One of the most prominent and enduring criticisms of inheritance taxation is that it makes light of the immense importance that family relationships have for individuals.
As Nozick claimed, from the point of view of conventional accounts of social justice,
“families are disturbing” and must become “either units to which distribution takes place […], or loving behaviour is forbidden” (1974: 167). However, when it comes to the issue of economic inheritance, motives are not always exclusively admirable and
altruistic56. As Nozick himself commented later in life, “the power and continuing control that many wealthy people care about, rather than the ability to enhance and express the bonds of personal relations, [means] that their compliant children or associates would have been better off without any institution of inheritance at all”
(Nozick, 1989: 32). The idea that bequest necessarily expresses an intensification of a personal bond of “caring, affection and identification” to the receiver is belied by the fact that wealthy parents continue saving and accumulating wealth after retirement and into old age, “despite tax incentives to make inter vivos gifts to their children”
(Vandevelde, 1997: 8; Brittain, 1978: 11). Moreover, the fact that bequests often increase with the income of children and do not compensate children for being badly off in relative terms, indicates that parents tend to make capitalistic bequests, which are aimed at extending their influence beyond their lifetime through the creation of an industrial or financial dynasty (Arrondel et al, 1997: 110). In such cases, it is likely that bequests present a form of insurance for the testator, because it can function as “a lever by which the bequeather can during his/her lifetime, strongly influence the behaviour of aspiring heirs” (Steiner, 1992: 84). Although the intergenerational transfer of wealth has often been presented as a display of unconditional love and affection, there are several obvious indications that this view of inheritance is somewhat naïve and oversimplified.
The objection to inheritance capping made from the standpoint of family solidarity and values, such as an argument that the desire of parents to provide for their children should be respected, has some merit and helps serve as a justification for the allowance of limited bequests, but cannot be used to defend the intergenerational transfer of substantial wealth. After all, the intergenerational transfer of great wealth and the negative consequences that it creates for others through the exacerbation of economic inequality and divergent life chances is not merely a private matter, but an issue which significantly affects the overall fairness of our economic and political systems. The fact that children cannot inherit vast amounts of money does not diminish family bonds, especially as parents will be able to transfer some goods of sentimental value to their children. The abolishment of inheritance could even help individuals to think of parental contribution in broader terms of love, values, skills,
56 The various potential bequest motives are discussed below in section 7.4.
capacities and character development, instead of viewing the primary input from parents merely with reference to wealth (Haslett, 1997: 142 – 143). The value to children and society of limiting the size and scope of inheritance was also discerned by Mill, who wrote the following thoughtful passage on the appropriate relation between parental care and economic bequests:
The claims of children are of a different nature: they are real, and indefeasible.
But even these, I venture to think that the measure usually taken is an erroneous one: what is due to children is in some respects underrated, in others, as it appears to me, exaggerated. […] Whatever fortune a parent may have inherited, or still more, may have acquired, I cannot admit that he owes to his children, merely because they are his children, to leave them rich, without the necessity of any exertion. […I]t may be affirmed that in a majority of instances the good not only of society but of the individual would be better consulted by bequeathing to them a moderate, (rather) than a large provision (Mill, 1975: 136 – 137)
As Adam Smith warned along similar lines,
Nature […] has rendered the former affection [i.e. parental tenderness] so strong, that it generally requires not to be excited, but to be moderated: and moralists seldom endeavour to teach us how to indulge, but generally how to restrain our fondness, our excessive attachment, the unjust preference which we are disposed to give our own children above those of other people (1976: 142)
One supporting argument traditionally made in favour of bequests is that, although parents also face asymmetrical information concerning their respective children’s real needs and abilities, they are nevertheless still in a significantly better position to estimate these than the government (Masson & Pestieu, 1997: 63). However, “the case for estate taxation will be enhanced if between-families inequality is higher than within family-family one”, which is undoubtedly the case, and if “the efficiency cost of public redistribution is not much higher than that of private redistribution”57 (Masson & Pestieau, 1997: 80). As explained above, the efficiency cost of private
57 Moreover, these considerations apply only in the case of altruistic bequest – which is probably not the predominant bequest strategy. For all other types of bequest, inheritance taxation is always desirable on redistributive grounds.
distribution is substantial, as it leads to the misallocation of human capital resources, and because there are no guarantees to ensure that the children who benefit from their parents’ wealth are themselves capable of putting these resources to their best use.
Accordingly, even if public distribution is not always as efficient as it should be, there are convincing arguments that show that this form of allocation is still the lesser bad.
Finally, the claim that the ability to bequeath wealth to children serve as the principle motivation for saving has already been disputed in section 4, which illustrated on the basis of sound empirical evidence that adults with and without children display similar savings patterns. Individuals save for security, for future consumption purposes and for the sake of wealth itself, because of the status, influence and real and potential enjoyment it represents. In the limited case in which individuals save with the principal purpose of bequeathing substantial wealth to their children in order to create a dynasty, it is wise to note that “the mischiefs to society of such perpetuities outweigh the value of this incentive to exertion, and the incentives in the case of those who have the opportunity of making large fortunes are strong enough without it”
(Mill, 1975: 138). Even if individuals who hoped to found a family in perpetuity decide not to save in the absence of their most significant bequest motive, the overall wealth distribution within a society should never be held hostage by the whimsies of a few narrowly self-interested individuals.