A 90% Inheritance Tax Is the Road to Servitude

We Must Not Raise Taxes to the Level of Communist States

The Inheritance Tax Must Be Reformed in a Manner Befitting a Capitalist Country

The political issue of raising the inheritance tax to 90% has become controversial. It is astonishing because it is a claim that is hard to imagine in a modern capitalist society. Under the market economy in which we live, collecting 90% of the private property built up by individuals through taxes would destroy the very foundation of the social order. We must be on guard against such destructive politics.

In modern society, there is no reason for the state to seize the money that citizens have earned through hard work. Raising the inheritance tax rate to 90% is tantamount to confiscating property. In the end, it would result in the nationalization of all citizens’ assets. This is the road to a totalitarian society in which citizens live by begging from the state. To permit this kind of plunder, bordering on confiscation, repeatedly warned against in Hayek’s The Road to Serfdom, would only lead us down the “road to serfdom.”

When people set out to solve problems based on envy and egalitarianism, it becomes easy to adopt socialist policies. Strengthening the inheritance tax is a representative example of falling into that trap. As the inheritance tax is strengthened, it ends up crippling economic activity and the business economy. In the end, workers lose their jobs, and individuals fall into a state of servitude in which they must depend on those in power. It is an illusion to think that one alone could benefit from such political plunder. There are socialists who imagine that if the rich are stripped of their money, they themselves will be able to go to Gangnam and live like the wealthy. What is plundered is simply destroyed; it cannot be distributed to someone else. Only those in power who carry out the plunder enjoy such a situation.

As the intensity of socialist policies increases, social conflict deepens. This is because society loses its vitality, and the rich-get-richer, poor-get-poorer phenomenon emerges. Historically, we have watched the collapse of countries that experimented with socialist policies. In societies that call for sacrificing the individual for the whole, the corruption of the ruling class and the loss of individuals’ willingness to work inevitably destroyed market order and brought down the economy. As a result, the people were sacrificed and life became impoverished.

Some argue that more inheritance tax should be collected to fund welfare, but this is mistaken. The inheritance tax is too small in scale and costs more to collect than it yields, so it cannot serve as a source of welfare funding. Moreover, if the inheritance tax rate is raised, inheritance tax revenues will gradually decline further, while only the social harm will grow. In addition, returning wealth to society through bequests is meaningful and effective only when it is done through an individual’s voluntary choice. Welfare does not improve simply because the state forcibly takes away private property.

The idea of using the inheritance tax to check the rich and prevent the hereditary transmission of wealth is also dangerous. Viewing accumulated capital as the product of exploitation is a socialist way of thinking. It denies the history and foundations of the Republic of Korea, which has enjoyed prosperity under a free market economy. In particular, Korea’s inheritance tax has caused great social harm because it combines a progressive tax rate structure with a punitive approach designed to block the inheritance of management control.

It is desirable to earn, to spend, and to pass on what remains through thrift as an inheritance. Leaving useful capital to one’s children is not something society should punish, but rather encourage. That is the wisdom of humanity and the way civilization has advanced. Damaging capital through the inheritance tax is inherently harmful to society. The private wealth discouraged by the inheritance tax has been accumulated through saving, and thus has a strong capital character. When the state takes it, private capital shrinks, and the foundation for production and value creation collapses.

Helping and caring for one another is a basic human trait in social communities. The family is the foundation and the basic unit of that community. Preserving the family enhances the stability of our society. By contrast, raising the inheritance tax rate amounts to applying social pressure to spend everything before death. This is harmful both to the present generation and to future generations. Furthermore, the inheritance tax produces the side effect of dismantling the family, which is the foundation of our society. The inheritance tax creates discord and conflict within families, and families are broken apart and fragmented in a socialist fashion.

When the state confiscates what future generations need to live on, it destroys the vitality and health of the social community. Society falls into a socialist trap in which everyone makes life harder for everyone else. Socialist policies lead to a result in which the people are forced to live like beggars.

Socialist policies that seek to take away the capital we have built with our blood, sweat, and tears must not be tolerated. Attempting to confiscate citizens’ property through the inheritance tax is like the state acting as a prison guard and locking innocent people into the prison of a high inheritance tax. Most capitalist countries do not have an inheritance tax. Among the countries that do, Korea’s inheritance tax is among the highest in the world. In the area of inheritance, it has adopted the most socialist method outside communist states. In such a situation, advocating an inheritance tax rate at the level of communist states is an anachronism.

The burden of the inheritance tax should be lowered in order to raise the level of the rule of law. Protecting individual freedom and property must be the state’s most essential policy. The inheritance tax, which punishes people for leaving property behind, must now be reformed. I hope to see sound politics that boldly lowers or abolishes the inheritance tax rate, in a manner befitting a capitalist country.

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

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Original title: 상속세 90%는 ‘노예의 길’

Author: Sung-no Choi

Date: 2024-03-19

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=26526