Shelly Is Right

It must be understood that while every tax has negative side effects of some kind, not every tax confers the great benefit an estate tax does: increasing equality and social justice.

In May, when the Knesset begins it summer session, MKs will begin discussing a bill that will undoubtedly cause Israel's rich to frown. The bill, sponsored by Labor Party leader Shelly Yachimovich, would impose an inheritance tax on large estates.

The idea is not new. Until 1981, Israel did have an inheritance tax. In 2000, the Ben-Bassat Committee on income tax reform proposed that it be reinstated; it advocated a 10 percent tax on every estate above NIS 4 million. But the proposal was never voted on in the Knesset, both because of pressure brought to bear by the wealthy and, surprisingly, because of opposition from United Torah Judaism's MKs, who did not want people looking too closely at the under-the-table income so widespread in the ultra-Orthodox community.

Now, Yachimovich has raised the idea once more. She is proposing that a tax of between five and 12.5 percent be imposed on estates over NIS 15 million.

This is a just and sensible proposal, because an estate tax is the most progressive of all taxes. It is imposed only on people who are very rich, and thus helps to reshuffle the deck: It takes a bit from the person who was lucky enough to have been born into a rich family and gives the money to someone who was a little less lucky (from the economic standpoint, of course ).

The feeling that an inheritance tax is just stems from the fact that it is imposed on people who got something out of the blue, without having to work hard for it or demonstrate unusual talent. Moreover, the capital that is handed down from generation to generation in rich families naturally grows, and thus increases the gaps in society. That is why a majority of the population feels it is right to intervene a little and mitigate the advantage of those who reaped a windfall.

This is not a case of double taxation, as some of its opponents claim. The tax is not imposed on the owner of the capital, since he has already passed away. It is imposed on the heirs - and for them, the inheritance is an income, which it is justified to tax.

A tax of this kind exists in most, though not all, Western countries. Surprisingly, it exists in the United States and Britain, but not in Sweden or China, which shows that it's not always wise to reach conclusions on the basis of preconceived ideas. Warren Buffett, the American billionaire, says that an estate tax is the fairest and most justified tax of all, because it aims to ensure that those who benefited from capitalism's wonderful system of wealth creation give something back to society.

One reason that the Trajtenberg Committee gave for opposing an inheritance tax is that the burden would once again be borne by the middle class, those "who don't have the means to engage in careful tax planning" in order to avoid the tax. But that is a problem that doesn't exist in Yachimovich's bill, because anyone who has more than NIS 15 million is certainly not part of the middle class.

The Trajtenberg Committee also argued that an estate tax is very complex, and this turns it into fertile ground for tax planning and various other methods to avoid paying up. Moreover, to collect the tax, the authorities would have to set up a complicated collection system, which calls the law's economic viability into question.

But these are rather weak arguments. First, there is no need to set up a "complicated collection system," because the rich in any case have to file tax returns. The argument about evasion is also strange, because the rich typically engage in tax planning, with the help of lawyers and accountants, in order to pay as little as possible. So what is unique about an estate tax?

Finally, the argument that this won't bring a lot of revenue into the state's coffers is likewise not convincing. Revenues of one or two billion shekels a year are not to be sneezed at, especially given the pressure the budget is currently under.

Nevertheless, it is appropriate to set the tax at a low rate (as Yachimovich is proposing ), so that Israel will continue to serve as a haven for capital from wealthy overseas Jews - who often move here only at an advanced age.

Opponents of an estate tax also claim that it would decrease the desire to save and accumulate property, which would not be good for investments and growth. On this, they are correct. But it must be understood that while every tax has negative side effects of some kind, not every tax confers the great benefit an estate tax does: increasing equality and social justice.

Thus when everything is weighed in the balance, the conclusion is clear: The advantages of an estate tax far outweigh its disadvantages.