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Saturday, 6 February 2010

AND NOW FOR SOME LIGHT ENTERTAINMENT...

This fiscal stuff is really vexing, so here's a little refreshment, courtesy of the Annals of Improbable Research, the most truly fantastic online resource in the world. They are better known for running the Ig Nobel Awards and their website is well worth a read.

The new Greek tax system, we can be assured, will include some tinkering with estate tax - the unsavoury practice of taxing the wealth that people pass on to their offspring upon dying, although it's already been taxed when it was earning interest or capital gains and, of course, when it was earned in the first place.

So what if there were a hidden downside to the death tax? I do not mean the usual tax-dodging response which, as per the Laffer curve, reduces tax revenues when tax rates go up. I mean an even darker effect - the direct effect of pre-announced estate tax increases on longevity.

The research quoted by the AoIR, available here, was actually carried out by esteemed scientists in Columbia. It found that, when people know estate taxes are about to rise, they adjust their time of death (or have their time of death adjusted for them) in order to maximise the wealth of their offspring. This is an honest-to-God significant effect.

This in itself tends to mean that estate tax increases will almost never yield the amount expected by governments. But it gets worse. In Greece, a great many property-, business- and home-owners liable for estate tax are also enrolled in our famous -and famously inefficient- public final benefit schemes. Can you guess where this is going?



The fiscal straitjacket imposed on Greece by Brussels makes it impossible to sneak any tax hikes up on the population - they need to be announced to Brussels and shouted from the rooftops to make sure our friends in the bond markets can hear. So any new estate taxes will give people ample time to prepare.

So what if the notoriously long-lived Greeks decide to live longer and screw the system even harder? Their pension payouts will rise, adding to the pension fund deficits and thus to the state deficit (as all public pension fund deficits are, by law, the state's problem). Which could mean higher estate taxes will actually cost us more money than they earn.

And, of course, as our healthcare is strongly subsidised and in fact much of it is publicly provided, all these cunning derelicts will take us for a real ride on their way out.

If you're smiling ruefully at the irony of all this, remember - it's all bullshit except for the facts.

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