“For our last number, I’d like to ask your help. The people in the cheaper seats, clap your hands. And the rest of you, if you’d just rattle your jewelry.”
John Lennon’s immortal words at London’s Royal Variety Performance in November 1963 reflected the weltanschauung of the time – Britain was careering towards a General Election that would usher in a 15 year period of Trade Union supremacy and ignominious economic decline. Although by that stage the excesses of the Soviet Union’s communist experiment were known to all, if the British working classes were going to carry on playing proverbial cricket, the playing field would need to be levelled first.
Britain and the world has moved on since then, but it hasn’t stopped many countries continuing to saddle themselves with an utterly nonsensical estate or inheritance tax, and – worse still – the governments of others periodically rattling their intellectually blunt sabers, threatening to introduce one or the other. In 2021, the OECD stuck its Paris-based nose in, recommending blanket application by its members (only 24 of the 38 currently impose a tax),citing inefficiencies in harvesting the tax (especially the estate one) as responsible for failing to fill national coffers while contributing to that illusive level playing field.
While Israel’s governments periodically flirt with the idea of a tax, it has mercifully been off the statute books for over 40 years.
But, here we go again.
The Knesset recently commissioned an economic study of the potential tax take from introducing an estate tax. In fairness to the economist chappie who wrote the report, he did – albeit in couched terms – stress the meaningless of the study, based as it had to be on a string of utterly heroic assumptions. However, in my view, his contribution is priceless. Without needing to resort to the tomfoolery and sleight of hand assumed by the OECD, he came to the conclusion that – whatever rate of tax is applied – it would not add more than 1.5% to 2021’s total tax take (as a good civil servant, he didn’t actually say that – but it is just a matter of joining the dots). It is interesting that the UK figures show 0.8%, while the US (once I had discovered how many billions there are in a trillion) came up with 0.5%. Not only are these numbers rounding errors in budgetary terms (no government knows in advance what their tax policies will actually yield), but they do not take into account the negative economic impact the tax can spawn by dampening incentive. And then there is always the unintentional collateral damage. Every savvy investor knows real estate investment is an intentional sitting duck for foreign investors in countries with an inheritance or estate tax. But, what about investments by non-US citizens in US stocks? For decades, the US ignored the death of foreign investors in the US market. Then they came up with the FICA rules requiring detailed reporting by financial agents, and all of a sudden there was no way of burying a death. Add to that the discriminatory legislation that provides US citizens with an $11.7 million threshold, while granting foreigners $60,000, and a foreign investor’s demise is a recipe for disaster. Meanwhile the UK, which boasts London as the financial capital of the world, imposes inheritance tax on some deposits of foreigners in UK bank accounts.
Few would dispute that much needs to be done to deal with inequality in the western world. Unfortunately, the answer is probably not that furnished by a British Labour Government minister caught by the press alighting a First Class train carriage a year or two after John Lennon’s above comment: “I believe that everybody should travel First Class’’. Neither is it the imposition of an Estate or Inheritance Tax. Those eggheads at the OECD should crack their bonces together and come up with something else.
In the meantime, it is to be hoped that – if the matter does come before the Knesset – a combination of good sense and fractured politics will ensure that legislation in Israel does not see the light of day. That would be a true example of Israel being a ‘light unto the nations’.