[Market Economy Guide] Inheritance Tax Threatens Businesses

Why did the owner of the global nail clipper company “777” change?

Because it had to sell its shares due to high inheritance taxes.

Is there any home without a nail clipper? A nail clipper may seem trivial, but it is an indispensable daily necessity. The company that once conquered the world with this small household essential was “777.” For more than 30 years, 777 maintained a strong position in the global nail clipper market, with exports accounting for as much as 90% of its total sales.

Is the inheritance tax just?

In 1995, 777 became embroiled in a trademark dispute over the “777” brand with the U.S. aircraft manufacturer Boeing and ultimately won. That shows just how much 777 was recognized worldwide as a highly competitive global small giant.

Sadly, however, 777’s glory is no longer in the present tense but has come to an end as a thing of the past. The reason was the inheritance tax issue. In 2008, when founder Chairman Hyeonggyu Kim suddenly passed away, the company’s very survival came under serious threat. Under inheritance law, if a donor dies within five years, the gift is deemed an inheritance. As a result, shares worth more than 37 billion won that had been gifted in 2006 to family members and employees were suddenly reclassified as an “inheritance” upon Chairman Hyeonggyu Kim’s death. The inheritance tax owed by those who had received the shares came to about 15 billion won. As absurd as it sounds, the bereaved family had to sell the company to pay the inheritance tax. The trap of the inheritance tax made not only management control but even the company’s continued existence difficult. Thus, the glory of 777’s founder, who had built a globally competitive hidden champion, came to an end along with the tax burden.

Few taxes are as unjust and as harmful as the inheritance tax. Anyone naturally wants to build wealth for their children and pass it on to them. The inheritance tax is a levy that runs directly against this basic human instinct. The desire to help one’s children or heirs live better lives has been a driving force behind human progress. People work to create financial stability, solid opportunities, a livable environment, and a prosperous life not only for themselves. In that sense, the inheritance tax effectively forces those living healthy, future-oriented lives to spend everything instead of leaving anything behind.

A tax that punishes those who succeed

The inheritance tax is a tax that punishes people who work hard and try to leave something behind. In particular, it is punitive taxation that imposes harsh progressive rates on those who have built wealth. Such a tax naturally saps social vitality, reduces the income of society’s members, and hinders the formation of capital that determines a society’s productivity.

Has there ever been such a contradictory institution in the course of human progress, one that acts like a malignant force? In fact, the inheritance tax was not originally created simply as a means of preventing wealth from being passed to children. Under the influence of socialism, the universal human practice of accumulating capital and passing it on to one’s descendants—in other words, inheritance—became a target of suppression. Immediate consumption was encouraged, the family was undermined, and leaving debt to future generations became a common phenomenon.

Passing wealth on to one’s children actually harms no one. On the contrary, it is socially desirable. The fact that virtually everyone is passionate about their children’s education shows that people’s desire to pass on what they have to their children has not changed. The problem, however, is the envy of those who want to make an exception when it comes to the rich. In a society dominated by the socialist mindset that it is acceptable to confiscate the property of the wealthy, the rich become targets of exploitation and their property becomes a target of plunder. Yet the inheritance tax collected is never likely to be large. In every country, inheritance tax costs more to collect than it yields. If one were to add the costs of distorted economic behavior caused by the inheritance tax, its social harm would be enormous.

Inheritance is instinct

So is there any need to keep an inheritance tax that destroys the foundations of our lives just to collect a relatively small amount of revenue? The reason South Korea stands apart from the global trend of many countries abolishing inheritance taxes or lowering the rates is that anti-capitalist forces are shaking the identity of our society. They neutralize the strengths of an open society while carrying out anti-capitalist campaigns. They create symbolic scandals to mislead the public, then use them as stepping stones to undermine the foundations of the market economy and build a socialist system. It is now time to abolish the inheritance tax, which stands in the way of our society’s progress. Opening a legal path for the wealthy, too, to pass on their wealth is a wise solution that benefits everyone. The freedom to give and inherit property is a natural individual right and a basic principle that guarantees the dynamism of our society.

■ Please remember

The inheritance tax is a tax that punishes people who work hard and try to leave something behind. In particular, it is punitive taxation that imposes harsh progressive rates on those who have built wealth. Such a tax naturally saps social vitality, reduces the income of society’s members, and hinders the formation of capital that determines a society’s productivity.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: [시장경제 길라잡이] 상속세, 기업을 위협하다

Author: Sung-no Choi

Date: 2020-05-25

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=8&idx=22762