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.

@PerKurowski

Taxing property or inheritance could, ceteris paribus, only lead to more inequality.

Sir, I refer to Janan Ganesh’s “Tory tax on property is perfect for the Piketty age” May 6.

If I was to make a fast list of what has increased inequality during the last decades that list would include rent extraction, crony capitalism, excessively exploited intellectual property rights, the power of global brands, be it Coca Cola or Real Madrid, the force residing in monopolies or excessive market shares, how managers have taken away corporate control from shareholders, and how bank regulators have allowed such incredible high leverages in the banks while ascertaining to the public these were sound institutions… inheritances would not be on it.

And if I was to combat inequalities I would not start by taxing properties or inheritance since, in the great scheme of things, ceteris paribus, meaning money will keep on flowing how it normally flows, that could lead to even more inequality.

Do I have any suggestions? For a starter two:

First all profits derived from operating under the protection of intellectual property rights or excessive market shares, should be taxed at a higher rate that profits obtained by competing naked in the market.

Second, the tax deductibility as an expense of any salary should be limited to fifty times the median salary of the nation.

In the absence of QEs and TARP, would Piketty have written the same “Capital in the Twenty-First Century”?

Sir, I refer to Martin Wolf’s review of Thomas Piketty’s, “Capital in the Twenty-First Century” April 15.

First, I need to make two disclaimers. I have not read the book and, as suddenly references to it exploded on the web, I must confess I first thought of it as a too pushy publisher campaign, and I have not been able to free myself from that impression. From the little I have read of it, that in significance it is going to be up there with Hayek’s “The Road to Serfdom”?… no way Jose. 

Now if I could only make two questions on Piketty’s book these would be:

Would Piketty have written the same Capital in the Twenty-First Century in the absence of QEs and TARP which obviously helped to keep the wealth… or if profits derived from protected intellectual rights had been taxed at a higher rate that profits derived from competing naked in the market?

Where does Piketty think all inherited but dissipated wealth has gone? Is he unaware of the real difficulties of keeping the value of an inheritance?

Professor Thomas Piketty: “Don't be so defeatist, it is so middle class.”

Sir, Robin Harding holds that “Inheritance should not be an alternative to hard work” January 6.

The setting is: “The lower the rate of growth, the smaller the percentage of society’s wealth created by those who are alive today, and thus, by definition, the larger the percentage that is passed on from previous generations… higher inheritances certainly exacerbate inequality.”

And that is derived from Thomas Piketty’s “eagerly awaited” “Capital in the Twenty First Century”. The book includes: “if the after tax return on capital is higher than the rate of growth in the economy, then all the heir and heiress need to do is save enough of the income from their inheritance… and their share of society’s wealth will rise”… ergo we must redistribute, and so we need “wealth taxes on a global scale”.

I do not agree with its general premise. An after tax rate of return on capital which is higher than the rate of growth in the economy, is something not really sustainable… unless other factors are in play. And, in this respect, I would just ask Mr. Piketty about what he believes would have happened to after tax returns on capital, without Tarps, QEs and all Fiscal Stimulus since 2007?

And also, what a horrendous vision it implies! That we should now only adapt to a shrinking economy, and give up all illusions about making it stronger and better, and just concern ourselves with that the last tree on our Easter Island we cut down is equitably shared? I can hear Downton Abbey’s Violet Crawley admonishing “Don't be so defeatist, it is so middle class.”

But of course I agree with Robin Harding in that developed (and developing) societies should “opt for the free-flowing meritocracy of the last century, not a return to the dynastic wealth of the one that preceded it.

But that, as I see it, has less to do with inheritance taxes and, at least currently, much more to do with bank regulations. You see the Basel regulators, with their risk-weighted capital requirements, do not want banks to take the risks which come with any “free-flowing meritocracy”, and instead to concentrate their exposures to the illusions of safeness of the “dynastic wealth”.

And by the way, anyone who thinks that the presence of after tax returns on capital higher than the rate of growth in the economy, would be sufficient to keep the value of an individual inheritance… has little knowledge about real life and about capitalism. Oh no! To waste an inheritance is very easy, but to keep the real value of an inheritance is, and should always be, hard work, no matter what the average interest rates are.

I wish more would concentrate more on the causes of inequality, than on the resulting inequalities. If not, and if we tax more all of the wealthy, all we will get is few oligarchs getting even more wealthy, not because of capitalism but because of crony capitalism.