How have analysts reacted over the last
five years to President Vladimir Putin's economic initiatives? While
they agreed that he was saying all the right things in theory about
protecting property rights, encouraging migration and increasing
government efficiency, analysts have often argued that these
initiatives look completely different in practice. And they have
often been right.
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However, the
president's recent state of the nation address contained an economic
initiative that was completely wrong. The president said that he
believed it was necessary to get rid of the estate tax. He explained
that "billion-dollar fortunes are all hidden away in offshore zones
anyway and are not handed down here." According to this logic, we
should get rid of traffic rules, since many drivers bribe the police
to turn a blind eye to traffic violations. Taxes on inheritance are
hard to administer and bring a relatively small amount of money to
state coffers. However, Russia needs this tax, and now is the
perfect time to learn how to collect it properly.
Russia's wealthy are a lot younger than wealthy
people in other countries. They will likely be with us for quite
some time. By the time the current oligarchs start to age and pass
away, the government should figure out how to administer the estate
tax. A progressive tax on inheritance could serve to redistribute
wealth in a more equal way and to legitimize property rights.
Now, the way things stand, the first generation of
rich Russians has little hope of ever gaining the absolute
recognition of their property rights. This looks even more unlikely
for state officials who have made their fortunes thanks to their
government jobs. If the oligarchs' children were to hand over a
portion of their inheritance in taxes, the remaining money would be
seen in a far more favorable light. As this process would be
extended over time -- it is impossible to imagine that all of
Russia's oligarchs would die on the same day -- everyone would have
time to get used to the estate tax and learn how to deal with
it.
There is also an ideological advantage to taxing
inheritance. The 1917 Revolution kicked off one of the most tragic
periods in Russian history, but it nevertheless had its progressive
side. If there was something good economically in the Soviet Union,
it was the relatively high level of vertical mobility in the
workforce, which was in many ways a product of the revolution.
A progressive estate tax would be a good way to
encourage social mobility today. The mere presence of this tax would
send a signal that Russia want to continue to be a place where
individuals' destinies are not constrained by their initial material
conditions.
Abolishing the estate tax would also create new
problems. For example, it would open up a loophole that would allow
taxpayers to fiddle with their income tax. But then again, most of
the income to the federal budget currently comes from oil, natural
gas and customs, which means we could easily abolish income tax as
well.
Economically, Russia is a normal Third World
country. However, it would be strange to assume that it will stay
this way -- dependent on oil and unable to collect even the most
basic of taxes -- for the next 30 or 40 years. We need to understand
what we actually want to be. Do we really want to catch up with
Portugal or just be a vast Venezuela?
Konstantin Sonin, a professor at the New Economic
School/CEFIR, wrote this column for Vedomosti.
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