Politicians of all stripes like to talk about “sustainability” – although I’ve noticed that some of the enthusiasm for this when it comes to the “green” angle has been dented by rising energy costs and worries about how we keep the lights on when the wind does not blow and sun does not shine. The realities of how to produce energy when fossil fuels are off the table and nuclear is not taken seriously are going to bite us, and hard, in the years to come.
Even so, sustainability is a useful word, and it is a shame that it gets tainted as the word “liberal” does by association with bad ideas. (The same goes for “progressive”, while we are at it.)
Well, one point I come across in my day job in covering business and finance is how family-owned/run firms can often show superior returns, when compounded over time, and be more robust, and more sustainable, than those that don’t have a family connection. That’s not cheesy sentimentality about how a business is better when Grandad, Mum and the cousins are around. (There can be very tricky succession and control issues with families; wealth advisors often earn big bucks advising families in how to resolve conflicts. And we’ve all seen Dallas.) Even so, for all the caveats, family businesses are important. They employ millions of people. In countries such as Germany and Italy, family-run firms have been the norm; the fashion houses, specialist sportscar firms, and many others, have deep and long family connections. Same goes for agriculture and food, for example. Here is some UK family business data that shows how big these firms are, in aggregate.
Well, it seems that one thing that the UK government is thinking of is ending the business property and agriculture reliefs from inheritance tax. At present, the tax – 40 per cent above a “nil-rate” threshold of £325,000 – does not hit if you inherit a family business, including a farm. In the US, such tax is called Estate Tax, and thresholds are far higher than in the UK.
But apparently, Rachel Reeves, the UK Chancellor of the Exchequer, is considering sweeping some of these reliefs away. It means family businesses where the stake in a business are high might get broken up and sold, such as to corporations and private equity firms, when a founder or business holder dies. Family-run farms will be a one-generation gig. And corporates, sovereign wealth funds and big groups such as pension funds will consolidate their ownership of business, including the land. Wealth becomes more centrally concentrated, not more dispersed. This seems a very paradoxical outcome from a supposedly egalitarian government. Maybe Ms Reeves does not understand this point or is indifferent to it.
However, ignorance is only part of it, I think. There’s a general hostility towards inheritance of any kind in our culture today, from my impression. There is a lot of the “tall poppy” mindset around. Years of central bank QE also inflated asset prices, and certain groups did well, but that’s not really what is going on, in my view, because things such as QE are too abstract for the average voter.
I think resentments are given more respect today, when in fact they should be called out. I think we allow jealousy of others’ good fortune to be given the time of day, when in the past that would be seen as a bad thing.
There are many good, consequentialist reasons why this dislike has bad outcomes when used as a motor for public policy, but there are important moral arguments against this attack on inheritance: the rights of those of those who own the property and want to give it to this or that cause are being violated. If I want to give my sons and daughters a business, or a 400-acre farm, for example, that’s my affair, period. Whether those persons “deserve” what I give them, in the eyes of some sort of social justice advocate, is irrelevant. If economics is not a zero-sum game, such demands for redistribution are just thieving.
What inheritance taxes do, at root, is make it clear that ownership of wealth and control of it is at the sufferance of the State. The justifications of insisting on this servile relationship may vary – sometimes by reference to the flawed ideas such as those of a Thomas Piketty – but the underlying position remains.
The argument seems to say that you don’t really ever own anything absolutely and control it. You have to defer to the crowd if it, and its elected representatives, wants your stuff, however virtuously you acquired it in the first place. It is only one step from saying that because we don’t “deserve” our brains or bodies, that we don’t have grounds for objecting to other coercive measures to take the fruits of our mental and physical labour, either at source, or when we die. (The dystopian novel, Facial Justice, by LP Hartley, shows where this leads when it comes to beauty and physical appearance.)
I see little by way of fundamental critiques of this assault on inheritance of honestly acquired wealth. The Tories, now in opposition, don’t really take the discussion to this level; neither do other supposedly more conservative parties in other parts of the world. But the monstrosity of what attacks on inheritance amount to needs to be more widely remarked on than it is.
On the subject of the family and why protecting it is subversive of overweening authority, I can recommend this book, The Subversive Family, by former Downing Street policy unit figure and journalist/novelist Ferdinand Mount. He’s deeply influenced by the Origins of English Individualism, by Alan Macfarlane, for example.
On a more prosaic level, the ever-widening burden of tax in much of the developed world, and particularly in the UK, means that even people who are not by any means well off are going to learn about the joys of inheritance tax and all that goes with it. That might ultimately shift the needle against the tax. But a lot of hard work in changing attitudes is also needed.
Only a foolish business owner fails to create total property trusts for children with all future value accruals to go to those children but all control of the property to remain with the parents until they die.
We were worth not much when we had our kids but we had a very good advisor, our worth grew with time in the usual compounding manner and now we’re worth a lot. However, too old tired and lazy to spend much of it. Oh well.
We have multiple copies of those trust indentures in lawyers’ offices and bank safes. Our kids already own 95% of our worth and paying taxes on the 5% may be nothing if only gains are taxed. Our kids have already done the same for their kids.
Run to your advisors and delete this comment before lefty swine politicos read and understands it.
Frank Z: Only a foolish business owner fails to create total property trusts for children with all future value accruals to go to those children but all control of the property to remain with the parents until they die.
Unfortunately for that approach, the ability of people in the UK these days to shelter their wealth from IHT in various structures, including Common Law trusts, has been steadily eroded in the past decades, under both Labour and Conservative governments. Indeed, the previous “Conservative” government was every bit as keen to stamp out forms of supposedly evil tax avoidance (which is not a criminal offence, as evasion is) as Labour.
And the problem with shelters is that you pay a lawyer a fat fee to create one, and take the chance that it will fall apart.
Here is a guide showing the uses of trusts, and their limitations.
I have wondered if a lot of the increasing restrictions on landlords is designed to achieve the same thing? Small private landlords get effectively hounded out of the market by the impositions and so sell up to private equity, who have enough money to not give a hoot about regulations.
And the “problem” part of that is . . . .?
Thankfully, most Americans aren’t going to hit that $13,000,000.00 threshold for estate tax (which is why there’s not a ton of support for repeal of it.)
For the few that do, you can go the trusts route, but it’s a constant battle to create new forms of trust entities while the IRS and Congress quickly write new laws that vitiate them.
Key to that is: if you create a significant and complex trust situation, you should die quickly afterwards, or have your lawyer completely redo them every few years. Trusts are whack-a-mole games for the IRS.
I want to give a big bravo to FredZ here. It is all very well to sit around navel gazing imagining if only the government did this or that how much fairer things would be. However, the government will not do what you want. They are not on your side. Their purpose is their own self aggrandizement and they use tools like jealousy, dishonesty, misleading information and so on to make it happen.
However, FredZ here takes a completely different approach. Rather than imagining he can change the government he instead changes himself and his own arrangements to maximize his own freedoms within the bounds of the possible. That is completely the right approach, and is far more likely to bring happiness, freedom and wealth than all the voting or political organizing you can imagine.
However, if I might contradict myself and complain about government policy — we are seeing a new level of chutzpah from the Harris regime. Never before has a government taxed you on money you don’t even have yet. But that precisely is what the 25% unrealized capital gains tax is (unrealized meaning “I don’t have it yet”.) But it is only for billionaires we are told. And my answer is, yes, for now, but for how long? And secondly, if billionaires have to sell 25% of their net worth every year to pay taxes, their companies’ share prices will crash, the capital market will dry up, millions of people will lose their jobs, and we will reduce the country to a smoking pile of rubble. Apart from all those consequences it seems a jolly good idea.
I’m told though that it would never get implemented. And so once again the Harris team reach a new milestone. The first candidate in history that people are voting for hoping that they won’t implement their policy agenda. We certainly live in strange times.
@bobby b
For the few that do, you can go the trusts route, but it’s a constant battle to create new forms of trust entities while the IRS and Congress quickly write new laws that vitiate them.
Of course the IRS is not supposed to write laws, merely interpret them. I wonder how the demise of the Chevron deference will impact the IRS in this regards.
And FWIW, everyone hates lawyers until they need one.
Fraser Orr, at 8:22pm…”everyone hates a lawyer until they need one.” True, but why would you ever need one?
Oh, wait, I remember, because of all the lawyers making new laws!
I’m only half joking!
And no offense to bobby b…love your comments here and your defense of the “right things” in the People’s Republic of Minnesota!
You think there’s no dynamite for businesses?.
https://en.wikipedia.org/wiki/Destruction_of_country_houses_in_20th-century_Britain
**Pedantry Alert**
They’ll still go through the same rulemaking process. The only difference will be, if they’re challenged, they’ll have to show that they are following the actual will of the legislature.
So, no more EPA rules that state “right wing thought is a pollutant, and so to preserve the environment such thought is banned.” Unless the legislature includes that in its enabling legislation. Which they might.
No worries! Even I don’t hang out with lawyers anymore.
@bobby b
The only difference will be, if they’re challenged,
One of the many ways lawyers can be useful. I do wonder about that process though. Let’s say I write a tweet saying “white people shouldn’t be discriminated against in college admissions”, but my state had passed a law saying such “hate speech” gets me $500 fine and requires me to take out a grovelling apology in the newspaper. I am tried and convicted and appeal up through the state courts and eventually through the federal system till I meet the nine wise guys in DC. That must be an INSANELY costly endeavor. In a company I used to run that got sued a few times, we would pretty much settle for $30k just for nuisance value. Even a summary judgement seemed to come in about that cost. And for sure where I live where the corporate veil is, shall we say, not made of kevlar, we had to buy very expensive D&O insurance.
If I am going through all those levels of appeal, what’s it going to cost me? A million dollars maybe? So how come you see all these USSC cases where grandpa sues the City of New London, or high school student “Bong Hits for Jesus” kid sues the school district? The amount of money swilling around must be insane. I’m thinking a lot of lawyers are taking these pro bono to get a name for themselves. Even that must be a huge risk. It seems to me that the biggest threat to justice is how damn much it all costs.
Johnathan’s guide highlights a specific situation I recent had to address.
A potentially vulnerable but asset-rich young man has addiction issues. In order to formalise his financial care and protect him from predators I and his relative sought advice about setting up a protective trust. The initial 20% charge (not what most people think about when considering IHT) was bad enough while the 6% charge on gross value, which effectively means the same capital assets are being taxed every ten years, would have made a substantial dent equivalent to 0.6% p.a. in the true value of his post-tax (charged at the trust rate of 45%) annual income. We decided we could not in good faith recommend this route to the young man even before considering the likelihood of the exit charge.
bobbyB
Thankfully, most Americans aren’t going to hit that $13,000,000.00 threshold for estate tax (which is why there’s not a ton of support for repeal of it.)
Which shows how unwise it is to assume that if X or Y aren’t affected by a law, then that law is okay or not worthy of getting upset about. How often do we see people shrug their shoulders about a law or tax, only to find out a bit later that the crocodile has moved closer?
The problem here is that if exemptions are removed or reduced (estate tax reliefs are falling in 2025 as the Trump legislation of 2017 is sunsetted), family-owned firms that are above a threshold will be affected. So it makes sense to agitate for reform or even better, abolition of such taxes.
For the few that do, you can go the trusts route, but it’s a constant battle to create new forms of trust entities while the IRS and Congress quickly write new laws that vitiate them.
Trusts are easier to use in the US for such matters than in the UK. The thrust of my article is mainly British; the US is, thankfully, not as crazy on this issue as here in the UK, although K Harris and her leftist allies would love to impose a wealth tax, etc.
More broadly, inheritance taxes and the like spawn a large sector in trusts and structures that are expensive and time-consuming to create, involve high lawyers’ fees, and just add to the complexity of life. They also drag on business and wider economic growth.
Martin: And when the government hounds you out of the Landlord market, they take half your money on the way out as well. I seem to remember a certain government in the 1930s doing this for people trying to leave the country.
The destruction of family owned business enterprises, including family owned farms and ranches, is a goal that both the Marxists AND the Corporatists agree on.
When, for example, our dear friends (sarcasm alert) at the Economist magazine support ever higher inheritance taxes – it is NOT because they are Marxists (they are NOT Marxists) – it is because the are Corporatists – they support Corporate bureaucracy (which is joined as the hip with government and banking bureaucracy) controlling the means of production, distribution and exchange (note how they like the reduction of Corporation Tax – but HATE the reduction of Individual Income Tax).
One of the worst mistakes that the late Milton Friedman made was to assume that Corporations serve individual shareholders – most shares are NOT owned by individuals (most shares are controlled by other corporate entities) and even when shares are owned by individuals the Corporate bureaucracy tends to develop a life of its own – as the history of the East India Company (whose policies were most certainly not for the benefit of its shareholders – who ended up having little control of it) shows.
One sign of a good country is that it has both low to zero inheritance taxes and low (ideally no) individual income tax – then the means of production, distribution and exchange (such as
farms) will remain in individual and family hands.
As for “Trust Fund Kids” – the Corporatists have no problem with Trust Fund Kids (who tend to be little “Progressives”) it is people who inherit the CONTROL of farms, manufacturing enterprises, and so on, that they hate.
Obviously there is a great difference between one of the vast corporations (most of whose shares are controlled by BlackRock, State Street, and Vanguard – and the Credit Bubble banks and other financial entities) and a small to medium sized company that has been set up for tax purposes but, really, remains under the control of owner-managers.
The only valid response to pervasive electronic banking is a resurgence of mattress and floor-tile fund management.
This is why they are trying to end cash money.
I am increasingly sympathetic to the Indians who seem to be focused on buying gold.
Does anyone doubt that the European elites will go after anything trackable to plug the enormous hole they have created? They have already shown willingness to restrict services and freedoms based on Chinese-style “social scores”.
And in America it’s only a question of who gets elected.
As I near retirement age I realize I have paid – and may still pay – a penalty for being a salaried professional instead of getting into a business that allowed significant cash transactions…
My wife and I are not the only ones looking with satisfaction at the numbers in our retirements accounts…
I will just take this opportunity to recommend the 2019 movie Richard Jewel, by Clint Eastwood. This is very good both about showing how lawyers can be, well, a bit skeevy, and also showing how under certain circumstances you really want a lawyer on your side.
They’re looking very hungrily at those Roth IRA’s, thinking “what idiot promised them they could withdraw tax-free? And do we need to honor that dumb promise anymore?”
The standard qualified accounts are easy – just raise the rates. But all of that untouchable Roth money is making them squirm with envy.
That $13m threshold on a family business really isn’t all that much these days all things considered. Let’s pretend I inherit my family farm. 1,000 acres of land, a farmhouse, a few buildings like a silo or two, a pole barn, maybe a shed or two, a couple of John Deere tractors and the associated tools for it. At a mere $10k per acre, the land alone is $10m. Figure another half million for the farmhouse, barn, sheds, and silo. A 12 year old used 6125 tractor will set you back $100,000 and that doesn’t include any of the implements that go with it. Cutters, shredders, combines, hay balers, all the rest of those big pieces of equipment are pricy and add up. and any animals on the farm as well, so if you’ve got a few head of cattle, they get included.
There are any number of stories in the US of people who have lost the family farm that has been in the family for generations simply because of the inheritance taxes (and both the feds and states want their fair share, not to mention the annual property taxes the county collects) that the kids can’t pay out of pocket or go into debt to pay until they lose the farm to a bank.
Take the example of Austria – hardly a anarcho-capitalist place, indeed it has a large Welfare State.
However, in Austria the top rate of tax someone pays in handing on their farm or other business to their children is 3.5%.
Three and half percent.
That is hardly in line with the European Union, and general “International Community”, vision of governments and partner corporations controlling everything.
So either Austria will submit to the demands of the “International Community” (it has already submitted to a “Carbon Tax”) or it will end up, like Hungary and others, as an enemy of the “International Community”.
The election this Sunday will settle the matter of whether Austria falls to the “partner” Corporations.
Steven R – as you know Sir, it is not by accident, it is by design.
The authorities, and the education system and mainstream media, want land and-so-on in “public” hands (and in the hands of the partner Corporations of course).
The idea of farms and other business enterprises being individual and family private property goes against all their doctrines.
BenDavid.
Both left and right are, for once, in agreement about something.
What we are in agreement about is that the present monetary and financial system is coming to an end – both sides understand that (the people backing Donald Trump, such as John Paulson, certainly understand that – but so do their enemies, the WEF crowd).
What the two sides are in disagreement about is what is to replace the current system – this is what the November election is about.
“Paul you have just admitted that the struggle is between rival groups of billionaires with different visions of the future – and that you yourself are just a small, tiny, figure on one side of this great conflict”.
Yes – and there is nothing wrong with admitting that other people (due to their financial success) are vastly more important than one’s self.
It is not for me to give orders to Peter Thiel, Elon Musk, John Paulson and others – indeed that would be utterly absurd for a tiny figure like me.
I am just glad that some billionaires are saying NO to the totalitarian vision of the WEF and the rest of the “International Community”.
If all the billionaires were on the same side – then the war would already be over.
There is no united “Capitalist Class”, there are rival visions of the future – offering very different futures.
Steven R
September 19, 2024 at 3:47 am
“That $13m threshold on a family business really isn’t all that much these days all things considered.”
True. But, as JP pointed out, we still have it a LOT better than much of Europe in that regard.
Remember, the typical family farm is held by an older couple with kids. Since they’re a couple, they get two of those $13,000,000 exemptions, so they can pass along $26M worth of property before they start hitting the tax wall. That’s a fairly decent level of protection in an increasingly socialist world. Not perfect, but a reasonable facsimile of it.
bobby b – it depends on what county in Europe you are talking about.
The United States is a lot more anti individual and family owned business enterprises than some European countries.
But all will fall – if they do not fight back.
In Austria, as I have already pointed out, the test comes as soon as this Sunday.
Only the “far right” will stand up against the agenda of handing over all the means of production, distribution and exchange (including LAND) to government and “partner corporations”. Hence the hatred of the “far right” shown by the international Corporate Media.
That is what inheritance tax (and so on) is for – to take property (especially land) from individuals and families – to put it into corporate hands.
There is a war going on all over the Western World – and there are powerful people on BOTH sides of that war.
The rich and powerful are not all on the totalitarian side – otherwise liberty would already have been exterminated and the totalitarian desires of the “International Community” would have fully gone into effect.
Elon Musk alone put tens-of-billions-of-Dollars on the line to buy Twitter in order to oppose the domination of the totalitarians.
That action seems to have been forgotten – but it should not have been.
People like Elon Musk or John Paulson have enough money to retire to an island in the sun and just lay on the beach – and the international establishment would have left them alone (would not have hurt them at all).
Yet they choose to fight.
They are putting everything at risk – for there will be no forgiveness for them if they lose. The international establishment (the very people who used to invite them to the various international conferences) will show no mercy to them – they will be utterly destroyed.
Some of us on the pro liberty side have nothing to lose (and my lungs have a habit of reminding me that I am not long for this world anyway) – but men like Musk or Paulson have a lot to lose.
That friend of the government (the source of so much of his wealth) Warren Buffett was delighted when the inheritance tax in Germany was “tightened up” (read de facto increased) – because he hoped that it would mean family owned business enterprises would be sold (with the owners taking the money to set up trusts – so their children would become “trust fund kids” rather than owner managers) and the assets would come under Corporate control.
General rule of thumb – if Mr Buffett is happy, something bad has happened.
Ditto if Mr Gates is happy. Or if any of the World Economic Forum – United Nations types are happy.