2.4.9 The profit justification (the benefits theory and the co-heirship theory)

According to the profit justification,1 when explained by the benefits theory, death taxes are regarded as payment in return for the various services rendered by the state to the beneficiaries. This justification does not apply only in the case of death taxes, but in the case of any tax. The revenue generated from death taxation – albeit lower than the revenue generated from other types of taxes – goes directly to the state’s treasury. In other words, the government, as an “uninvited heir”, “inherits” part of people’s property and uses it to finance the payment of capital grants or services in line with its social and economic policies. Therefore, the levying of death tax serves as a medium for the state to finance the services that the state renders to the beneficiaries. Under the profit justification, however, these services do not have to be connected with the receipt of an inheritance.2

The profit justification – when explained by the co-heirship theory – focuses on the deceased. Several writers have argued that the state should inherit property from individuals because of what it does for them during their lives by providing a stable government environment. The state is sometimes represented as a larger family; according to Umpfenbach, the bond of kinship between distant relatives loses itself in the whole nation, which, therefore, inherits the property of individuals as the family inherits the property of its members.3 Eschenbach pictured the state as a silent partner in the business of each citizen, without whose aid and protection it would be impossible to transact business or to accumulate wealth; when the partnership is dissolved by death, the silent partner, the state, is entitled to a share of the capital. Stated in this form, the argument seems rather fanciful; but in its essence it is simply a statement of the intimate relations which exist between the individual and the state, and of the manifold useful offices performed by government, which may be conceived to give the state a better claim to the property of a decedent than can be advanced by any individual who was of no assistance to the owner in acquiring it.4

Furthermore, according to West, the profit justification cannot justify progressivity in tax rates5 based on the kinship between the parties involved. The same also applies, in my view, to tax deductions or tax-free allowances granted to close relatives. The profit justification justifies only the progressive, proportional or regressive rates, according to the view that could be taken of the relative importance of governmental action to the rich and to the poor.6 Finally, the argument that people owe a debt to the government at death can be criticized because death taxes do not raise sufficient revenue to promote government stability reasons.7 Based on the above reasons, the profit justification does not seem to be a primary justification of death taxation.