TheAgitator.com
Let’s Pry the Taxes from Their Cold Dead Hands
Thursday, August 28th, 2003When Radley introduced me to the blog, he mentioned that I have a few opinions that, for him, call into question my libertarian leanings. The fact that I am pro-death tax was foremost on his list, but I can explain.
I’ve found that when I tell people that I’m pro-death tax, their first reaction is generally one of shock and outrage. “Its double taxation.” “People should be able to do what they want with their money.” “Leaving money to your kids is why people work.” While these statements sound persuasive, and admittedly have varying levels of truth to them, they still do nothing to address my main argument in favor of the estate tax: lower income taxes.
My general position is this: When you raise the death-tax you can lower the income tax on the working and the living. Granted, there are a number of modifications I would make to the current system, some changes in other tax rates and some exceptions as to what is part of the “taxable estate” but overall I think it would be a better system if we took as much as we could from the deceased.
Let me state for the record, I’m a selfish person. It really burns me up when I get my bimonthly pay stub and see that the government has taken a huge chunk out of the money that I have earned from long nights at the office and years of hard work and sacrifice. Government spending should be lowered and taxes overall should be cut, agreed, but even I will admit that the federal government does need a certain amount of revenue to fund the most basic functions. The common defense must be provided for and that money has to come from somewhere. Enter the death tax.
Before I begin addressing the wide variety of beneficial reasons for a larger death-tax, I should probably outline what exactly it is that I am talking about when I say “death-tax.” As I see it, the tax system would be adjusted as follows:
1) Lower the income tax rate as low as possible. Unfortunately I’m not an economist, so I’m not sure how low a rate we could get. (To be honest though, I’m not sure any economist would know either.) Still, the goal of this whole modification to our tax code is to get more money into the pockets of those of us who are out there earning it everyday. We can play around with varying rates to see what revenues look like, or better yet, set it at something like 3%-4% and tell Congress to live within those means. Of course cutting income taxes that low immediately would probably lead to some fairly catastrophic results, so revenue would have to be made up somewhere;
2) Raise the estate tax as high as possible. I have no problem with this being at 100% with some notable exception. Family farms and small businesses should be excluded entirely. As would bequests to spouses and minor children. Taxes could be deferred or amortized on the family home for a certain number of years. There may even be room for a fixed exemption amount for family heirlooms and the like. The goal here is not to force the heirs to sell items with personal significance simply to pay taxes;
3) Combine the sales tax and gift tax into one “Transaction Tax” and lower that rate. There is no reason that $500,000 spent on a house is any different than $500,000 spent on a boat. And there is no reason that $500,000 given to your children is any different than $500,000 spent on a house. In every case, you are the one who has earned the $500,000 and you are the one who knows what use of that $500,000 will bring you the most happiness. The government should not be trying to influence you by taxing any of these decisions at different rates.
Now that we have settled what it is that we are talking about, the question then becomes, why? Why change the tax system so much? Let me reiterate: I’m selfish. I’m selfish and it really burns me up when the government takes more of my money, money that I have worked hard for, instead of taking money from someone who has done nothing for it. Contrary to its name, the death tax is not a tax on dying, nor is it a tax on the person who has just died. Kick a dead person sometime. They don’t feel it. They don’t even know that you kicked them. They also don’t know that you taxed their estate.
Instead, the “death tax” is a tax on those who would otherwise be the beneficiary of a death. Its a tax on those who are getting money because someone died. While I feel sorry for their loss, from a tax perspective I’m more inclined to want to help those working and producing than those benefiting from death. People might say I’m punishing those who die suddenly, I would say I am eliminating the punishment on those who are working. There are a lot more people who are working than those who die suddenly.
While I’m sure there will be cries from some that raising the death tax eliminates choice from the wage earner, nothing could be further from the truth. Raising the death tax is the way we give more choice to the wage earner. By raising the death tax we can give the those working more of their income from the beginning. With income in hand, the choice of where to spend it is entirely that individual’s. If he wants to give it to his adult son, he can. He just can’t wait until he dies to do so. Why should we value the choice of the dead at the expense of the choices of the living? (Furthermore, I would argue that leaving something to someone after you die is hardly a choice at all. Choice involves some sort of sacrifice. It involves choosing something you want over something else you want. Once you’re dead and can’t spend the money yourself, giving it to someone you love is pretty much a no-brainer.)
Another complaint voiced by many is that of “double taxation.” This argument, however, is misguided for 2 reasons. First, there are multiple examples of double taxation in our system. Almost all of us pay income tax and sales tax. Corporations are taxed on their earnings and investors are taxed again when they receive dividends. While these other examples don’t make double taxation right or just, they do show that it is not an unprecedented concept and it calls into question why we should get up in arms over this example of double taxation while allowing others to stand. If we are going to fight double taxation, lets go after the corporate tax first. Those corporations and their investors are employing people; dead people aren’t.
The second knock on the “double taxation” argument is fairly simple: if you’re against double taxation, let’s lessen it on the front end. If we eliminate the income tax, no more double taxation when we take it from the dead. Heck, even if we can’t eliminate it, we can substantially reduce it, thereby lessening the amount of double taxes we are forced to pay.
One final argument against the death-tax is the claim the amassing a fortune for their children is the reason people work. I would not only disagree, but would also add – so what. I don’t think giving money to their children is the reason people work. People work so they can buy food, clothing and shelter. Once they have children, yes they want their children to have good lives, but if questioned I think most parents would want their children to have high paying jobs rather than live an extravagant lifestyle on the sweat of the parents. If people want to give a good life to their children, they can afford to send their children to all the right schools. Most parents are concerned with giving their children the tools to succeed, not an outright fortune.
But even if most people do work with the purpose of leaving a fortune to others, I repeat: so what. Take that away and they might retire earlier. Not only do you give them more of their life to enjoy, but you create job openings for younger workers. You create an even greater opportunity for mobility that rewards hard work and good decisions. These are the principles America was founded on.
In closing, I state that one of the added benefits to this system would be the increased consumer spending that helps drive our economy. The decreased incentive to save large fortunes would lead to more spending, which in turn creates more jobs, raises salaries and improves the standard of living for everyone. Truth be told, I imagine most of the revenue under this plan would be generated by the transaction tax and increased spending. Still, increasing the death tax provides the incentive for that spending which makes the system possible.
So there’s the plan. Have at it you jackals.
Looting dead people’s estates by the reasoning that if you kicked them they couldn’t feel it? Man, that is twisted. But, twisted is usually interesting, so I’ll entertain your theory with a response.
I’d be much more willing to meet you in the middle with an extreme graduated tax that only hit the wealthiest top 5% and we kept your idea of lowering the tax burden on the rest of the population.
Why would I be satisfied with this? That 5% are the ones running the US government anyway by funding these puppets into office. Since they like to throw their green into government when it suits their purposes, let’s make them finance the entire bullshit parade.
Saying “dead people don’t know their estates are being taxed” misses the point. Living people will know that their estates *will* be taxed, and they will change their behavior to account for this.
For one thing, if the exemptions you propose (gifts to minors, principal residences) are reasonably generous, a lot of people would figure out how to make most of their estates fall under these categories so that they actually paid very little tax. A lot of this happens already, and much more would happen under your proposal.
So it’s not clear that you’d actually get enough revenue out of it to allow a drastic reduction in the income tax. Because of the fact that you have to grant generous exceptions in order not to steal people’s family heritage out from under them, the estate tax is in principle much easier to evade than other sorts of taxation.
(Disclaimer: I’m not an economist; I’m working from intuition, not masses of data. But it looks like you’re in the same position, so we’re on a level playing field here).
Nic’s right.
My mom did this for her estate after getting whacked when my father died young. That’s over 30 years ago now, and she’s still bitching about it.
Bryan -
I was willing to keep an open mind about your argument in favor of the death tax, at least until you said:
“Raise the estate tax as high as possible. I have no problem with this being at 100% with some notable exceptions…”
I wish I had time to tear this one apart, however sufice it to say that this is an idea that only a socialist NUTJOB could support.
If I were both old and rich, I would rather hoard cash than get porked by your tax system. Instead of handing over other documents of wealth to my kids, I would just hand them a pile of cash instead. Well, not really ME, since I am dead, but trust me, they will know how to get the cash before Bryan the Tax Man does.
Let’s see, I’m old and rich and you want to take all of my money, presumably because neither I nor my kids really need it. The government will determine who NEEDS the money and will distribute it accordingly. Who’s really the jackal here.?
Later you go on to say that:
“Another complaint voiced by many is that of “double taxation.” This argument, however, is misguided for 2 reasons. First, there are multiple examples of double taxation in our system”
You do, to your credit, follow-up by saying that that does not make double taxation either “right or just”, but then continue on to let us know that it just proves that double taxation is not an unprecedented concept, so we should somehow not be up in arms about this particular instance of double taxation.
Huh?
Earlier in your essay, you tell us that:
“Raising the death tax is the way we give more choice to the wage earner… With income in hand, the choice of where to spend it is entirely that individual’s. If he wants to give it to his adult son, he can. He just can’t wait until he dies to do so.”
So the choice of what to do with one’s hard-earned dollars is ENTIRELY up to him, however if that choice is to wait until after death to give the money, that is somehow not OK? I guess we’d rather he gave all his money early, then lived in poverty until death in order to avoid the raping from your system.
One of your main points was clearly that you believe we should both raise the Death Tax and lower the income tax rate.
Here’s a better idea, and admittedly not an original one – Why not eliminate the Death Tax, LOWER income taxes, and REDUCE GOVERNMENT SPENDING? How very Liberal of you to assume that government must maintain its current spending habits. Tolerance for differing ideas within a political ideology is admirable, but for this concept alone, you should be turning in your Libertarian Card. Expect a call from headquarters.
The lunacy goes on and on in your foolish essay, which makes so little sense that I PRAY you were just writing this crap in order to get a rise out of us. If that’s the case, then mission accomplished.
If you really believe this selfish, disrespectful crap, than you need serious help.
dude, you do know that it’s illegal to smoke marijuana right? that might change, but I would think you might want to not smoke the stuff when you think about tax policy. This is as convoluted as the current tax policy. People will figure out ways around it. That’s why I love being an American.
Bryan, do you work for a life insurance company?? A 100% death tax is an insurance agent’s dream…..
Wow, that was a terrible.
Increasing the death tax will simply result in the creation of thousands of loopholes & a flurry of legislation to plug them up.
Here’s a novel idea, how about we eliminate the death tax AND dramatically reduce all other forms of taxation? How about we use the death tax issue to loudly debate and discuss all the other forms of double and triple taxation we all endure?
“A 100% death tax is an insurance agent’s dream…..”
Quite the contrary, since life insurance is (or at least was when I took taxation) included in one’s estate for estate tax purposes. If the estate tax were 100%, that would be taxed away too. It would make life insurance worthless.
BTW, this “double taxation” argument is bogus. Much is double taxed. The federal income and FICA (social security and medicare) represent double taxation. As does income tax at the federal, state and local level
You, like many liberals, seem to be assuming that the estate tax is a tax on the rich. What about a farmer who doesn’t have much money but valuable farm land for the next generation to inherit? What if the next generation can’t afford the tax and has to sell off land that has been in the family for generations? Are you willing to explain this convoluted argument to them?
Here’s a much simpler and better argument: no estate tax and no income tax.
Truly one of the stupider ideas I’ve read this year. Do you think people that wealthy are just going to fork over 100% of their money to you? Who would really be hurt are people who are only moderately wealthy and can’t devise ways around thi. The exceptionally rich would just move their assets offshore, renounce their citizenship in the last few years of their lives and park the money in monte carlo or some place similar.
Bryan,
Those who work hard, save, and are willing to take risks are the ones who create wealth in this country. They had the courage to risk their property and futures on an investment are the ones who decide how to dispose of their property. Until people get that straight, we will always have politicians who attempt to sacrifice individuals to the mob as spoils for their power base.
Why wait until we die to seize our property? As soon as someone raises their head and dares to make a better life for themselves or their heirs, maybe you and the government should just swoop in and loot their property. Wouldnâ??t that be a great country to live in? Maybe the government can confiscate your property tomorrow Bryan. If that lowers my income tax, should I vote for it?
A death tax is so perverse I honestly canâ??t understand how anyone can support it. Even though you donâ??t get anywhere near a one-for-one cost value benefit for the other taxes you pay, the government at least attempts to give the perception of getting some value for the taxes levied. For example, excise tax goes to pay for roads; social security tax goes for retirement, etc. We know this is mostly crap but at least they make the attempt to justify it. What value is given in return for this tax?
Some quick examples of the perversions your tax would cause include forcing the sale of businesses, businesses being moved out of the country to avoid your tax, etc. I donâ??t need to elaborate on all of them. Your tax is immoral on its face and I would not support it even if it lowered my income tax to zero!
Ugh. You missed some much better points and probably lost almost everyone with your 100% tax rate comment. (punitive rates such as that always lead to changed behavior – desperate attempts to find loopholes etc or even more drastic moves such as old rich people leaving the country in favor for some tax haven. When Britain’s highest marginal tax rate was around 100% we here in the US got quite a number of new residents).
I agree with your point that the “death tax” is not a tax on the dead but rather a tax on those receiving the proceeds of the estate — an income tax. Treating such income in exactly the same way other income is treated regardless of source seems to make the most sense.
Of course then we must explore why there is income tax at all? We could simply move to a consumption tax and forget about income taxes. The problems with that of course are three-fold: 1) it is regressive in the sense that poorer people consume a larger portion of their incomes; 2) it is distortionary for the economy due to the differences in price elasticity of items: in some cases the burden of the tax would fall more heavily on the producers than the consumers in others the opposite; and 3) politically it is easier to appear to “soak the rich” through a higher withholding rate rather than try to convince the public that the wealthy’s puchase of higher priced goods will mean that they will ultimately pay more in tax……
The first problem is easily resolved by exempting basic food items and clothing items priced less than a certain amount. The second could the addressed to a degree by moving to a VAT (though not entirely). The third is an impossible stumbling block that I see no politician taking on…
But the points you make do not seem terribly libertarian to me. And people do amass wealth to pass on to their offspring……
Not sure I have any answers but I do have some questions:
1) The government doesn’t need just revenue, they need revenue flow. How would the lower income tax change the revenue flow to the government? Would it be workable? I know you said you’re not an economist, but if your suggestion is going to have any credence then isn’t this something we should know?
2) What makes you think that money I inherit will not be spent the same way as my paycheck? Why should the former be taxed so little and the former taxed into oblivion if I will treat the money exactly the same?
3) According to your statement, bequests would be exempt. I realize your not really attempting to write the tax code, but that’s a major loophole. Why not just transfer a majority of my wealth into valuable paintings and then bequeth them?
4) Why is preserving a family business more important than preserving the cash someone received for selling their family business years before their death? The assumption is that the inheritors are making their living from that family business. If that’s true, then why didn’t they take measures prior to the death to secure against such a scenario? What about someone who’s job is to manage their parents investments? When their parent’s estate is taxed into oblivion then does that mean they lose their job? Why are jobs within a small business more valuable than a child helping to manage their parents investments?
5) How long do you think it will take for the population to adapt their finances to mirror, as much as possible, the allowed exemptions?
6) What if I inherit an exempted family business which I did use, prior to the inheritance, as my primary source of income and then sell it a year later? Is the sale taxed 100%? If not, what makes invested capital more important than capital free for investment?
The point I’m trying to make is that any time we involve exemptions we are putting a value, by definition, on certain types of behavior and by your own essay those incentives should not exist. So if we’re going to tax estates into oblivion, do it to all of them. I’m not advocating such a tax, I’m just trying to point out a few holes in the logic of it.
“Quite the contrary, since life insurance is (or at least was when I took taxation) included in one’s estate for estate tax purposes. If the estate tax were 100%, that would be taxed away too. It would make life insurance worthless.”
Yeah, if you own the policy, then it’s value gets taxed, but you don’t have to own the policy. Someone else can or you can set up a trust for the purpose as well.
The estate tax is not double taxation. It was taxed when it was originally earned by the decedent, and is being taxed when transferred to the heir, just as if they earned it themselves.
When there is talk about the estate (death or whatever) tax, it always seems that discussion decends into the possible loopholes and the general technical problems with the idea. Certainly, we need to address these issues, but we should probably start with more basic questions before we really get into the details of implementation. So…
It seems to me that the primary reason to have an estate tax is to combat the inter-generational accumulation of wealth. Is this an actual problem? If it is, what else could we do to combat it?
We can argue all we want about whether this tax structure is better or worse. But the fact remains it is tax revenue for a bloated, wasteful government. However we restructure the tax code to be more fair(flat tax, death tax, capital gains, etc.), the size of the federal government needs to be reduced. The amount of money the government recieves and spends should be the primary issue and the way they get it should be secondary(although it’s still an important issue). I would not care if the money came from the rich, the poor, income tax, sales tax, or whatever. The fact still remains the government has too much, spends too much and therefore has has too much power.
Wallster, the point is that the ‘money’ itself is taxed multiple times for no other reason than to feed bloated ineffective gov’t programs.
OK, I agree that if the government is going to raise revenue through taxes, it’s better if that revenue is raised through the least-bad taxes available. But I don’t think you’ve done anything to demonstrate that the estate tax really is less-bad than the income tax. Let me examine your argument piece by piece:
“When you raise the death-tax you can lower the income tax on the working and the living”
True, but let’s look at the numbers. Right now, the estate tax makes up about 1% of federal revenues, with a tax rate of 55% on the largest estates. Even if we increased the rate to 100%, how much more revenue would this bring in? After considering the effect of your proposed exemption for family businesses (which make up a not insignificant portion of current estate tax revenues), you would be lucky if revenues doubled.
The income tax brings in more than 40% of federal revenues. (With payroll taxes making up another 30+). The increased death tax would barely make a dent, allowing the average person’s income tax rate to be lowered by a fraction of a percent.
This hardly makes increasing the death tax look like a promising approach to getting income tax rates reduced.
“1) Lower the income tax rate as low as possible”
Fine – I’ve got no problems here, but as I noted above, increasing the estate tax is not going to do much to help get there.
“2) Raise the estate tax as high as possible. I have no problem with this being at 100% with some notable exception.”
A 100% estate tax is perfect if your goal is to punish dying people, but not so smart if your goal is to generate revenue. Anyone with a sizable amount of liquid wealth is going to move it into trusts to avoid losing it all. The main effect of this will be to make these kinds of trusts extremely popular with middle class taxpayers, rather than just the wealthy as they are now.
“Family farms and small businesses should be excluded entirely.”
This will have some seriously perverse incentives for older small business owners who want to be able to leave something to an heir.
In some cases it will mean foregoing a retirement, because if they choose to sell the business their heirs will get nothing, whereas if they keep working until they die, their heirs will inherit the business and then be free to sell it for the money.
In other cases it could mean keeping alive a business that is marginal or even losing money. If they sell the business or close down and liquidate the assets, the heirs will get nothing. If the keep the business running until they die, even while bleeding away savings (which are worthless after they die anyway), the heirs can then liquidate the business, possibly for a substantial amount of money.
“As would bequests to spouses and minor children.”
This creates some even more perverse incentives and is also a recipe for family problems.
Suppose you are suffering from a terminal disease and you have a child who is approaching 18 years of age. You might prefer to let yourself die (refuse heroic measure, stop taking medication, etc.) when you could leave your child an inheritance, rather than risk living another month past their birthday and leaving them with nothing.
Even worse, it could cause people to pass up potentially successful treatments. Suppose in the situation above, you were suffering from cancer and were told that with chemotherapy you had a 20% chance of being cured, but a 80% chance that you would relapse within the year and die. Most people now would gladly take the 20% chance of life. But imagine the decision was between a 20% chance of living and an 80% chance of leaving your 18 year old son completely broke, versus dying now and leaving a decent inheritance.
Of course these kind of situations aren’t going to happen to everyone, but given the extremes people will go to to provide for their children, they will occasionally happen, and a tax system that encourages this kind of thing is disgusting.
Now consider the situation where you are dying and you have one child who is over 18 and another who is under 18. Do you leave the younger child with everything and leave nothing for the older? Most parents would be revolted at being forced to do that. Do you try to be “fair” by not leaving anything to either one? That’s even worse.
“Taxes could be deferred or amortized on the family home for a certain number of years. There may even be room for a fixed exemption amount for family heirlooms and the like. The goal here is not to force the heirs to sell items with personal significance simply to pay taxes;”
Later you complain about the tax code creating incentives that distort people’s behavior, but here you’ve done that on an enormous scale by giving special treatment to tangible property. Suppose you have a good deal of money saved up and you want to leave it to your children. What do you do? Buy a more expensive house.
“3) Combine the sales tax and gift tax into one “Transaction Tax” and lower that rate. There is no reason that $500,000 spent on a house is any different than $500,000 spent on a boat. And there is no reason that $500,000 given to your children is any different than $500,000 spent on a house. In every case, you are the one who has earned the $500,000 and you are the one who knows what use of that $500,000 will bring you the most happiness. The government should not be trying to influence you by taxing any of these decisions at different rates.”
But currently, the gift tax and the estate tax are at the same rate. Why? Because they essentially tax the same thing. There’s a lot more difference between buying a boat and giving someone money than there is between giving someone money now and giving that same person money later (even if later happens to be when you die).
Yes, it’s unfortunate when taxes distort people’s behavior, but your plan only makes these things worse.
Besides, some would argue that there is a relevant moral difference between taxing sales and taxing gifts. In the case of sales, some would argue that the legal infrastructure necessary for the existence of thriving markets and businesses is provided by the state, so the state is justified in taxing these transactions to pay for it. Free gifts have no such justification.
Also, you’ve made a huge jump from gift, income, and estate taxes (which are federal) to sales tax (which is purely a state matter – some states don’t have a sales tax). This makes absolutely no sense unless you’re suggesting a national sales tax (which opens a whole new can of worms).
“I’m selfish and it really burns me up when the government takes more of my money, money that I have worked hard for, instead of taking money from someone who has done nothing for it.”
So property received as a voluntary gift is less legitimate than property received as a result of an exchange? You don’t give any moral justification for this beyond “I’m selfish”, and this seems far from obvious to me.
“Contrary to its name, the death tax is not a tax on dying, nor is it a tax on the person who has just died. Kick a dead person sometime. They don’t feel it. They don’t even know that you kicked them. They also don’t know that you taxed their estate.”
So by this logic, you would support mandatory organ donation? Maybe you do, I don’t know. I’m just curious if you’re willing to carry your argument to it’s logical conclusion.
And as others have already commented, they DO know before they die that their estate will be taxed and they will take action accordingly.
“While I feel sorry for their loss, from a tax perspective I’m more inclined to want to help those working and producing than those benefiting from death.”
No, you’re benefiting those who are currently working over those who possess wealth due to previous work.
“People might say I’m punishing those who die suddenly, I would say I am eliminating the punishment on those who are working.”
First of all, as I pointed out above, the estate tax is miniscule compared with the income tax. But the real issue is where this imaginary connection between income tax and the estate tax comes from.
This effect is very obvious in State politics. States will frequently propose new taxes and justify them by claiming that they will reduce the burden from existing taxes. If they succeed in imposing the new tax, within a short period of time, the reduced taxes have grown back to their previous level.
The only way this would have any practical effect is if the increased estate tax (possibly in conjunction with other increased taxes) was sufficient to completely eliminate the income tax. Otherwise, any offsetting effect will be temporary at best.
“There are a lot more people who are working than those who die suddenly.”
But it’s not just people who die young who will be hurt. People who plan to avoid having all their wealth taken by the tax will be affected. Elderly people who give away the bulk of their money while they’re still alive and live on a small amount, people who establish trusts and live off a fixed income, people who tie up all of their wealth in physical property to exploit the loopholes – these people will have an unnecessarily lowered standard of living, and the potential for serious financial hardships that they would not have had to experience. This all comes about because death is unpredictable, and leaving money in a will rather than giving it while alive is a way of dealing with the unpredictability.
Of course, the heirs of someone who dies especially suddenly will be hurt even more. Imagine two scenarios: In one, a 60 year old man finds out he has untreatable cancer and only 6 months to live. He has time to get his affairs in order and arrange to give away the vast majority of his wealth while he is still alive. Another 60 year old man is suddenly killed in a car crash. His heirs in addition to having to deal with the suddenness of the death and the disorganization will receive nothing. Talk about kicking someone when they’re down.
“Raising the death tax is the way we give more choice to the wage earner. By raising the death tax we can give the those working more of their income from the beginning. With income in hand, the choice of where to spend it is entirely that individual’s. If he wants to give it to his adult son, he can. He just can’t wait until he dies to do so.”
Here, you seem to recognize that people will largely be able to get around losing everything to the estate tax by planning ahead, but you don’t seem to take this into account at all when you consider the estate tax as a source of revenue.
“(Furthermore, I would argue that leaving something to someone after you die is hardly a choice at all. Choice involves some sort of sacrifice. It involves choosing something you want over something else you want. Once you’re dead and can’t spend the money yourself, giving it to someone you love is pretty much a no-brainer.)”
I fail to see why you want to glorify giving things away when you still have use for them over giving them away when you don’t. It’s equally appropriate to look at this in terms of prudence. Giving away all your money when you may have unforeseen needs for it is unwise. Leaving an inheritance is a way of avoid this. Sure, giving things away when they are still useful to you is more generous, but since when is it the job of the tax code to engineer generosity?
I’m not going to defend the double taxation argument, because I don’t really think it makes sense. Any choice to impose one kind of tax and not another burdens some more than others. Two different taxes that overlap in effect are merely a way of taxing a particular segment of the population (those effected by both individual taxes) at a higher rate.
“The second knock on the “double taxation” argument is fairly simple: if you’re against double taxation, let’s lessen it on the front end. If we eliminate the income tax, no more double taxation when we take it from the dead. Heck, even if we can’t eliminate it, we can substantially reduce it, thereby lessening the amount of double taxes we are forced to pay.”
Once again, you haven’t shown how increasing the estate tax will help to reduce the income tax, much less eliminate it. This is doubly true once you consider the effects that raising the rate will have on it’s revenues.
“Once they have children, yes they want their children to have good lives, but if questioned I think most parents would want their children to have high paying jobs rather than live an extravagant lifestyle on the sweat of the parents.”
And your plan actually undermines this. Many people who have earned a substantial fortune are reluctant to give their children money when they are still fairly young, preferring that their children create successful careers for themselves first. They don’t mind leaving an inheritance though, because usually, by the time their children receive it they have already long established their own careers.
Under your plan, these parents would be faced with a choice. Give your children substantial amounts of money when they are still in their 20′s and 30′s, or risk dying without giving them anything whatsoever.
“Take that away and they might retire earlier.”
Or they might keep working longer, as I pointed out above.
“Not only do you give them more of their life to enjoy…”
Or you encourage them to adopt a much lower standard of living, as I pointed out above.
“but you create job openings for younger workers. You create an even greater opportunity for mobility that rewards hard work and good decisions.”
This is the most bizarre statement in the whole piece. It only makes sense if you assume some kind of strange zero-sum economics where elderly workers do not provide any economic gain.
“In closing, I state that one of the added benefits to this system would be the increased consumer spending that helps drive our economy. The decreased incentive to save large fortunes would lead to more spending, which in turn creates more jobs, raises salaries and improves the standard of living for everyone.”
This is a pretty controversial claim. A sufficient level of savings is also essential to a solid economy. It provides the backing for loans and mortgages that are especially important to small businesses. It also acts as a buffer to lessen the effects of economic downturns. Increasing spending primarily by draining savings is not necessarily a good thing for the economy.
Keep in mind also, that it won’t just be savings, but all investments that suffer from the same disincentive. I find it hard to believe that that will be good for the economy.
“Truth be told, I imagine most of the revenue under this plan would be generated by the transaction tax and increased spending.”
And here you admit that your tax proposal is actually a huge exercise in social engineering through the tax code. Why were you so concerned by the difference between sales and gift tax rates?
Sorry for the length, but this post was just crying out for refutation.
GR,
There is no problem of “inter-generational accumulation of wealth” to combat. By what principle would it be necessary for the government to strip the property of an heir? Do you think their property really belongs to the collective and now they must return it?
As I stated before I think this is immoral and can be dismissed without needing to discuss the economics it. However, just as in any other case, the market should determine what happens to it. If the heir is not industrious enough or is irresponsible, they will not be able to hold on to their fortune and will either squander it or lose it through poor investments. I’m sure you’ve heard the old adage: “from shirtsleeves to shirtsleeves in three generations”. If they are savvy businessmen and manage it properly, then why shouldn’t the money be in their hands? Surely you don’t think the government could make better use of it do you?
Bryan –
To your detractors I say: There may be many good policy reasons to oppose so-called death taxes, but these are not “libertarian” policy reasons. For the most part, they are conservative ones. Conservatives want to use the power of the state to preserve t5he status quo.
A libertarian perspective asks whether anyone’s rights are being violated by a policy choice. Dead people have no responsibilities, and they have no rights. Living people, who pay the income and most other taxes, have rights and responsibilities.
Living people have no rights to the estates of their deceased relatives; if they did, it would be a violation of those rights to recognize a will by which they are disinherited.
Living people may or may not have a legitimate expectation to be compensated for services rendered the deceased (or their farms or other businesses) while the deceased were alive. That is something which can be proven by contract. Estate taxes are based on the amount of the estate remaining after contractual obligations are paid. Inheritance taxes are levied on shares divided after contractual obligations are paid.
The only change in behavior which we might expect from increasing “death” taxes in favor of lower income taxes are: (1) Sons, daughters, etc. will get written contracts, and demand payment of their labors’ worth (now or later) rather than count on some inheritance; (2) Dad and Mom, Grandpa and Grandma, will hire the best person for the job, whatever it is; (3) Fewer people — undeserving of wealth as measured by the value of their contributions to the economy — will get rich.
Is any of this bad?
Arguments for tax “reform” are like arguments for slavery “reform.”
What a load of socialist tripe. I can see why Radley does not think you are much of a libertarian mate. If this is the way you think, you are aren’t a libertarian of any kind. Just another confiscatory socialist. Once the anger dies down, will try to give you post the fisking is so rightly deseves.
The “death-tax” is evil, full stop. I like Mark’s comment too.
In praise of death tax.
Bryan, an alleged libertarian, posted a long socialist diatribe in favour of the “death tax.” Not only does he praise this evil bit of the tax code, he wants to increase it, maybe even to 100%! Several commenters have given…
So, let me get this straight, You are in FAVOR of inheritence taxes, but you will persist in using the deliberately misleading propaganda term ‘death tax’.
For the record. there is no such thing as a death tax. Period. The dead are not taxed, they can will their wealth to anyone or any group without paying any tax to do so.
HOWEVER, if the recipient of an inherited wealth transfer gains a windfall (i.e. a large amount) and they are not a charity. Then there is a tax on this unearned income. Which is only proper.
Taxation inevitably causes market distortion, the last thing you want to do is to heavily tax work. But to heavily tax unearned income causes the least distortion, and when you use this windfall tax to reduce taxes on productivity, then you get a net benefit.
Now, I think you agree with this, which makes it surprising that you would throw away the main benefit of your clear thinking by tolerating the loaded and inaccurate term ‘death tax’.
What’s with your american farmer fetish anyway? Is there a more selfish more pain causing group in the United States, hell, the world? I don’t think so. Not only do consumers have to pay higher prices(despite the massive subsidies they get) but excess product is dumped on the world market depressing the prices that many third world subsistance farmers get. Yet you think farmers should not pay an estate tax. Yeah, good times.
James-
I’m not saying that there IS a current problem with inter-generational accumulation of wealth, I’m just exploring the topic. I don’t think we can just brush off the possibility that ever greater concentration of wealth in a comparative few could be a problem that has grave implications for both our economic and political systems.
I’m not saying that the government would put the money to better use, I was asking the question, if estate tax is a problem, what else might we do?
All you’ve told me is that you think the very concept is immoral, presumably because it violates the principles of the free market, and that I shouldn’t fret, because these hypothetical heirs might, after all, lose it. Well, that’s the obvious ideological answer, but it doesn’t really address the question. You’ve said that inter-generational wealth accumulation isn’t a problem. Why not? Could it be? Is it actually preferable? How about some pros and cons?
Oh, (and this isn’t directed at anyone, in particular) I’m all with William’s comment on the American farmer.
James — You bring up an interesting point. What you’re talking about is why the estate tax was implemented in the first place if you look back at the legislative record.
When we look at estate tax, from a libertarian perspective, we have to first ask if anyone’s civil liberties are being violated. The dead do not have civil liberties. Period. However, prior to death people do have the freedom to contract and gift their possessions away (a will.) As such, the inheritors receive a windfall which should be taxed as a gift. What those tax rates should be is a debate for another time. There is no explicit right to inheritance which means Congress may legislate the issue, and even outlaw it if we so choose.
But let’s get back to the original question of does the accumulation of wealth through inheritance pose a problem? I would say that the accumulation of wealth is not an immediate concern of the Federal government. Individual states may have a more imminent concern because the accumulation of wealth within a state or city may have more immediate effects.
The only way the Federal government could possibly be concerned about the accumulation of wealth is if they decide it falls under the Commerce Clause of the Constitution. Now, the Feds have used the Commerce Clause to argue some really bizarre causation issues and I cringe anytime the Clause is brought up because it always smells like an abuse of Fed power.
The accumulation of wealth doesn’t necessarily mean the transfer of cash. What if it’s the transfer of stock in a family owned business? Does the nature of stock ownership translate to an imminent concern to a local government? It doesn’t seem like it but what if it were real estate? One family could come to own a majority of a town through inheritance. Is that a local concern? Could be. It’s a tough nut to crack.
One gets the impression from some of the comments here that if someone were to cut government spending by 99% and raise the 1% remaining entirely with a death tax that they would be be a liberal/socialist while someone cutting 95% of government spending but paying for the rest by sales or income tax is just fine. Unless your a complete anarcho-capitalist, your going to have to pay for your small government somehow.
GR,
You asked lot of questions but Iâ??ll try to be brief as possible. Sorry this is so long.
You asked, â??I’m not saying that the government would put the money to better use, I was asking the question, if estate tax is a problem, what else might we do?â?
Answer: Get rid of the estate tax. Get rid of most other taxes. Get rid of regulations that hamper free markets. You get the idea.
You stated: â??All you’ve told me is that you think the very concept is immoral, presumably because it violates the principles of the free marketâ?¦â?
Answer: It would take more room than a blog post to fully explain why it’s immoral, but here is a summary: It is immoral because it attempts to deprive an individual of his right to his property. Ayn Rand stated the following â??The Virtue of Selfishnessâ?:
The rights in question are that of the producer of the wealth. The right to property includes the right to use and disposal. The producer has the right to choose who will be the beneficiary upon his death. The heirsâ?? right to the property is derived from the right of the producer. Therefore, to deny someone their property is to deny them their life. The fact that they are now dead does not mean that you didnâ??t deny them their life while they were living by enacting laws to dispose of their property undesirable ways. That is why it is immoral. The preceding was paraphrased from an article by Nathaniel Branden.
You asked: â?? You’ve said that inter-generational wealth accumulation isn’t a problem. Why not? Could it be? Is it actually preferable? How about some pros and cons?â?
Answer:
Why not a problem?
Inter-generational wealth accumulation in itself is not a problem. Wealth is not a static thing. Capitalists create wealth. Wealth creation is not a zero sum game. Another person possessing wealth does not prevent me from creating new wealth.
Could it be a problem?
It could only be a problem in a statist or mixed economy. In a statist or mixed economy, the bar is raised much higher for new capitalists. Taxes, licenses, fees, and other trade barriers make it harder for new competition to emerge and knock the incompetent heir off the top. This can allow incompetent heirs to hold onto their fortunes through government favor and protections.
Is it preferable?
Yes, it is preferable in a free market. Wealth accumulation by someone is necessary for the investment in capital regardless of whether itâ??s bank or a rich heir. Savings and investment in capital are what produces wealth.
We do not currently have a free market economy. To argue that we should have a death tax since we live in a mixed economy is to compound the problem. Doing so would be attacking a symptom rather than the cause. The way to achieve a free market is to peel of the layers of crap one at a time; not add more crap as a workaround.
Iâ??ll throw this in for good measure: The 5th amendment to the constitution states, â??â?¦nor shall private property be taken for public use without just compensationâ?.
James — I was wondering when someone would bring up the 5th Amendment.
There are a few problems with making a 5th Amendment claim:
1) The Constitution doesn’t apply to the dead.
2) Even though estates currently receive representation in the courts, the nature of that representation is not to make the estate a thriving, growing entity but rather the point of representation is to end the estate. An estate will can only win a property rights dispute if it has something to do with the final valuation of the estate, not what to do with the estate.
3) The 5th Amendment only counts when the government forcefully takes property without providing the owner proper consideration. I think the deferment of taxes during life could certainly be considered proper consideration.
Mark,
I suspected that if the 5th ammendment were a valid argument against the death tax there would already be no death tax.
If the owner leaves a will stating that ownership is to be transferred to an heir upon his death, is it not immediate? If it were, then the 5th would apply to the heir right? I’m betting there is probably some law or agency that injects itself between the orignal owner and the heir upon death to get around this. Right?
Thanks for the info.