Heir Today, Gone Tomorrow: The impracticalities of Inheritance Tax in India
New Delhi: Inheritance tax discussions can often feel as weighty and solemn as a Victorian-era will reading, where everyone is eyeing the silverware but ends up with the antique spoons. There’s no shortage of philosophical ammunition to fire at this controversial tax. Philosophers like John Locke argued passionately that the fruits of one’s labour are a sacred right meant to be enjoyed or bequeathed without interference. From his viewpoint, inheritance tax is less of a fiscal policy and more of a personal affront, as if the government were crashing the family reunion, helping itself to the buffet. Locke’s claim was straightforward: if you earned it, you should control it, even from beyond the grave.
On the other hand, Robert Nozick turned this argument into a cornerstone of modern libertarian thought in his book ‘Anarchy, State, and Utopia.’ His Entitlement Theory was a triptych that painted any uninvited tax hand on your accumulated wealth as outright heresy. And yet, despite such heavyweight philosophical backing, the practice of levying an inheritance tax persists, complete with a suite of economic inefficiencies.
First, inheritance taxes can cause economic inefficiencies by distorting saving and investment decisions. Economic theory suggests that when a tax imposes an additional cost on an activity (in this case, transferring wealth), individuals might alter their behaviour to avoid the tax, leading to a deadweight loss. This is seen in decisions to consume rather than save, or to invest in less productive but more tax-efficient assets. Holtz-Eakin, Phillips, and Rosen (2001) provide empirical evidence indicating that the prospect of significant estate taxes reduces the incentive for individuals to accumulate wealth, potentially decreasing capital formation critical for economic growth.
Second, the principle of double taxation........
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