December 24, 2017

Many children incapable of helping their parents during their old days will one day rightly blame our bank regulators’ insane risk aversion for that

Sir, Bronwen Maddox writes about the possible need to “force more people to use the equity in their houses to pay for care” and that “In these discussions, how to tax inheritance has attracted more political attention, not least because the prescriptions are simpler and chime with the debate about inequality”, “An ageing population and the end of inheritance” December 23.

Are the prescriptions for taxing inheritance really simpler than using your assets to pay for some of your own services? I don’t think so. To pay for your own social care services with assets of your own, fits perfectly with the standard norms and realities of our economy and our society. But, eroding the right to bequeath wealth to your children constitutes a direct attack on one of the most important drivers of the economy that could have dangerous consequences for all.

One of the least studied, or clearer yet conveniently ignored topics, is what could happen if you redistribute wealth, be it by wealth or inheritance taxes; not only in terms of what I consider is its very limited potential to provide temporal relief to poverty or inequality, but also in terms of how it could negatively affect the future economy. The lack of such discussions on this has possibly to do with not fitting the agenda of those creating envy and hate in order to achieve their own particular small and temporary goals.

Let me briefly hint at the following:

If a $450 million Leonardo Da Vinci “Salvator Mundi” had to be sold at the death of his owner to pay for all inheritance taxes it will not fetch $450 million. This because who would feel stimulated to pay a sort of voluntary tax, freezing that amount of purchase power on a wall or in a storage room, if that painting cannot be bequeathed to heirs, and just be taken away upon death?

And what would happen to all private owned houses and apartments, if upon the death of their owners who made sacrifices paying for these, they would just fall into a government pool of houses, with their users to be nominated by some few house redistributionists? What would happen to the incentives to save in order to buy, maintain and make homes beautiful?

And, if all shares and bonds were taxed to be placed in a mutual government pot… would that not signify heaven for statism fanatics and redistribution profiteers, and hell for all the rest of our children and grandchildren?

Sir, of course “the dream of bequeathing assets to the next generation is fading in the face of social care costs” that results from having more elder and fewer younger. But the lesser earnings of the young also cause that fading. Those regulators who with their insane capital requirements had banks abandoning financing the “risky” future, in favor of refinancing the “safer” past and present, will not be kindly remembered by the too many children incapable to take care of their parents’ old days.

PS. What is a reverse mortgage but a way to squeeze the most out of the present for the present? Whether it is done to satisfy an urgent need or only in order to anticipate some unnecessary consumption is not something irrelevant.