Growing inequality and the pressing need for countries to raise revenue to address the imbalance in public accounts after the pandemic may make inheritance and donation taxation an “important instrument,” according to the Organization for Cooperation and Development. Economic (OECD). “The crisis has exacerbated existing inequalities and hit many vulnerable households hardest, and traditional collection approaches, such as raising taxes on earned income and consumption, as in the 2008 crisis, may be less desirable from a perspective of equity and growth outlook, “warns the OECD in its analysis of inheritance tax.
In this way, he considers that the crisis is likely to provoke a reflection on the need to resort to new or underused sources of income, which may also be compatible with the objectives of reducing inequality, noting that inheritance tax could play a role. especially important role in today’s context.
The ‘think tank’ of rich countries points out that, although the majority of OECD countries, a total of 24, tax inheritances or donations, these taxes usually generate very little income and currently represent only 0.5% on average of total tax collection. In fact, among the countries analyzed, inheritance tax collection only exceeded the threshold of 1% of total tax revenue in South Korea (1.59%), Belgium (1.46%), France (1.38% ) and Japan (1.33%). In the case of Spain, inheritance tax collection represented 0.58% of the total, above the 0.53% average for the OECD as a whole.
In this sense, the OECD warns that, just as the level of inequality has remained at high levels or has increased in recent decades, inheritances are also unequally distributed among households, particularly benefiting the wealthiest and the richest. , as the baby boom generation ages, increasing the concentration of wealth among the older cohorts.
Reduce the concentration of wealth
In its report, the organization concludes that well-designed inheritance taxes can help increase income and improve equity, with lower administrative and efficiency costs than other alternatives. “While most OECD countries collect inheritance taxes, they play a more limited role than they could in raising income and addressing inequalities, due to the way they are designed,” he said. Pascal Saint-Amans, Director of the OECD Center for Tax Policy and Administration.
“There are strong arguments for making greater use of inheritance taxes, but better design will be necessary if they are to achieve their goals,” he added. From an equity perspective, an inheritance tax, particularly one that targets relatively high levels of wealth transfers, can be an important tool to improve equality of opportunity and reduce the concentration of wealth.
In addition, the OECD notes, while these taxes can negatively affect inheritance in family businesses, at the same time they can reduce the risks of misallocation of capital to less qualified heirs. On the other hand, it points out that inheritance taxes also have a series of administrative advantages compared to other forms of wealth taxes, particularly those that are collected annually.
Regardless of the type of estate transfer tax implemented, the OECD outlines a number of reforms that countries could consider, including the design of exemption thresholds for small inheritances, allowing heirs to receive a certain amount of estate tax-free.
Likewise, the OECD proposes the introduction of progressive tax rates to ensure that those who receive more wealth pay more taxes, as well as the reduction of differences in the tax treatment applied to direct descendants and that of more distant heirs, which would lower incentives for the concentration of transfers between the closest relatives.
For its part, the organization led by Ángel Gurría underlines the need to minimize the opportunities for planning and tax avoidance with a better design of the tax, as well as with the reinforcement of measures to combat tax evasion.
“Inheritance taxes are not a silver bullet,” acknowledged Saint-Amans. “Other reforms, particularly in relation to the taxation of personal capital income and capital gains, are key to ensuring that tax systems help reduce inequality,” he added.
A disputed tax in Spain
The inheritance tax has become in recent years one of the great reviled by the PP or Citizens, which have led to lower or eliminate it in those communities where they are in the Government. Facing the last elections on May 4 in Madrid, President Isabel Díaz Ayuso defended a new tax cut on this tax. This measure benefited only 11,000 taxpayers in the Community, despite being one of their star ads in the electoral campaign.
In Castilla y León, where the PP with Citizens governs, the practical elimination of this tax has recently been approved. A measure that, according to its president Alfonso Fernández Mañueco, is aimed at “boosting the economy, creating jobs and growing stronger.” Specifically, a 99% discount will be applied to the payment of this tax.