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The End of the Inheritance Tax?
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I have some sympathy for antagonism to inherited wealth and yet I think there is more to the story than that. You say that inherited wealth would make this country a land of inequality, not like to pioneer days -- but the opportunity was much greater in frontier days, since the frontier itself provided opportunity.
A better argument would concern the benefit the state (government) is giving to the inheritor. It is the government that insures that orderly succession in ownership and control is given to the heirs of a death. This service to the heirs is worthy of some charge by the government. Since it is a trivial activity (in terms of ensuring, the actual cost of transfer is paid by court fees) to transfer "small" estates, the only charge would be for "large" transfers. This would establish the principle that a person's property belongs to him and should be disposed of by him, while maintaining the principle that services should be paid for.
Consider, instead of the flat death tax ( tax on the estate), a tax on inherited wealth above a certain level. This corresponds to the fact that it is harder to care for a lot of money than a small amount. It also reflects the fact that the power involved in a large amount of money is significant and the state definitely has an interest in the distribution of power among its citizens. A very wealth person, a Bill Gates, would be able to avoid taxes on his estate, but only by distributing among a very large number of people. On the other hand, if he considered it important for some reason to continue the concentration of his wealth, perhaps to retain control of his company among his relatives, then he would assume ahead of time the need for them to pay the tax on what they are inheriting.
The level of not taxes inheritance and, perhaps, the rate of progression would then be the subject of debate and not the desirability of confiscastion of someone's wealth.
I would suggest that taxes start at an inheritance of $5 million (where true wealth starts); that progression proceed at the square of the number (5, 25, 225, etc); and the rate start at 10% and double with (and for) each progression.
I appreciate your thoughts, they make me think even where I don't agree, as with this one!
Contributed from 126.96.36.199 by Art Bolstad (email@example.com) on September 1, 2000.
I've enjoyed reading your columns, but this one really touches a nerve. I can't understand why on earth people think this is fair or right. Your essay is well argued and makes a persuasive case.
Contributed from 188.8.131.52 by Ken Rose (firstname.lastname@example.org) on September 1, 2000.
I agree with the logic and sentiment of this Message. But I have a suggestion, your reaction to which I am eager to know.
The main objection to mega-estates is that mega-fortunes constitute economic power. Having mega-fortunes is all right as long as the mega-fortune has been earned in a legal (and therefore presumably in a socially useful) manner. But inheriting gigantic economic power by an incompetent heir can cause genuine social harm and is no more defensible than inheriting, say, a supreme court judgeship or an army generalship.
On the other hand it is not possible to abolish inheritances altogether. This would run counter to the strong human instinct of helping one's offspring as much as socially acceptable.
My compromise suggestion is that there should be a lifetime inheritance limit of (inflation-adjusted) $ 1 million per person. This would guarantee an (inflation-adjusted) income of $ 40,000, even if the inheritor would choose to live a completely idle life, provided the inheritor invests it in Federal Treasury real return bonds. This income would be pretty close to the median per capita personal income of the USA. If a billionaire wants to leave 1 million each to 1000 persons just to "cheat" the Treasury of the estate tax, let him. The incompetent inheritor of a million cannot do much social harm with such a small amount.
What are the arguments against such a proposal? Would it be too difficult to administer?
Contributed from 184.108.40.206 by Tom and Alina Schweitzer (email@example.com) on September 1, 2000.
What made America beautiful was that it was the
land of the free and the brave. The wealthy
should be free to choose what they do with their
money whether that be philanthropy or hoarding
it. There are great philanthropist today just as
there have been in the past. The Government
taking 40% of an estate is forced philanthropy,
what kind of freedom is that? Certainly not the
kind that Abraham Lincoln or Dale Carnegie would
have approved of. Repealing the estate tax is a
gift? What a load of horse shit. The wealthy
population that you seem to despise pays the
lions share of the taxes in this country.
Remember that when taxes are raised, theirs is
raised right along with everyone elses. When it's
lowered it should also be lowered with everyone
elses. You can keep your socialism, certainly
that is not what has made this country great.
Contributed by AlexTaylor1@hotmail.com (Alex Taylor) on March 14, 2001
All the comments I have read on this page treat the issue of the estate tax as some sort of moral imperative. Might I suggest that when one starts to treat economics as morality (whether communist or not) the results are uniformly unpleasant.
I would argue that the issues with the estate tax are not morality but the effects. These are at least two-fold. The first is the question of revenue. Does the estate tax generate a substantial amount of revenue for the Treasury, and what would happen if it were abolished? I can't comment either way, but I would say that the issue is richer than comments here suggest. In particular, while it certainly is so that the extremely wealthy have "dodged" the estate tax in some fashion by establishing charitable foundations, pretty much anyone familiar with the subject would agree that learning in the twentieth century is immensely better off as a result of money from foundations that has gone to conferences, scholarships, equipment grants etc. This would argue that there are some very definite, albeit perhaps intangible, benefits to the current scheme of both an aggressive estate tax and the allowing of charitable foundations.
The second aspect is what will be the ultimate social consequences of repealing an estate tax? Naturally they will be to enlarge an already extreme gap between the rich and the poor in the US. One does not have to be a Marxist to believe that beyond a certain point, a large enough gap between rich and poor leads to a dangerously unstable society (vide Columbia right now). The US has been largely free of the social strife that plagues the rest of the world because there has been a perception that the deck is not too viciously stacked against the average person. Fifty years of a combination of the current money based politics and a very obvious increase in inequality of wealth distribution will end that. I would ask every wealthy person supporting this repeal: "Is it worth being able to leave your child twice as many millions, when as a byproduct, you will NOT be able to leave them a United States like the one in which you grew up, but rather a United States like India or South Africa, based on gated communities and the naked display of force by the rich, a United States in which, every day, they will live in fear that (for example) their children have been kidnapped?"
Contributed from 220.127.116.11 by Maynard Handley (firstname.lastname@example.org) on July 25, 2000.
Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
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