms!) than inheritance tax be a wealth tax? Tax savings/assets over a certain (reasonably high) threshold to encourage more current spending and less stock piling? Again there would be difficulties in how to implement this but I would see this as a much better way of encouraging current spending (which seems to be the aim yourself and Brendan are striving for here) than a blanket tax grab on inheritance.
 
I think it is a very interesting idea but you'd need to address the issue of older people who currently have stopped working. They may have no taxable income therefore they won't benefit from the lower income tax rate but would be liable for the increased inheritance tax or at least their beneficiaries would be.

As for taxing money twice, what's the problem? We are subject to double taxation all the time, VAT, duty, dirt etc.
 
What is the hang up about being taxed a second time?

I earn €100 - I pay €50 income tax.

I spend that money and pay VAT and Excise Duty, so the €50 is taxed again.

I save some of it and it grows, so I pay tax on the capital gains.

We probably should have a wealth tax as well.

I leave it behind me and the recipient pays CAT.

Purple is simply proposing that the existing tax be increased, which I agree with, especially if income tax rates could be reduced as a result.
 
If this tax existed I for one would be handing my kids the inheritence in cash over time. And so would everybody else.
 
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