By Ciarán Casey,Irishexaminer.com

Copyright irishexaminer

Inevitably, discussions about inheritance taxes in the Dáil turn into a bunfight about threats to family farms. There are already provisions for family businesses and farms, and whether these go far enough is a different argument.

More important, is the inherent belief in some quarters that an inheritance tax is fundamentally worse than other taxes, and even morally repugnant. The French economist Thomas Piketty drew enormous global attention when he published his bestselling Capital in the Twenty-First Century in 2013.

A core argument, was that in many countries the returns on capital are growing more quickly than the rest of the economy, meaning that inequality has become self-perpetuating. The book inevitably had some critics, but most people were willing to accept the premise that growing inequality is a bad thing.

Four years later, the classicist Walter Schiedel published The Great Leveller: Violence and the History of Inequality from the Stone Age to the Twenty-First Century. This book extended Piketty’s argument over millennia, arguing that human societies have almost always tended towards inequality and greater hereditary wealth concentration.

Even major economic crashes do surprisingly little to keep this trend in check. The only real ‘levellers’ are massively destructive events like world wars or a plague.

None of this is particularly encouraging for people who had the poor foresight to be born without rich parents. It undermines a lot of the more benign assumptions many of us share about how capitalism rewards hard work and talent. For the most part, capitalism just rewards those who already have capital.

What about the argument that tax was already paid on this wealth when it was earned and that an inheritance tax therefore constitutes double-taxation? This is true of almost anything you can do with money.

Most things it can be spent on are liable for VAT. If you invest it the returns will be taxed, and if you employ someone to do a job their pay will also be taxed. In all these cases the taxes will kick in at dramatically lower thresholds than inheritance tax. We tax almost every transaction, so what is the issue?

The deep-seated objection seems to be that these are gifts within a family, rather than market transactions, and therefore not really within the remit of the State at all. But extended families are never treated as single units for tax purposes.

Ironically, if you pay a relative to do work for you the tax burden is far more punitive than if you give them the money for nothing. The robbery is apparently less egregious if something as undignified as work or reciprocity is involved.

There are two real reasons we tax things: to shape behaviour and to raise revenue. The taxes designed to shape behaviour are obvious, and include charges on cigarettes and carbon emissions. But most taxes fall into the second category. We want things like work, profits, and consumer spending, but tax them anyway because we need to pay for state services.

There are clear moral and economic benefits to people passing on wealth to their children where they can, rather than consuming it during their lifetimes. But these inheritances are far more than a sideshow. In an economic sense they are the main event.

An increasing body of research shows that the socio-economic status of your ancestors has a profound impact on your own wealth. These links go back centuries, and there is remarkable persistence of status across the globe. The major determinant of how wealthy you are is generally more an accident of birth than of anything you did yourself.

If we collectively accept that deep inequality is bad, as well as the clear evidence that most of it is due to inheritance, then it presumably behoves the State to reduce it. Instead we do the exact opposite. Children of rich parents get all the associated educational, social and financial benefits throughout their childhoods. In adulthood they are then entitled to a €400,000 gift or inheritance without paying any tax.

Children of poor parents start without any of these advantages, but have to try and compete for things like housing solely through their own income. This income is taxed from €18,000 annually, and taxed at a much higher rate than gifts or inheritance once it passes €44,000.

Think back to the bit about tax being used to change behaviour. Our system already rewards people who were born lucky, and penalises anyone who wasn’t. The system is unfair and punitive, but not in the way that many politicians profess to believe.

Dr Ciarán Casey is an economic historian and lecturer at University of Limerick, where he is Assistant Professor in the Department of Economics at Kemmy Business School