Using the Inheritance Tax as a Resource for Social Security :Simulating Reforms to Strengthen the Inheritance Tax

ABSTRACT

This report focuses on inherited wealth as a potential financial resource for the social security system. Up until now, inheritance has been thought to be a form of compensation paid to the family for supporting aging parents. Recently, however, elderly people, instead of being taken care of by their children, are now coming to be increasingly supported by society as a whole.

Meanwhile, due to the high lower limit of inheritance tax, the majority of households that receive inheritances currently go untaxed. If this system is not reformed, individuals will continue to receive all the benefits of inherited wealth even as society as a whole bears more and more of the burden of elderly care.

Thus it is necessary to redesign the inheritance tax system, taking into consideration the perspective that the elderly are the direct benefactors of social security. If, as a first measure, the amount of inheritance tax is increased (the minimum taxable inheritance is raised by 5%), it is estimated that the amount of surplus tax revenue received by 2030 will be 3.0 trillion yen (approx. 28bn USD). If, as a second measure, a new type of inheritance tax is established that would liquidate the excess benefits of each elderly person when they are deceased, the estimated surplus for the same period is 9.0 trillion yen (approx. 85bn USD). In this way, the partial appropriation of a return from inheritance wealth can be thought of as a viable option in seeking new sources for the social security system.