# Income, capital gains and inheritances should be taxed at the same rates



## Brendan Burgess (27 Sep 2015)

Here is an article I had in yesterday's Sunday Times 

IF a hospital nurse, in an effort to make ends meet, earns €10,000 additional pay through extensive overtime, she will pay 51% of it in income tax, USC and PRSI. If one of the consultants in the hospital makes a profit of €10,000 through selling shares, he will pay 33% tax. If the same consultant gives his son a gift of €10,000, that son will pay no tax at all.

How on earth can this be considered fair or reasonable? Someone working hard, doing a valuable job that benefits society pays 51% of their earnings in taxes, while someone lucky enough to have a wealthy dad pays nothing?

And while our nurse can do absolutely nothing to reduce the tax burden, there are plenty of legal ways around taxes on capital gains, gifts and inheritances.

A child can receive up to €3,000 a year tax-free from each of his parents. So over a 20-year period, the child can receive €120,000 tax-free. A parent can give a child a one-off gift up to a threshold of €225,000 free of tax. And if a person receives a gift of the house they have lived in for three years, it’s completely exempt from tax.

It doesn’t matter if that home is worth €30,000 or €3m, it’s completely exempt from tax. So a parent could gift a child a house worth €1m and €445,000 in cash and the child would pay not a cent in tax. How many red-eye shifts would our nurse need to work to earn that type of money?

And there are more reliefs for inheritances or gifts of businesses and farms. If the owner of a business worth €10m passes it on, 90% of the value will be disregarded when calculating gift tax. So it will be treated as a gift of €1m and the recipient will pay €250,000 gift tax. That is an effective tax rate of 2.5% on a gift worth €10m. That is 1/20th of the marginal tax rate on income.

Amazingly, there are calls from Fine Gael backbenchers to increase the thresholds and exemptions even further.One of the arguments against inheritance tax is that it is a form of double taxation. So what? Double taxation is a feature of the tax system. If our nursing friend drives to work, she will pay VAT and duties on the petrol. She is paying these taxes out of her net income.

There are plenty of ways around capital gains tax as well. If I make a profit of €1m on selling my home, I pay absolutely no capital gains tax. When I die, my estate will pay absolutely no tax on any gains made on selling my assets. Anybody who bought investment property between December 2011 and December 2014 (some at rock bottom prices) will pay no capital gains tax if they hold on to the property for seven years. And all the time our hard-working nurse is paying 51% tax on every euro of additional income and can do nothing about it.

We need to rebalance the tax system. Taxes on incomes should be lowered and taxes on capital gains, inheritance and gifts should be raised. A simple solution would be to abolish the thresholds and exemptions and to treat all capital gains, inheritances and gifts as income and make them subject to income tax, USC and PRSI. Maybe make an exemption for the family home — but limit that exemption to €200,000.

There would also be an economic benefit to rebalancing the tax system. High taxes on income and expenditure act as a disincentive to work and enterprise while taxes on property and capital are much less of a disincentive.

While we do have income inequality in Ireland, it is greatly reduced through a combination of a very progressive income tax system and generous social welfare payments. Wealth inequality is much starker and is perpetuated by allowing people to accumulate and pass on wealth with little or no tax. Michael Noonan, the finance minister, must address this in the budget.


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## KOW (27 Sep 2015)

I totally agree that "Drastic Surgery needed for our unhealthy tax system" is badly needed.
Article in todays Sunday times
That said.

Most people trying to give a leg up to their children are people exactly like the nurse who genuinely want to help out their family.

 Brendan
There will always be very wealthy people in society who will have the tools to will extreme wealth to people they choose.

If as I am a PAYE worker and buy a few pints the weekend or fuel my car up I am double taxed.
So this continuous argument around double taxation around most purchases  etc is a nonsense.

Many are of the opinion that any wealth passed on should be heavily taxed. I have worked the past 37 years and in that time have been unemployed for 3 weeks. My wife has worked for a straight 36 years. We are both on about the average Industrial wage. 
I strongly disagree with penal taxation on my hard earned income. I do not tell anybody how to spend their money.

My money is hard earned income fully put through the tax system. If I was to give it to Paddy Power no ones business. If I was to take a cruise every year so what.
If I choose to gift to family and friends my choice.

Every time the government mess around with the property market it is a disaster.Investment property bought 2011-2014 a prime example.

In the article a 200k limit on the family home is suggested before tax is payed. How would this work out in relation to city and country properties.?

Of course the tax system needs to be fixed. The effective tax rate on the multi-nationals would be a start.
The thousands of farmers spreading their income over five years effectively paying little or no tax would help.
The tens of millions in grants payed out to farmers children in college grants even though they may hold assets in the millions might be a start.
Tools used by multi-nationals need to be addressed.

In my opinion it all comes down to one thing should any person after paying tax on their income be allowed to do whatever they like with whats left over.

I think they should.


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## Fella (27 Sep 2015)

I didn't like the article a quote from it 

_IF a hospital nurse, in an effort to make ends meet, earns €10,000 additional pay through extensive overtime, she will pay 51% of it in income tax, USC and PRSI. If one of the consultants in the hospital makes a profit of €10,000 through selling shares, he will pay 33% tax. If the same consultant gives his son a gift of €10,000, that son will pay no tax at all.

How on earth can this be considered fair or reasonable? Someone working hard, doing a valuable job that benefits society pays 51% of their earnings in taxes, while someone lucky enough to have a wealthy dad pays nothing?
_
Its not comparing like with like , firstly the nurse is already on high tax band if all the 10k is at top rate its hardly making ends meet at this stage imo. Secondly the consultant has already paid 51% tax on the money that he has invested in shares and now is paying an additional 33% profit if he makes it on these shares , and he has already paid 51% tax on the money he is giving to his son , similarly the nurse can give 10k to her son is she has it tax free.


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## Steven Barrett (28 Sep 2015)

Fella said:


> I didn't like the article a quote from it
> 
> _IF a hospital nurse, in an effort to make ends meet, earns €10,000 additional pay through extensive overtime, she will pay 51% of it in income tax, USC and PRSI. If one of the consultants in the hospital makes a profit of €10,000 through selling shares, he will pay 33% tax. If the same consultant gives his son a gift of €10,000, that son will pay no tax at all.
> 
> ...



What a , factually incorrect comparison. Nothing more than an attempt to portray the nurse as someone struggling to make ends meet while the evil, nasty consultants can throw money around and pay little tax.

A hospital consultant does not live on income from shares. He pays tax at the rate as the nurse. He also probably employs staff in his private practice, making further contributions to the tax system. As Fella says, there's nothing stopping the nurse selling €10k worth of shares or gifting her son.


Steven
www.bluewaterfp.ie


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## Brendan Burgess (28 Sep 2015)

SBarrett said:


> What a  factually incorrect comparison.



Hi Steven

I don't mind you disagreeing with me, but what is factually incorrect about it?

The same income tax rules apply to the consultant. And I am very clear in the article that income taxes are too high. The income taxes which the consultant pay, should be reduced as well as those of the nurse.

I pay income taxes at 52% (I think) on my income and Capital Gains Taxes at 33%. This makes no sense at all. They should be at the same rate.

Brendan


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## T McGibney (28 Sep 2015)

I disagree profoundly with Brendan's argument.

High CGT & CAT rates depress the exchequer revenue from asset disposals and gifts, as each are normally voluntary and can be postponed indefinitely. Cut rates and the tax take swells, and vice versa.


And I'd argue that incentivising people to hold on to wealth and assets literally until they die is also both socially and economically crazy. 


Our historical adherence to such incentives created a situation up to circa 20 years ago where 65 year olds were living and working on farms with their 90 year old parents, and the majority of productive family firms failed to make it to a second generation  - while a hostility to selling agricultural or development land still persists to this day with considerable and negative social consequences.

And equalising capital and income taxes would directly disincentivise entrepreneurs from investing and reinvesting in Irish businesses. Far easier and more attractive for them to relocate to the UK which enjoys a much higher critical mass both in terms of population and infrastructure as well as generally much kinder income and capital taxes systems.


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## Brendan Burgess (28 Sep 2015)

Hi Tommy

Do you agree with any of my points at all? 

Do you think that it is right that I can gift a house worth €1m to each of my children, completely free of tax? 

Do you think that if I sell my family home and make a gain of €5m, that it should be free of taxes? 

Do you think that when I die, my capital gains will all disappear for tax purposes? 

Brendan


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## T McGibney (28 Sep 2015)

Yes, yes and yes, Brendan.

We need fewer and lower taxes, not more of them.


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## Brendan Burgess (28 Sep 2015)

T McGibney said:


> High CGT & CAT rates depress the exchequer revenue from asset disposals and gifts, as each are normally voluntary and can be postponed indefinitely. Cut rates and the tax take swells, and vice versa.



This is an interesting argument. When Charlie McCreevy reduced the CGT rate to 20%, the take rose. 

But it would be easy to deal with that.  There is a deemed disposal of of investment funds after 8 years. You could have a deemed disposal of general investments after 8 years as well.  You would have to exclude business assets from this or allow for some other form of disposal. 

You can't postpone CAT indefinitely.  We will all die. 

Brendan


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## Brendan Burgess (28 Sep 2015)

T McGibney said:


> We need fewer and lower taxes, not more of them.



I agree that we need to lower government spending and taxes generally.  But we need to rebalance the taxes.  We should lower the income taxes and raise the capital taxes to the reduced income tax levels. 

Whatever about allowing someone to inherit their long term home, worth €200k,  free of CAT - I simply can't see how it can be deemed fair that I can pass on my wealth by gifting  someone €1m free of tax, by buying a home for them and all they have to do is live in it for three years. 

Brendan


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## Fella (28 Sep 2015)

Brendan Burgess said:


> I agree that we need to lower government spending and taxes generally.  But we need to rebalance the taxes.  We should lower the income taxes and raise the capital taxes to the reduced income tax levels.
> 
> Whatever about allowing someone to inherit their long term home, worth €200k,  free of CAT - I simply can't see how it can be deemed fair that I can pass on my wealth by gifting  someone €1m free of tax, by buying a home for them and all they have to do is live in it for three years.
> 
> Brendan




If someone saves 1million pound and wants to give it to their kids I think there should be no tax at all , you've already paid tax on the money before you have saved it , you have paid tax on the interest you got while you saved it , if your prudent and want to leave some money behind for others why should the government get yet another cut , that 1million pound has already been taxed at 50% , another cut now is savage , you can't keep forever penalising people that are sensible with money. Income should be taxed and it is progressively taxed , outside of this anything you do with your money is taxed , but if i have 1million saved and want to leave it to my kids its 100% unfair that the government get a penny out of this imo , I have paid tax on it already.


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## T McGibney (28 Sep 2015)

I think you've missed my earlier point Brendan that raising capital tax rates depresses capital tax revenues because capital transactions are, in the main, voluntary.  The key to rebalancing taxes is to cut capital tax rates, increase capital tax revenues and use this to cut income taxes.

We can argue all day about specific capital tax reliefs but the fact remains that each of them are there in order to alleviate hardships that the earlier blanket application of tax charges were causing. The obvious one here was the situation where recently bereaved people were being kicked out of their home to pay inheritance taxes on the value of their home.


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## T McGibney (28 Sep 2015)

Brendan Burgess said:


> But it would be easy to deal with that.  There is a deemed disposal of of investment funds after 8 years. You could have a deemed disposal of general investments after 8 years as well.  You would have to exclude business assets from this or allow for some other form of disposal.



Sounds bonkers, Brendan. It would mean a mortgaged investment property bought 8 years ago would face a compulsory CGT charge on an unrealised profit. Essentially an investor would have to remortgage every 8 years to pay tax on money they don't have. 

This would be ruinous for all but the most affluent of investors. 

And of course there would be no recourse if the property value fell after tax was paid on the phantom "profit".


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## 44brendan (28 Sep 2015)

I'm with TMcG on this argument. Firstly the article is definitely emotive with the usual "poor" nurse compared with the "rich" consultant approach to turn a purportedly balance article into a polemic. Secondly there is a presumption that an increase in CGT will in effect garner more taxes. The idea of a notional capital disbursement would make no sense in practice as it would effectively kill off capital investment in this country. This who can will invest abroad. Those who can't will be forced to divest assets purely to pay the tax on these assets. Certainly there are extremes of inequality in the current CGT/CAT system (as in the zero cap on PDH transfers) but overall our system compares well with other countries and manages to retain the fine balancing act of getting in a reasonable level of income from these sources while at the same time not forcing the wealthy into either tax evasion or out of the country totally.

Yes of course the tax system in this country is neither ideal nor totally fair. However it is a dam sight fairer than it was 10 years ago and a significant number of the "loopholes" that facilitated legal tax avoidance to the wealthy have now been blocked or cancelled.


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## Sarenco (28 Sep 2015)

Fella said:


> I have paid tax on it already.



You may well have paid taxes on that hypothetical sum but your kids haven't.

I wouldn't necessarily agree with Brendan's conclusion that taxes on incomes should be lowered and capital taxes should be raised but I do share his amazement at the current clamour to increase exemptions and thresholds on gifts and inheritances (which are already fairly generous IMO). 

I would personally much prefer to see a restructuring of the taxation of savings to encourage a greater level of self-reliance and the elimination of the unfair tax treatment of the self-employed to encourage a greater level of entrepreneurship within our society.


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## Prudence (28 Sep 2015)

Fella said:


> If someone saves 1million pound and wants to give it to their kids I think there should be no tax at all , you've already paid tax on the money before you have saved it , you have paid tax on the interest you got while you saved it , if your prudent and want to leave some money behind for others why should the government get yet another cut , that 1million pound has already been taxed at 50% , another cut now is savage , you can't keep forever penalising people that are sensible with money. Income should be taxed and it is progressively taxed, outside of this anything you do with your money is taxed , but if i have 1million saved and want to leave it to my kids its 100% unfair that the government get a penny out of this imo , I have paid tax on it already.



I think there is a different way to look at this, which might be part of the original point of the article. A parent would of course look at it as their money to do with whatever they will, and they have paid tax on it already. But the person receiving it has not paid tax on it. For them, whether a child or someone else, it is income. Speaking for myself, currently I am in line to inherit a multiple of my annual salary from my parents, at some point in the future, and it seems very reasonable to me that I would pay tax on it, as income to me, and I will still appreciate the windfall that remains after tax. (Not that I don't appreciate there being a reasonable exempt amount as well.) 

I am not trying to address the other, very legitimate, questions about the overall social and economic effects of particular policies.


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## Brendan Burgess (28 Sep 2015)

Fella said:


> if your prudent and want to leave some money behind for others why should the government get yet another cut , that 1million pound has already been taxed at 50% , another cut now is savage , you can't keep forever penalising people that are sensible with money.



The money is not going to the government. It is going to the Exchequer and would be used to reduce income taxes. 

But our poor nurse has already paid 51% tax on her income. When she buys petrol she pays more tax.  When she goes for a meal or a pint, she will pay more tax.  So the argument that the donor has already paid tax simply doesn't add up.


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## Codogly (28 Sep 2015)

I have to agree with Prudence and fair play to you for pointing out the justice in taxing yourself.  We will always have inequality in our society if childern can inherit wealth from their parents.  Nobody is arguing that the parent hasnt already paid tax on their wealth but their childern haven't paid any tax and havent done anything to earn that income / wealth other than be the child of wealthy parents.
In a trully fair society everybody would start with Zero and would benefit only from their own work over their lifetime.
Where's the incentive to work for kids who inherit wealth (i'm not saying that everybody who inherits wealth does nothing from that point onwards) but they like everybodyelse should only have what the earned themselves... thats fair and makes everybody work for there share of the pie.


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## Brendan Burgess (28 Sep 2015)

T McGibney said:


> capital transactions are, in the main, voluntary.



But I have already shown that they are not voluntary.  I can defer them through living longer. But at some stage I will die. At present, I can pass on most of my wealth via gifts or inheritance largely free of tax. That seems completely wrong to me. 

I can defer Capital Gains through not selling assets.  Under current legislation, if I defer all sales until I die, then the gains are no longer taxable. I can't understand why this happens.  

I wouldn't have a problem with Revenue waiting until a person dies.  This would not reduce the long-term tax take.  If you wanted to boost the medium term tax take, you could introduce the 8 year deemed disposal.  You point out a problem with investment property, but that could be dealt with. It would not be a problem for liquid investments like shares.


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## Fella (28 Sep 2015)

Its a fair point that it's income to the child and something I hadn't considered thanks . In hindsight I was wrong to suggest it should be totally tax free. 

I don't agree with the article though comparing a nurse paying tax at 51% to a consultant selling shares and been taxed at 33% , its like what David McWilliams is on about , I think the tax on shares is way above uk already any suggestion it should be taxed more is crazy IMO , that 10k the consultant made on shares was risked money and not a guaranteed income.


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## Sarenco (28 Sep 2015)

To be fair Brendan, a pretty significant chunk of your hypothetical nurse's lifetime earnings (and pension) will also be exempt from income tax, due to various reliefs and allowances.

Only a tiny proportion of the overall population hold liquid securities outside a pension wrapper so I don't think introducing a periodic deemed disposal for CGT purposes would have a significant impact on the exchequer and would be fairly costly to administer.  

I do agree with you that there is no compelling reason to increase the current CAT exemption thresholds  and I would have some sympathy for the argument that they should in fact be reduced.


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## Sophrosyne (28 Sep 2015)

Brendan,

This is all very theoretical, but you would have to do at least _some_ number crunching to arrive at your conclusions.

For instance, how many people actually benefit from the dwelling house exemption each year and what is the average value of the properties concerned?

In regard to other transfers of assets to children, just because a CAT relief is available does not mean that everyone is in a position to avail of it.


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## T McGibney (28 Sep 2015)

Sarenco said:


> I do agree with you that there is no compelling reason to increase the current CAT exemption thresholds  and I would have some sympathy for the argument that they should in fact be reduced.


There is: the CAT tax take is being severely depressed as the current high rates and low thresholds mean that property owners have a strong disincentive to make gifts to loved ones.


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## Sarenco (28 Sep 2015)

T McGibney said:


> There is: the CAT tax take is being severely depressed as the current high rates and low thresholds mean that property owners have a strong disincentive to make gifts to loved ones.



What is the policy argument for incentivising property owners to make (very large) gifts to loved ones?  

We all have a finite life so I don't see how inheritance tax can be deferred indefinitely.


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## T McGibney (28 Sep 2015)

Sarenco said:


> What is the policy argument for incentivising property owners to make (very large) gifts to loved ones?



Maximising the tax take.

We seem to have utterly forgotten the economic formula that brought Ireland into prosperity in the mid- to late-1990s.

(Note that in the UK, all gifts are tax free, although their bizarre inheritance tax system is another story entirely.)


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## T McGibney (28 Sep 2015)

Brendan Burgess said:


> But I have already shown that they are not voluntary.



They are voluntary, Brendan. I can opt to keep an asset or dispose of it. Simples.


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## T McGibney (28 Sep 2015)

Brendan Burgess said:


> If you wanted to boost the medium term tax take, you could introduce the 8 year deemed disposal.  You point out a problem with investment property, but that could be dealt with.



Dealt with, how?


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## Sarenco (28 Sep 2015)

T McGibney said:


> Maximising the tax take.
> 
> We seem to have utterly forgotten the economic formula that brought Ireland into prosperity in the mid- to late-1990s.
> 
> (Note that in the UK, all gifts are tax free, although their bizarre inheritance tax system is another story entirely.)



How would increasing the amount that can be gifted (or inherited) tax free increase the tax take?

I can certainly see the argument for lowering the CGT rate to increase the overall tax take (as it would encourage an increase in transactions) but that's a different issue.


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## T McGibney (28 Sep 2015)

Sarenco said:


> How would increasing the amount that can be gifted (or inherited) tax free increase the tax take?



But that's not what you asked me! 


Sarenco said:


> What is the policy argument for incentivising property owners to make (very large) gifts to loved ones?


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## Sarenco (28 Sep 2015)

T McGibney said:


> But that's not what you asked me!



Sorry, I'm confused.

I thought you were arguing that incentivising property owners to make large gifts by increasing the exemption thresholds was justifiable on policy grounds as it would increase the tax take.  No?


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## T McGibney (28 Sep 2015)

No, please read back what I posted.

I said that incentivising property owners to make large gifts was justifiable on policy grounds as it would increase the tax take. It was you who subsequently added the misleading "by increasing the exemption thresholds"

I'm also in favour of increasing the exemption thresholds even if that clearly won't increase the tax take, at least directly anyway. Why? I think it's silly that modest estates are caught for a tax that was designed for the rich.


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## Sarenco (28 Sep 2015)

Well, the entire discussion was about whether increasing exemption thresholds was justifiable or not.  Are you now suggesting that the CAT rate should be cut to incentivise property owners to make gifts to increase the overall tax take?

I think we might have different ideas as to what constitutes a modest estate and/or "rich". 

In any event, I would personally much prefer to see any tax cuts go towards supporting enterprise and savings rather than increasing the value of inherited or gifted wealth.


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## 44brendan (28 Sep 2015)

Sarenco said:


> In any event, I would personally much prefer to see any tax cuts go towards supporting enterprise and savings rather than increasing the value of inherited or gifted wealth.


So for example would you favour reduced level of exemption and higher tax rate for farmers children inheriting the family farm or for children of other business owners inheriting their family business? Or would you support retention of current position on this asset class and hit the guy with the 3 BTL properties? Or alternatively hit those leaving family homes above a notional threshold of say c500k?
I'm not trying to be smart but we do tend to hold these opinions that broaden out the tax net without any in-depth analysis of the consequences of the changes.
Perhaps there is a case for change but lets see the analysis and the basis for change before making the sweeping statements!!


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## Sarenco (28 Sep 2015)

I would support leaving the current inheritance and gift tax regime broadly unchanged and directing any available resources (in terms of tax cuts) in the following order of priority:

Abolishing the PAYE tax credit and increasing personal income tax credits by a corresponding amount (to remove the unfair treatment of the self-employed);
Abolishing the USC surcharge on the self-employed (to encourage entrepreneurship);
Increasing the ordinary rate income tax band (to reward work);
Reducing employer's PRSI by 2% (to encourage employment);
Reducing DIRT for ordinary rate taxpayers (by allowing such depositors to reclaim DIRT levied at the higher income tax rate) (to encourage equity in the tax system); and
Reverting to a common income tax treatment of rental profits on residential and commercial property (so that relevant interest payments are fully deductible) and making LPT deductible (to incentivise residential building).
I'm sure everybody will have a different wish list!

In general, I don't have any particular problem with the current reliefs and allowances under our CAT regime but I don't see any compelling reason to extend same.  There is an obvious societal benefit to encouraging the early transfer of a family business to the next generation but I can't see any similar argument for exempting other property assets from inheritance or gift tax beyond the current allowances.  In particular, I don't see why anybody should be entitled to inherit a €500,000 house (to use your example) tax free.


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## Steven Barrett (28 Sep 2015)

Brendan Burgess said:


> Hi Steven
> 
> I don't mind you disagreeing with me, but what is factually incorrect about it?
> 
> ...



Hi Brendan 

I haven't read the article in full, just the bit quoted by fella. The thread looks completely different now than it did this morning (and I didn't mean to call you stupid )

The tax breaks are open to the nurse as well as the consultant. She can gift her son €3,000 a year or just pay CGT on shares while the hard pressed consultant is paying a huge amount of income tax on his larger income.


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## Gordon Gekko (28 Sep 2015)

Brendan

The use of a nurse and a consultant is overly sensationalist. It isn't necessary. I also disagree with your views on inheritance tax. The principal reliefs that you refer to exist primarily to avoid the forced sale of illiquid assets to pay CAT. A huge tax bill on the inheritance of a business for example could trigger its sale and jeopardise jobs. The concept of a family firm would be under threat. With homes and the dwelling house exemption, families could be put out on the street due to tax bills they don't have the cash to pay.


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## Brendan Burgess (28 Sep 2015)

The same tax rules apply to someone earning €40k a year as apply to someone earning €400k a year.

But a €400k a year earner is much more likely to be making capital gains and giving gifts to their children. Of course a nurse on €40k could have big capital gains, but they are less likely to. 

I am not sure why some of you regard it as sensationalist.  I could have said Mary who is on €40k and Johnny who is on €400k.  But I am trying to point out that someone in a career like nursing who is not earning a huge amount who does valuable work pays 51% on any additional income they earn, while the child of Johnny can get multiple times her income as a gift an pay no tax. 

Brendan


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## Brendan Burgess (28 Sep 2015)

Gordon Gekko said:


> With homes and the dwelling house exemption, families could be put out on the street due to tax bills they don't have the cash to pay.





Gordon Gekko said:


> The use of a nurse and a consultant is overly sensationalist.



You wouldn't consider this being overly sensationalist by any chance? 

If someone inherits a family home worth €500k, and they have an exemption for the first €200k, they would pay around €100k in CAT.  Is it too much to ask that they get a mortgage for this amount?  If they can't get a mortgage, sell the house and they will still have €400k with which to buy a house.  They won't exactly be out on the street. 

The state could grant them a mortgage with interest rolling up at 4% a year. 

They could do the same for businesses. 

It's crazy that someone can inherit a €10m business and pay tax of around 3%, while our hard pressed nurse, sorry, while a person on average pay is paying 51% tax on any overtime. 

Brendan


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## Gordon Gekko (28 Sep 2015)

Why should someone be forced to sell their family home though? If we had a functioning bank system, perhaps it wouldn't necessitate the sale of assets? I just don't think that one can compare income and the transfer of a trading business. It's significant that the business in question must be "trading" and doing "real things". It's equally significant that the dwelling house exemption only applies to a person's home. I don't believe that a relief that helps a family to retain control of their business is particularly flawed.

However, I believe that the dwelling house exemption should be capped at around €750k.


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## Sarenco (28 Sep 2015)

It's worth bearing in mind that any trading business and its employees/owners will, hopefully, continue to generate tax revenue into the future.

Interesting idea to cap the dwelling house exemption.  Intuitively €750k seems a bit on the high side to me - would €400k not suffice?


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## Brendan Burgess (29 Sep 2015)

Sarenco said:


> Interesting idea to cap the dwelling house exemption. Intuitively €750k seems a bit on the high side to me - would €400k not suffice?



O.K., we are getting somewhere. 

My article said: 


Brendan Burgess said:


> Maybe make an exemption for the family home — but limit that exemption to €200,000.



To me the principle is clear. There should not be a unlimited means of transferring wealth though buying a home for someone which they have to live in for only 3 years.


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## Brendan Burgess (29 Sep 2015)

Sarenco said:


> It's worth bearing in mind that any trading business and its employees/owners will, hopefully, continue to generate tax revenue into the future.



I am not sure of the relevance of this. I am not saying that a business must be closed down on the death of its owner. 

I am simply saying that the the person who inherits it, should pay 33% (or more) of the value of the business in Capital Acquisitions Tax.  If it's a profitable business, it will generate the profits to repay such a loan.  If it's a loss-making business, then it won't be very valuable and won't generate a big CAT bill.   

And, I would have no objections to putting in safeguards to avoid a heavy cash flow hit on the business.  For example, the payment could be deferred. Interest would accumulate on the bill.  Again, it's the principle. It's not right that I can receive a business worth €10m and pay around 3% tax on it.

Brendan


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## Sarenco (29 Sep 2015)

Brendan Burgess said:


> O.K., we are getting somewhere.
> 
> My article said:
> 
> ...



Ah, I hadn't appreciated that you were proposing a cap on the dwelling house exemption.

Yes, I agree with the principle of what you are proposing but a cap of €200k seems a bit on the low side in a Dublin context.


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## Sarenco (29 Sep 2015)

Brendan Burgess said:


> I am not sure of the relevance of this. I am not saying that a business must be closed down on the death of its owner.
> 
> I am simply saying that the the person who inherits it, should pay 33% (or more) of the value of the business in Capital Acquisitions Tax.  If it's a profitable business, it will generate the profits to repay such a loan.  If it's a loss-making business, then it won't be very valuable and won't generate a big CAT bill.
> 
> ...



I guess the only point I was making was that if somebody inherits a valuable trading business then you would anticipate that they would pay significant amounts of income tax, etc. into the future so it's not all bad news for the exchequer.  

Adding a deferred CAT liability to an annual income tax bill would presumably dis-incentivise the new owner from developing or even continuing the business, which ultimately would result in a greater net loss to the Revenue. 

Obviously the new owner could simply sell or liquidate the business but do we really want to force the sale or liquidation of family businesses simply to meet tax bills?


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## Brendan Burgess (29 Sep 2015)

It's not a simple, cost-free, solution. 

But it's wrong that someone can inherit a €10m business and pay 3% CAT on it. 

If they own a €10m business, they are probably taking €1m a year out of it in profits. €500k after tax. They could easily afford to repay a mortgage of €3m over time.  They would still be getting an asset worth €10m for €3m.  

If I understand it correctly, I can inherit my father's business with an effective CAT rate of 3%. I could immediately sell the business for €10m. So my father would be giving me €10m for €300k tax.   Is there even a minimum holding period? 

Brendan


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## T McGibney (29 Sep 2015)

A business generating €1m a year in consistent profits will generally be worth an awful lot more than €10m Brendan, when everything is included.

In any event, no bank would advance a long-term €3m mortgage to an established company except in rare cases where it can be secured by a prime blue-chip property or otherwise very valuable collateral. (Very few companies own premises worth €5m or more). 

They certainly won't do so in a situation where the managing director and major shareholder in the company has just dropped dead or suffered a life-changing bereavement.


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## Brendan Burgess (29 Sep 2015)

Hi Tommy

Then rather than take out a mortgage, the Revenue should have a deferred payment scheme with interest at 4%. 

The principle is that the recipient should pay a material amount of tax. The detail can be sorted out.

Brendan


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## T McGibney (29 Sep 2015)

Sorry Brendan, you keep putting forward suggestions for very sweeping and imho unworkable changes to the tax code while saying "The detail can be sorted out."

If you're unwilling to illustrate how you propose to sort out the detail, you're wasting everyone's time


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## Brendan Burgess (29 Sep 2015)

Hi Tommy

I don't think raising such an important issue is wasting everyone's time.  It's a very important issue and needs to be discussed. 

I have not drafted legislation on the issue. If I were to do so, there would be more detail.

Brendan


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## T McGibney (29 Sep 2015)

There's no possibility of worthwhile discussion unless workable suggestions can be framed. It's as meaningless as if I were to suggest that all income tax should be abolished or that the government should nationalise Google Ireland or print money to pay off the deficit.

I'm not asking for legislation, but before anyone can draft legislation, there has to be at least an outline plan of what is to be achieved and how it is to be achieved.


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## Vanilla (29 Sep 2015)

As long as we're throwing out suggestions ( please no one ask me how to make it workable), you could frame CAT a bit like the fair deals, for businesses, farms, unoccupied houses, and have a notional income from them which then would be capped at a certain level say for a number of years after death and that cap paid over as CAT. That would make it fairer for houses for eg, because putting a threshold of say 200k or 400k will mean very different things for a house in Dublin versus a house in a rural area, but assessing a notional rental income should make it fairer?

I know it would be difficult in relation to businesses/farms because of how accounts can be structured though.


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## 44brendan (29 Sep 2015)

Brendan Burgess said:


> If they own a €10m business, they are probably taking €1m a year out of it in profits. €500k after tax. They could easily afford to repay a mortgage of €3m over time. They would still be getting an asset worth €10m for €3m.


Lets use this example for a dairy farmer with 500 acres milking 500 cows. based on current milk prices this farm would produce an annual profit of c€200K. The value of land alone would be worth c5mln. Farmer dies and leaves the farm to his son. Brendan would like to input a CAT of 30% on this transfer. I.e a tax bill of 1.5mln. farm is probably already carrying a level of borrowings to meet the significant infrastructure costs of running this operation (updated milking machinery, housing etc). So the son will be forced to sell 30% of the farmland to pay the CAT bill, thus reducing the earnings capacity of the farm by a similar amount and in all probability significantly effecting the capacity of the business to service existing & future borrowings.

One example only of how such a tax would cripple family businesses!!! What I disliked about David McWilliams was his simplistic approach to issues such as earnings distribution and tax reform. I can't understand why those of us who are not in possession of the full information insist on putting forward simple solutions to complex issues. Rant over


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## Sarenco (29 Sep 2015)

Wollie said:


> It is crazy that the marginal rate of tax for the nurse is the same as for the consultant.



I wouldn't agree with that but I do think that the level of income that attracts income tax at the higher rate is too low.  Hopefully we will see the threshold increased in future budgets.



Wollie said:


> It is also crazy that, for the purposes of inheritance tax exemption, there is no upper limit on the value of the house in which the son or daughter is living.



Agreed in principle but I do think people can reasonably disagree on the amount of that upper limit.

Take the example of a disabled adult child who is not employable and has lived his whole life in his parent's house in, say, Dalkey.  Would it be appropriate to require that child to sell his dwelling house on inheriting same and to move elsewhere simply because he happens to live in what has become a very valuable property?

While I don't entirely agree with Brendan on this issue, I don't think it's fair to characterise his article as containing cheap shots.  It's certainly prompted a robust debate on here, which has to be good in my opinion.  We need more debate on financial issues - not less.


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## Sophrosyne (29 Sep 2015)

I would like to see some actual figures to support your view.

Here are some to start you off:-

*Cost of Tax Expenditures*

*2014*

*Agricultural Relief*
Number of claims, 1,581
Cost of relief €m 164.4

*Business Relief*
Number of claims, 495
Cost of relief €m 139.7

I cannot find statistics on CGT or on the private dwelling house exemption, but I suggest that you would have to know what CAT and CGT exemptions and reliefs actually cost the exchequer in order to have some idea of tax savings, which could be deployed against income tax.

The agricultural and business reliefs and also the private dwelling house relief were introduced for good reasons, some have already been mentioned. Perhaps some are no longer valid, but perhaps some still are.


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## Sarenco (29 Sep 2015)

My understanding of the position in the US is that the CGT exemption on gains arising on the disposal of a PPR is capped at $250k (or $500k for a jointly filing married couple) in any given tax year.

Looks like a reasonable approach to me.


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## Brendan Burgess (29 Sep 2015)

44brendan said:


> Lets use this example for a dairy farmer with 500 acres milking 500 cows.



Hi brendan

Farming is a very difficult one because of the economics of farming.  Basically no one would buy a farm for €5m to earn profits of €200k.

I would make an exception. Charge 30% CAT on the gift but leave it as a charge on the land.  If the farmer continues farming, he will never pay it. If he sells it a year after getting the gift, he pays the tax out of the proceeds.If he sells a few acres for housing, he pays the CAT out of the proceeds.

Brendan


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## Brendan Burgess (29 Sep 2015)

Wollie said:


> I agree that there is a good argument in favour of inheritance tax but it must be constructed less emotively.



The original article was not emotive. 

It simply pointed out that income is taxed at 51% and there is nothing the worker can do about it, while CAT is a lot lower, and can usually be avoided.  Yes, it used an example of a lower paid earner with a higher paid earner giving his children tax-free gifts.  Well do you know what? Nurses are paying 51% tax on their overtime and wealthy consultants are buying homes and gifting them to their children. It might be emotive, but it's actually happening. 

I could have said "If I work overtime, I pay tax at 51% whereas I can plan the receipt of gifts and pay no tax".  I would expect that would still get an emotional reaction, although I presume that would not be regarded as emotive.


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## Brendan Burgess (29 Sep 2015)

Sarenco said:


> Take the example of a disabled adult child who is not employable and has lived his whole life in his parent's house in, say, Dalkey. Would it be appropriate to require that child to sell his dwelling house on inheriting same and to move elsewhere simply because he happens to live in what has become a very valuable property?



There is a good chance that a disabled person who inherits a large house which he has inhabited with his parents, will probably move to a more suitable house anyway.  So I don't really see a big problem with this. 

If people want to make some exception for these cases, fair enough.  Personally I wouldn't, but as these would be rare enough, I would have no problem.


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## Sarenco (29 Sep 2015)

Brendan Burgess said:


> There is a good chance that a disabled person who inherits a large house which he has inhabited with his parents, will probably move to a more suitable house anyway.  So I don't really see a big problem with this.
> 
> If people want to make some exception for these cases, fair enough.  Personally I wouldn't, but as these would be rare enough, I would have no problem.



I would have thought that there would be an equally good chance that the dwelling house of the disabled person would already have been adapted to meet his or her requirements.  Also, a child that is living in a particular dwelling house for three years before inheriting same (whether disabled or not) is likely to have strong social ties within the immediate vicinity and a forced move to fund a tax liability would presumably cause considerable stress and upset.

I'm not really trying to dream up exceptions - I just don't think there is a compelling case for severely restricting the dwelling house exemption.

I agree that a cap on the dwelling house exemption at some level would be appropriate (to cover a situation where an adult child is living in one of a family's many mansions!) but I really don't think it would be equitable or appropriate to introduce a cap as low as €200k.


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## cremeegg (29 Sep 2015)

Any discussion of tax reform must first decide wether it is addressing itself to general principles or to the detail of the existing tax code.

When you get into discussing the tax treatment of disabled persons inheriting mansions in Dalkey you know you have gone too far down the detail route.

As a general question what should be taxed, in my opinion only 2 things should be taxed, Earned Income from labour and Wealth.

Transfer of wealth, is not income from labour. To illustrate say Mr A owns a business and pays tax on his salary from the business every year and the business is worth €10m. If he then sells the business for €10m to Ms B and she draws a salary and pays tax on that each year, why should the govt tax the transfer. Mr A gained nothing from the sale. Before the sale he had a business worth €10m after he had cash worth €10m.

Income from wealth should not be taxed, after all it is in societies interest that wealth is put to work.

Now before I am accused of being a mad capitalist, I think that wealth itself should be taxed. If you have €100k in the bank (or shares, or property or land etc.) you should have to pay tax on that €100k every year irrespective of how much interest you earn on the money. The rate of tax on wealth should be the risk free rate of return multiplied by the rate of tax on Earned Income.

To relate this back to the nurse and the consultant. The nurse no change, the consultant would pay tax each year on the capital value of the shares which he sold. The son no tax, but that surely is fair between the consultant and the son they are no better off than they before.


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## Firefly (7 Oct 2015)

I think inheritance taxes should be increased (perhaps to the marginal rate) with very low thresholds and should include the PPR. In tandem with this I would like to see that income taxes be reduced by the same amount making the exercise net-neutral. This would take money from the lucky and pass it to the productive.


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## T McGibney (7 Oct 2015)

Firefly said:


> I think inheritance taxes should be increased (perhaps to the marginal rate) with very low thresholds and should include the PPR. In tandem with this I would like to see that income taxes be reduced by the same amount making the exercise net-neutral. This would take money from the lucky and pass it to the productive.




Why bother being productive when the State will strip your family of half your assets (including your home) when you die?


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## Sarenco (7 Oct 2015)

T McGibney said:


> Why bother being productive when the State will strip your family of half your assets (including your home) when you die?



Presumably to provide for yourself and your dependants while you're alive.

I wouldn't agree that inheritance taxes should be increased dramatically but equally I don't see any good reason to increase the current (rather generous) exemptions and thresholds.


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## T McGibney (7 Oct 2015)

Sarenco said:


> Presumably to provide for yourself and your dependants while you're alive.



Fat lot of good that is to them if you're unlucky enough to suddenly keel over tonight, and leave them with only half the assets you owned this morning - including half of the roof over their heads.


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## T McGibney (7 Oct 2015)

Firefly said:


> I think inheritance taxes should be increased (perhaps to the marginal rate) with very low thresholds and should include the PPR. In tandem with this I would like to see that income taxes be reduced by the same amount making the exercise net-neutral. This would take money from the lucky and pass it to the productive.



Bear in mind that in 2013, the State raised €15,758m from Income Tax and just €279m from Capital Acquisitions Tax on gifts and inheritances.

Even if your suggestion were to double revenue from CAT (which I very much doubt would be the case, as gifts would be disincentivised almost out of existence), this would only finance a tiny 1.7% reduction in the income tax burden.


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## Setanta12 (7 Oct 2015)

One of the arguments for taxing wealth or the existence of more penal rates on higher rates of income in progressive systems of taxation is the synergies/larger investments returns possible with greater wealth. If I have USD10,000 - I get one rate; if I have USD100,000 to invest, I get a better rate. (Can be about redistribution but also taxing more where less effort was expended in the earning of the income)


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## Sarenco (7 Oct 2015)

T McGibney said:


> Fat lot of good that is to them if you're unlucky enough to suddenly keel over tonight, and leave them with only half the assets you owned this morning - including half of the roof over their heads.



Again, I'm not personally arguing for major changes to our current inheritance tax regime that would give rise to that type of scenario.  I think our current regime, broadly speaking, strikes the right balance.

However, I don't think it is unreasonable or irrational to argue in favour of higher inheritance taxes in order to lower income taxes on purely egalitarian grounds.  It is pretty self-evident that inheritances are a major cause of inequality within society - even half of a large inheritance is better than no inheritance at all!


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## T McGibney (8 Oct 2015)

Sarenco said:


> It is pretty self-evident that inheritances are a major cause of inequality within society - even half of a large inheritance is better than no inheritance at all!



Is it really?  I'm not sure that it is at all. The levels of inherited wealth in this country are very minor compared say to the UK. Most family businesses don't survive a second generation. And no matter who you are and how much you inherit, if you don't work, or if you're unable to work eg due to illness, you'll eventually end up living a very modest existence.

As for inequality, I'd argue that social structures and family upbringing are much more important indicators of social advantage and disadvantage than inherited wealth. See Robert Putnam's recent excellent book "Our Kids" for how this applies in the US.


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## Sarenco (8 Oct 2015)

Well, I wasn't trying to make a relative argument.  In any event, if you take the US as an example, the exemptions from federal estate tax are now so high that only a minuscule proportion of estates in the US are subject to any inheritance tax at all.  Now you can certainly argue that that is entirely fair and reasonable but I don't see how you could possibly argue that it doesn't contribute to the increasingly extreme levels of wealth inequality that are now evident in the US.  Do we want to try and emulate the US in this regard?

Whether or not any other factors might be equally or even more important indicators of social advantage is simply not relevant to any debate as to the appropriate level of taxation that should apply to inheritances.


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## T McGibney (8 Oct 2015)

Sarenco said:


> Whether or not any other factors might be equally or even more important indicators of social advantage is simply not relevant to any debate as to the appropriate level of taxation that should apply to inheritances.



It was you who referred to inheritances as "a major cause of inequality within society". Are we not allowed rebut that? 

I wish we could emulate the US in relation to sustainable wealth creation and prospering multi-generational family businesses.

We certainly won't do that if we adopt an even harsher inheritance tax regime than we currently have.


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## Sarenco (8 Oct 2015)

I really don't know why you keep implying that I'm arguing for increased inheritance taxes - I'm not.

I would have thought that it was self-evident that inherited wealth is _a _major cause of wealth inequality in society - I never suggested that it was the only cause of wealth inequality or even the primary cause. 

We already have substantial reliefs in place to allow for the transfer of trading businesses from one generation to another - I'm not arguing that these reliefs should be materially changed.

I would suggest that the level of income taxes and taxes on capital gains has a far greater impact on productivity than a low level of inheritance tax.


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## T McGibney (8 Oct 2015)

Sarenco said:


> I really don't know why you keep implying that I'm arguing for increased inheritance taxes - I'm not.



I can only draw inferences from what you've posted here, including what appear to be rebuttals against my own arguments against increased inheritance taxes. 



Sarenco said:


> I would have thought that it was self-evident that inherited wealth is _a _major cause of wealth inequality in society - I never suggested that it was the only cause of wealth inequality or even the primary cause.



Nobody suggested that - my points above in relation to Robert Putnam etc were made to directly counter your contention that it's a major cause.



Sarenco said:


> I would suggest that the level of income taxes and taxes on capital gains has a far greater impact on productivity than a low level of inheritance tax.


And I would suggest that both are equally detrimental in that regard.  And if they aren't, even a dramatic increase in capital tax revenue would have negligible impact compared to income tax revenue.


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## Sarenco (8 Oct 2015)

There's really no need for you to draw any inferences from my posts regarding my position.   I thought I had made it absolutely clear, on more than one occasion, where I stood on this debate.

For the avoidance of any doubt, I am essentially in favour of maintaining the status quo regarding our current inheritance tax regime.

I am certainly trying to test the strength of your arguments but that doesn't necessarily mean that I'm in favour of increased inheritance taxes.  It seems to me that the logic of your arguments would suggest that we should repeal inheritance taxes completely, which I would consider a regressive step.

As it happens, I have read "Our Kids" but I don't recall any argument being made by Robert Putnam to the effect that inheritances are not a major cause of wealth inequality in the US.  If you could point me to the relevant passages or indeed to any other data that supports your position in this regard that would be greatly appreciated.

I certainly don't agree that taxes on income or gains have the same impact on productivity as inheritance taxes.  I simply don't believe that an individual's behaviour is very strongly influenced by the possible taxation of their estate whereas it seems obvious to me that high rates of income tax have a significant influence on individual behaviour.  I would suggest that Robert Putnam would appear to support the later position as he has advocated increasing income tax credits on earned income.

Income tax certainly accounts for a far higher proportion of the State's revenue than inheritance taxes but I don't see what that has to do with the principle as to whether or not it is appropriate to tax inheritances in the first place and, if so, at what level.


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## Sophrosyne (8 Oct 2015)

The problem is that as people acquire more wealth they invest in assets. Why would they invest in Ireland?


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