Inheritance (death) taxes

I tried to come up with a single word or phrase that describes Inheritance (death) taxes.  Illegal doesn't work because what is illegal is whatever the government says it is.  Immoral isn't quite right because it tends to refer to  human relationships.... but it is closer.  The best I could come up with is 'it just ain't right'

 

Part of it has to do with one's world view.  People who are for inheritance tax tend to look at a family as a mom and dad and their children.  I look at a family and I see an extended family including the deceased great grand parents, the living grand parents, the current generation, their children and as time goes on, their children's children.  All these element of a family are giving support to each other both up and down the generations in many ways both pecuniary and non-pecuniary.   

Lets take an example.  A man working at a crap job has scraped and saved and can finally buy that farm he has dreamed about.  Every cent he has earned, he has paid taxes on.  Every bite of food he has put into the mouths of his family likewise.  He has paid taxes on the fuel to get back and forth to his job and on the car he bought.  If he has saved his money in a bank, the bank has paid taxes which reduced the return on his loan* to the bank.  But finally he can buy the farm with the residual that has been left to him.

*That's right.  When you deposit your money in the bank, you are loaning it to the bank.

He needs a place to live (more taxes on every bit of material to build the house) and with luck he is able to build his own house.  Alternately, he gets a contractor to build his house.  The contractor pays tax on everything he does and has to cover this by charging our farmer more for his construction work.  He will spend more to have the municipality inspect every stage of construction.  Then he needs machinery, seed, chemicals, fencing etc etc.  The list is endless and you guessed it.  Taxes on everything he buys.  And his wife is probably working outside the farm to bring in needed funds to run the farm until it can stand on its own.  More taxes.  And every bite he buys outside to feed his family has been taxed

In the fullness of time the farm is successful but Dad is getting a bit long in the tooth by this time.  He still does a lot around the farm but as his strength wanes, his sons and daughters take over more and more of the functions of the farm.

One of his sons realizes that the model his father is using is destroying the soil with the plow and the chemicals dad uses and he begins to convert the farm to what is know as regenerative farming.  This could show a constant bottom line but is more likely to have anything up to three years with the bottom line suffering.  From then on he has greatly reduced input costs, has improved the bottom line and has made his farm much more resilient to vulgarities in the weather and crop prices.  He has stopped polluting nearby streams and rivers, is helping to mitigate floods and is sequestering carbon.  None of this is recognized by his government despite the fact that it decreases their expenses (cleaning water of pollution, compensating flood victums and paying for their carbon output).

But it is actually a bit more complicated than this.  Let's look at the customer who buys a loaf of bread made from the wheat our farmer grew in his field.  The farmer sells his wheat to a mill.  They pay a whole range of taxes and have to recover this when they sell the flour to the bakery.  The bakery pays a whole range of taxes which they have to recover in the price of a loaf of bread.  Each stage in an economic chain of this sort pays taxes and here is the rub.  Some of the taxes are on the product they sell so they are paying taxes on the taxes from the former level.  How does this concern the farmer.  I puts considerable downward pressure on what he can charge for his wheat. Compound taxes make it so.

 

Now in a well run country, all these taxes are necessary.   The infrastructure that only the government can implement is needed for all the enterprises of the country.

Then Dad dies.

The one son or daughter that wants to remain on the farm has to buy out his siblings or split the revenue of the farm with them so he is faced with added expense.  In a country that has death duties, the farmer then has to find  as much as 40% of the value of the farm that he and his father have carved out of a virgin piece of land, greatly increasing its value, to pay the government.  Not only has the family paid taxes on every single financial interaction  throughout the life of the farm since his dad bought it but the value of the farm is mainly due to the blood, sweat and tears of his dad and his siblings.  They have created this value and now they have to pay taxes.  The more succesful they were, the greater their taxes.

 

Along comes the government evaluator.  The farm is worth far more than the piece of land that Dad bought and the value is mainly due to the efforts of the family.  The family now has to pay taxes on this added value that they created.

Like I said, it just ain't right.  He will probably have to sell the farm - often at a loss, just to pay the death duties and this at a very stressful time when he has lost his dad.  It just ain't right.