Q. Is it fair to tax bequests?
A. Estate taxes are among the most controversial levies in our economy. Many people believe they are the ideal tax. Middle class individuals earn most of the income, because they are most of the people. But their share of bequests is far lower, since by definition only wealthy people accumulate large fortunes. So bequest taxes are a highly progressive tax, meaning that wealthy people pay a larger share.
Furthermore, many people view it as a tax on unearned income, since the heirs didn’t do anything to deserve it. So it is also a fair tax.
Finally, the assumption is that people accumulate money mostly to enjoy the well-being or the honor and power it confers, so that taxing estates doesn’t discourage initiative very much. So it is also an efficient tax.
Other people view the estate tax as the most unfair tax possible. Government has a right to tax economic activity, since they contribute to its productivity. So personal and business income taxes are acceptable. But after all these taxes have been paid, what right does the government have to tax the same money yet again, merely because the original earner has passed away?
Bequests are further viewed as one of the main incentives for earning and saving. These individuals view an estate tax as something close to arbitrary confiscation.
From all the sources I have found, the Jewish view is closest to the first approach, the one that legitimates inheritance taxes.
It is true that our law gives bequests a special status. We find this in the Torah, which warns a father not to discriminate in inheritance against the son of a less-favored wife (Deuteronomy 21:17). We find in later legal sources that a son is like a continuation of the father, so that a bequest is not considered completely like a transfer. Finally, we find that the Code of Jewish Law rules that the best policy is to leave most of the estate to the offspring, leaving a meaningful minority for charity. (1)
However, as we wrote in a previous column, Jewish tradition does not particularly encouraging saving up during life specifically in order to bequeath property to offspring. “Rav said to Rav Hamnuna, If you have wealth, enjoy it. For there is no enjoyment in the grave, and no leisure after death. And if you should say, I must leave it to my children… people are like plants: as these flourish others wilt.” (2) Rather than hoarding, parents should help their children to the best of their ability during their lifetimes; ultimately, it is the responsibility of the child to find a flourishing livelihood.
And the custom has been to consider bequests as income for all practical purposes, especially as relates to tithes and communal taxes. For example, the renowned Enlightenment authority Rabbi Yeshahayu Horowitz writes: “Even if the father was scrupulous his whole life to give tithes, even so now that the son has acquired [the property], why shouldn’t he take tithes from what God has given him? (3)
Leaving bequests is an honored tradition in Judaism, and it is certainly proper for parents to help their children while they leave and also ultimately as they leave this world for the next. A confiscatory inheritance tax would certainly interfere with this. At the same time, estates have never been seen as the main reason for saving and accumulation, and modest taxes and tithes on estates have been long sanctioned.
SOURCES: (1) Rema CM 282 (2) Eiruvin 54a. (3) Shela Laws of Charity and Tithes; see also Arukh HaShulchan Yoreh Deah 249:6.