OECD Suggests Use Of Inheritance Tax For Reducing Wealth Inequality

The leading economic think tank of the Western world – the Organisation for Economic Cooperation and Development (OECD), is of the opinion that wealth inequality could be reduced by various governments with the use of the tax system with specific focus on inheritance tax which would be the most favored route to achieve that.
The OECD said in a report that in equality in wealth held by individuals is more than the disparity in income and in the recent decades that has increased according to evidence that the report examined. The OECD said that because the rich have greater wealth to invest in the higher yielding sets, more expertise in financial matters and greater availability of advice for investments, therefore the wealth grows by itself and has become self-reinforcing.
Power, influence and opportunities resting with the rich people is also considerably more. Such people are also able to make incomes without them having to do any work. The port noted very different positioning for an individual earning €20,000 a year from either salaries or business compared to a rich person who generates the same amount of money from multiple or single investments. The report is titled “The Role and Design of Net Wealth Taxes the OECD”.
“A key aspect of wealth accumulation is that it operates in a self-reinforcing way; wealth begets wealth,” the report said. “It may be argued that wealth begets more power, which may ultimately beget more wealth. Overall, this means that, in the absence of taxation, wealth inequality will tend to increase.”
It was not long ago that economist Thomas Piketty had argued about the role and importance of wealth to entrench inequality and the OECD report was, in part, a response to that argument. The think tank has given a call to governments to make use of wealth tax for reduction of inequality and enhancement of social mobility.
Currently, there are just four developed countries that still continue to tax their rich through wealth tax. Those are France, Spain, Norway and Switzerland. That number was 12 in 1994. But since implementing wealth tax is difficult and because it did not account for the earnings generated from the wealth of an individual, therefore arguments in favor of a wealth tax were weak, the OECD said.
The think tank further said that higher rates of taxes for inheritance of wealth could be the answer for reducing wealth inequality because taxing the rich on capital income would not be enough to achieve the target.
Wealth inequality is increased because the wealth of the younger generation is more dependent on inheritance and how much wealth is passed on to them. This is reflected by enhanced home ownership and increasing house prices.
It is likely that the comments and arguments of the OECD in favor for tougher and higher wealth tax will stir debates in countries like the U.K. where such taxes are highly unpopular and can be considered not the right method for reduction of wealth disparity. There is also higher disparity in between generations. Despite this, in the U.K., up to £850,000 can be left back by most married couples for their direct descendants without the descendants needing to pay taxes under current regulations.
(Adapted from TheGuardian.com)

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Categories: Economy & Finance, Regulations & Legal, Strategy, Sustainability, Uncategorized

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