Brad DeLong's Semi-Daily Journal (2004)

A 100% percent tax on estates. Good idea. Dad can dissipate his wealth on whores instead of leaving anything to his good-for-nothing children. Or equivalently he could leave it all to the DNC.

Exhibit A in the case for the estate tax:

Paris Hilton

Do we put an estate tax on genetic inheiritance? You're smart and like to work hard. Should you pay a tax on the genes that give you these advantages?
Oh, wait, you do pay income tax!

I've never understand how the Democrats have floundered so badly when it comes to fights about the estate tax. Much of what the Republicans say is simply nonsense, like the line about family farms being threatened. (As far as I know, and I've heard this from several different sources, there has never been a single recorded case of a family losing its farm over the estate tax. Anyone care to prove me wrong?) It's fine to oppose the tax on ideological grounds, but I find it hard to believe that such a huge percentage of people oppose it for those reasons, considering it affects at most a tiny portion of the country.

Grammar correction: "I've never understood..."

"Paris"? I do hate the french capital!

Anyone know how much an across the board 30% estate tax would raise?

The right wing always blather about the efficiencies of pure capitalism illustrated with a note about how the "Law of the Jungle" is the most efficient way for nature. But inheritance is a travesty to that argument. Lion cubs don't come into the world with a phalanx of security guards, gated estates and trust fund protectors.

The slobberingly wealthy want it both ways; freedom from artificial constraint and a hierarchial caste of monied nobility. Everyone's a hypocrite if they can get away with it, I suppose.

what d.parvin said.

It seems to me that reducing inheritances taxes is hard to defend philosophically, but people auctioning campaign contributions make that a priority.

If inheritance taxes at a reasonable rate, such as the tax rate paid on money that you work for, would be enough to save, say, social security then we'll really see what happens when an irresistable force meets an immovable object.

The really rich and the powerful circumvent estate taxes. They realize that what counts is control, not formal ownership. So you set up a tax exempt foundation and put your children in control. The kids get a modest trust fund, but they keep the power (and money) in the family. The really powerful don’t even have to bother with ownership. Tito for example had a string of villas scattered about the country for his personal use. According to a Yugoslav friend who saw a picture book, these villas were lavish. But Tito owned nothing; all the villas officially belonged to the state. He merely had exclusive use-- to do the people’s business of course. And no you won’t save social security with a 100% estate tax. We can’t even predict how much revenue it would raise because we don’t know how it would modify behavior. Wouldn’t most people tend to spend it all, rather give it to the politicians?

For all pratical purposes the inheritance tax is a voluntary tax in this country.

I have always wondered that if we really had a
real significant inheritance tax would it generated a large enough revenue stream that we could significantly cut income taxes.

My own bias is that I am all for anything that lets someone make a fortune on their own but dead set against inherited wealth and advantage.

*Clearly* the solution is not an inheritance tax, but a death tax -- when you pass away your estate get taxed a certain percentage of your lifetime earnings.

I know a guy who basically gave away most of his estate (in the high 6/ low-7 range) and lived as a normal person. He kept enough to pay for his education. As far as I know, he was happy with what he did.

Ludwig Wittgenstein did about the same, though he always had access to resources when he needed them. His father was a major Austrian industrialist and, I think, entrepreneurial. bertrand Russell did something rather similiar, and made his living as a free-lance writer. Of course, by the time they did this, they were already major figures, and they always could borrow from family and friends ("cultural capital").

Nothing is more inimical to true liberalism than confiscatory taxation, and it is because the American public is essentially liberal that those who advocate it don't win elections.

Confiscatory taxation on that part of an estate that comprises savings from income already taxed is the quintessence of confiscatory taxation, and so should be repugnant to any true liberal.

The evil that liberals should be addressing in the estate taxation proposals of the Republican right lie in the degree to which clever estate planning can arrange for income to be converted to capital gains, and the attempts to arrange that those capital gains will forever escape taxation. A concentrated effort to make the public aware of these outrageous maneuvers, rather than advocating blatant confiscation of estates, would get much more support.

The alternative to having the estates of Dalton alumni parents spent and invested by Dalton alumni is having them spent and invested by the government. Although it is right and proper that some fraction of national spending be managed by the government, on average even the Dalton alumni may well do a better job. If all the income in those estates has already been properly taxed, most Americans will agree that they have the right to try.

Man gives $10,000,000 to his son: any amount that the government takes from the son is "confiscatory"

Man gives $30,000 dollars to his maid - $10,000 taken as taxes: This is not confiscatory

A 100% estate tax is like a 100% income tax - on the far side of the Laffer curve. A 30% inheritance tax is like a 30% income tax - probably not on the far side of the Laffer curve.

Now that I think about it, I'm in favor in inheritance taxes right at the peak of the Laffer curve.

My questions are now: What is the peak of the inheritance tax Laffer curve? How much money would a tax there raise? How much could taxes on earned income be reduced if that much money was raised?

Can anyone point me to answers to those questions?

Anon,

"Confiscatory" was used in reference to "... an evening spent with callow 20-something heirs to great wealth ought to convince you that far from being eliminated, the estate tax ought to be increased to, oh, approximately 100%." Alas, the Republicans have managed to lead a significant fraction of the populace to believe that that is exactly what the Democrats want to do to estates of any size. I must confess to extreme puzzlement as to why a prominent economist on the left has served up a quote that seems to say just that.

Proposing to treat the wealth transfer as income to the recipient, like the wages paid to the maid, would be much more comprehensible to the public at large.

anon:

Man gives $10,000 to maid. A business transaction for services from maid.

Man gives $10,000,000 to son. Not a business transaction. A gift.

We do tax transactions, both business and non-business. But we often treat non-business transactions differently. For example we don’t tax gifts to qualified charities. We could tax inheritances (gifts), and we do. But tax something and you get less of it. So if we increase the inheritance tax, we will get less inheritance. Where will the money go? Who knows? It might go to a charity instead of the children, or it might go to consumption. I suspect some people will consume everything to spite the government. Rightly or wrongly many people strongly resent what they feel is double taxation. They regard the gift as a kind of consumption. So if you raise the inheritance tax you will piss off a lot of people. They might give their whole estate to the Republicans just for spite. Do you want that?

"I suspect some people will consume everything to spite the government."

And that would be bad, how? I favor a high inheritance tax because old money is very (economically) conservative money. I strongly suspect that inherited wealth is less productive than other forms of accumulated wealth.

Besides revenue issues, some of us are hostile to enormous concentrations of inherited wealth on political and social grounds. We are afraid of a heriditary aristocracy in fact, if not name. About 80% of wealth is inherited already; isn't that enough?
I am in this camp, and at least I have Andrew Carnegie, Bill Gates, and Abraham Lincoln on my side.

If you can't bequeath anything, shouldn't the complement be that you also can't be burdened with your parents-incurred obligations, like the federal debt? Anybody for some such moral symmetry?

The arguement for higher estate taxes boils down to one thing, Envy. Most of the previous posts can basically be summed up by saying "I think people who inherit money have not done anything to deserve it and they are probably not smart enough to obtain that type of wealth on their own, therefore the government should confiscate it."

The fact of the matter is, the esate tax is confiscatory and should be eliminated. For the most part, the people who build these estates work hard during their lifetime, save, invest, take risks, start businesses, and sacrafice current consumption in order to have an estate to begin with. The government simply confiscating this money upon the person's death is irrational, unfair, bad for the economy, and un-American.

First off, a 100% estate tax will simply mean that people don't die with large estates, they take action to avoid tax liabilities. Second, the estate tax is unfair in that every person should have the freedom to enjoy the fruits of his/her labor and do with them as he/she chooses. A 100% estate tax is equivalent to saying that if you save during your life, you forfit your rights to do what you want with your money. In all fairness, the government should be indifferent between giving money away to someone and spending it on purchases. Those people that argue for a 100% estate tax should also be in favor of a 100% sales tax.

The estate tax is also bad for the economy in that it both changes the incentives for people to invest and save and it also reduces the incentives for high income (read highly productive) people to work, innovate, take risks, etc. Why bother working once you have enough to meet your lifetime needs if the government is just going to take the remainder?

Finally, if we want to prevent people from giving their kids money upon their death, then the same logic would prevent them from sending their kids to private school, SAT test prep classes, summer camps, etc. In fact, if you take the arguement to its logical conclusion, if it is unfair for someone to give their children their money at their death, it should be unfair in life for them to spend more on their kids than the lowest common denominator. Is this what we really want?

democrat:

Add Warren Buffet to that list.

Andy:

What a sloppy post. "The fact of the matter is, [value judgement] and [value judgement]." Nice. Secondly, I don't think much of anyone is seriously in favor of a 100% estate tax, though apparently it was a bad place for Bradford to use such hyperbole, since apparently some of us took it literally.

You can label the underlying motive "envy" if you'd like, but it seems hard to believe that you've totally missed the policy goals of the (less than total) estate tax. In America, the founders decided not to have an aristocracy. The original settlers and founders of this country worked their way up from nothing, and decided that was a better way to run things. Eliminating the estate tax would undoubtedly lead to greater economic disparity and less social mobility. About this there is little serious debate.

In addition, the estate tax as it currently stands is remarkably modest. First, the tax code is riddled with holes that help you get around it if you plan ahead. Did you know that you can give up to $10,000 each to family members in each fiscal year, with no tax burden to them? I assume you do. With the help of some extended family members, then, it's not so hard to squirrel away several million dollars in the later decades of your life. And that's in addition to the millions of inheritance that are exempt from estate taxes. Seems like the children of millionaires will still be doing OK, as in fact they do, every day.

Regarding governmental confiscation of money upon death being "irrational," what's the rationality of allowing a person to dictate the flow of money in the world after he/she has died?

"A 100% estate tax is like a 100% income tax - on the far side of the Laffer curve. A 30% inheritance tax is like a 30% income tax - probably not on the far side of the Laffer curve."

I doubt that. First, it isn´t that sure wether people work that much for just giving their kids big estates. Why not invest in the human capital of your kids (still unfair, but makes more sense)? Second, other than income taxes, 100% on estate taxes wouldn´t completely reduce the benefit for work; you can consume (really!) and most folks don´t know exactly when they will pass away. It might well be that the peak of the laffer curve lies above 100%...

“Why not invest in the human capital of your kids (still unfair, but makes more sense)?”

Unfair! Unfair! You mean when I sent my daughter to college I was being unfair? How is that? I should have spent the money on myself, or someone else?

I wouldn´t call that individual decision unfair. But I think it´s pretty safe that different access to education f***s up equality of opportunity.

"But tax something and you get less of it. So if we increase the inheritance tax, we will get less inheritance."

...and tax earned income, and we get less of that. I'd personally rather see less inheritance than less earned income.

"The government simply confiscating this money upon the person's death is irrational, unfair, bad for the economy, and un-American."

I don't see an estate tax as being "un-American" at all. I see every person coming to adulthood being so poor that they have to work like crazy to make themselves comfortable in later life as being quintessentially American.

"Confiscatory taxation on that part of an estate that comprises savings from income already taxed is the quintessence of confiscatory taxation,..."

The problem with this analysis is that an "estate" isn't a person. The person who generated the estate is dead.

"Finally, if we want to prevent people from giving their kids money upon their death, then the same logic would prevent them from sending their kids to private school, SAT test prep classes, summer camps, etc."

This analysis is based on the premise that people die when their kids are still "kids." That is overwhelmingly *not* the case in the United States in 2004. Only a very small percentage of people die before their children reach adulthood in the U.S. in 2004.

Typically, these "kids" are adults 40+ years in age.

check out www.dynastytax.com

IT'S TIME TO RENAME THE ESTATE TAX:

only the term DYNASTY TAX accurately describes who and what is being taxed:

estates of couples over $2 million representing less than 2% of the population

the very wealthy top 0.1% of the population who generate almost half of all estate tax revenue

both 'ESTATE TAX' and 'DEATH TAX' innaccurately suggest the tax is generally applied to ALL estates and ALL citizens at death (these broad sounding terms may explain why 50% of Americans mistakenly believe they are subject to this tax on the top 2% of Americans)