The Inheritance Tax Is Far Too Low

https://www.nytimes.com/2020/06/24/opinion/inheritance-tax-inequality.html

by tysone • 6 years ago

148 347 6 years ago

Yes, especially for the top 1% and 0.1%. However, they're the ones who have enough money to pay for ways to hide their wealth from taxation, so an inheritance tax would be a high + low attack on the middle, further cementing the inequality divide.

Loughla• 6 years ago

100% with you on this. I am set to inherit a large sum of money when my grandfather dies (150-200k). And yes, 'large sum' is what I said. I honestly thought about writing 'life-changing' sum, because that will allow me to eliminate all of my debt, and substantially change my lifestyle.

I'm exactly who this would bite in the ass. I have neither the know-how, nor the real money to spend on moving things around to hide it from taxation.

Edit: I know the first million, as illustrated in the scenario this article presents, is exempted. I'm using myself as an example. The point still stands - extreme wealth would be hidden, and the rest of us would have to pay.

arn• 6 years ago

But there's a large exception. You won't be taxed on that amount. You presently get the first $23 million tax-free before any inheritance tax kicks in... and then only for the amount above $23 mil.

saalweachter4• 6 years ago

An even better approach would be to replace the estate tax with an inheritance tax. Under an inheritance tax, heirs would simply pay income and payroll taxes on their inheritance above a large exemption, just as others do on their wages.
If an inheritance tax exempted the first $1 million received over one’s lifetime and applied the highest income and payroll tax rates to amounts above that threshold, it would raise $790 billion over the next decade.

mercutio2• 6 years ago

Are you sure you understand the estate tax?

Even before Bush-era increases to the estate tax exemption, estate taxes only cut in on $1 million and larger estates.

These days, the exemption is $5 million.

Putting the exemption back down to $1 million doesn’t sound like it would heavily impact you unless your grandfather had a lot of beneficiaries.

jellicle• 6 years ago

Edit: I know the first million, as illustrated in the scenario this article presents, is exempted. I'm using myself as an example. The point still stands - extreme wealth would be hidden, and the rest of us would have to pay.

So you know that a) you will pay zero taxes under current law even if you received fifty times as much money and b) you'd pay zero taxes under the proposal in the article and yet c) you still use yourself as an example of someone who would pay taxes. Do I have it right?

mithr• 6 years ago

I know the first million, as illustrated in the scenario this article presents, is exempted. I'm using myself as an example. The point still stands - extreme wealth would be hidden, and the rest of us would have to pay.

Except, the point doesn't really stand, does it? Those with "extreme wealth" will indeed be taxed, because those sums would be much greater than 150-200k. Some percentage will find ways to avoid it, but that is true with any law, and those that do will have to make some tradeoffs to do so. "The rest of us", which in this case includes you (and me), will not at all be affected by this. We would only be affected by this as we get closer to having that kind of extreme wealth ourselves. And that's the whole point of only taxing the larger amounts -- that it does not impact the rest of us, and in fact you are precisely not someone this will "bite in the ass".

To go a bit further, you yourself say that you consider 150-200k to be a large sum of money, maybe even life-changing. All of these estate taxes, with their minimums in the millions, would absolutely still let you receive life-changing amounts of money as inheritance -- much larger than what you already consider to be life changing -- and only start taxing the portion of it that is more "excessive".

brokensegue4• 6 years ago

even before the tax was cut by Bush only like 2% of estates were taxed. hardly the middle. your estate has to be millions ($23MM according to the article) for this to even begin mattering.

programmarchy8• 6 years ago

$23MM+ is the middle, though. Upper middle, but still middle.

You're not really a power player in national politics until you are a billionaire (i.e. the top 1%), and that's where the real power inequality lies. For example, Sheldon Adelson recently pledged to drop $100MM into Trump's 2020 campaign, and like the article mentions, he "used a different strategy involving trusts to avoid $2.8 billion in estate and gift taxes between 2010 and 2013".

ceejayoz12• 6 years ago

Today, the first $23 million that a couple transfers is entirely exempt from the estate tax.

I think the middle class will be just fine.

jimhefferon• 6 years ago

so an inheritance tax would be

Is it not possible to imagine effective laws?

Near me is a Gilded Age estate, a magnificent place. My understanding is that with the introduction of income tax, the family was eventually forced to turn it over to be a nonprofit in the 1970's. So, if my understanding is right, even folks who were staggeringly wealthy were not able to completely defeat the cross-generational effect of the law.

lacker• 6 years ago

It seems unlikely that income tax would cause that. Property tax is a more likely culprit.

klenwell2• 6 years ago

Is it not possible to imagine effective laws?

Good question. The Defund the Police movement should take notes from the conservative Starve the Beast movement.

Defund the Police: Because Our Modern Supercriminals Are Too Smart for Law Enforcement Anyways.

https://en.wikipedia.org/wiki/Starve_the_beast

lobotryas• 6 years ago

How on your mind is any of this a good thing?

I earn money, I pay taxes, I save prudently. Now, when I die, the government decides it gets to tax that money AGAIN? Money that has already cleared of its tax burden and is mine?

Why? Just because some people arbitrarily decided that the amount I saved is too much? I did “too well” and now my family gets punished with another round of taxes before they can enjoy the fruits of my labor?

The only justification for estate tax are the people with guns who will i prison or kill you if you don’t comply.

grecy• 6 years ago

Yes, especially for the top 1% and 0.1%. However, they're the ones who have enough money to pay for ways to hide their wealth from taxation

So because the ultra-rich have found ways to skirt the laws, are you suggesting we just don't bother making the laws?

Surely this is a game of whack-a-mole, and it's in society's best interest to keep going after them.

underdeserver• 6 years ago

Definitely. People build their wealth, partially, on the achievements of others. They should be taxed on property.

maerF0x04• 6 years ago

If compounding returns are subject to additional taxation then why wouldnt the government be responsible for such a property itself (compounding returns on tax base for investments). For example an investment in irrigation ought to increase the output of agriculture and therefore increase their tax base...

jeremiahhs• 6 years ago

Wealth is already taxed, which paid off the debt to society. Grabbing what is left after someone dies is just theft.

chasd002• 6 years ago

if you're going to tax wealth because it was partially built on the achievements of others then you need to tax poverty because it's partially managed by the income of others.

dhosek• 6 years ago

I've never understood why people think that just because, e.g., their parents created a business worth millions of dollars, they should get that for free.

soccerdave• 6 years ago

I've never understood why the government thinks that just because someone has died, they deserve 40+% of money that has already been taxed.

wrren• 6 years ago

Because we live in a society.

rs999gti3• 6 years ago

What the government gives it must first take away

happytoexplain3• 6 years ago

This is a poor argument - it contains no distinction from any taxed transaction. All money changing hands has "already been taxed" in the way you are using the phrase. Unless you are saying that all tax is wrong, in which case you should definitely make that argument rather than this much more specific one.

jnwatson• 6 years ago

It isn't about "deserving" anything. The societal problems behind inter-generational wealth are wide and deep. This was recognized by the founders of the US, in particular Thomas Jefferson.

Adam Smith: "There is no point more difficult to account for than the right we conceive men to have to dispose of their goods after death."

This is taxation for policy reasons, not income.

metzby• 6 years ago

Lots of the money hasn't been taxed. If you owned stock for decades but never sold it, it wouldn't have been taxed.

simfoo• 6 years ago

In fact I think the government has all the rights to take all belongings after someone dies. After all the person earned it from society, not its descendants.

noja3• 6 years ago

If you read the article it will help:

"Some will argue that this example ignores any income and payroll tax the wealthy parents paid when they originally earned the $50 million. But if the couple paid their personal chef’s wages out of after-tax income, we wouldn’t think their personal chef should get credit for the taxes they paid. Similarly, we should ignore any income or payroll tax the couple paid when considering how much their son should contribute to the costs of government."

elric3• 6 years ago

I'll give you the benefit of the doubt and answer the question honestly. Assuming we're talking about a country where "The Government" is pretty well behaved, said government doesn't put that money in its pockets. It makes it work for the people it represents. Working for your money and becoming filthy rich is fine. But when you die, you die. None of that money is yours anymore, because you no longer exist. We, as a society, are free to decide what we do with what's left of you and your belongings. In an ideal world, we can use that to better the lives of others.

Unless you were a truly stingy person in life, your affluence will have already have had huge positive impacts on those near and dear to you. Once you're dead, why should they be any more important than any other person?

choeger• 6 years ago

It's not just the money. Imagine real estate. Today's value might be completely out of the owners. Say granny wants you to inherit their old penthouse in downtown New York (just an example, I have no idea if it is technically possible to own such a thing) or any other real estate that they used for living and is now worth tens of millions. The government won't let you have it. Or Grandpa's old company. It makes a little profit but was always in the hands of the family and it is now evaluated for tens of millions. Government forces you to sell it.

I could go on. Art collection, old cars, even immaterial rights or stocks that are massively undervalued right now for one reason or another (for instance because the founder just died suddenly).

Inheritance taxation is inherently unjust because it cannot distinguish between goods that are easily traded for and the ones that cannot easily be sold.

bobbytherobot2• 6 years ago

The government doesn't tax anyone who dies. They tax the estate of the wealthy. Few people will be affected by it.

There is plenty more you can read on the topic. The general idea is that it helps create a meritocratic society.

whytaka• 6 years ago

Because dynastic wealth is unearned and aggravates unequal circumstances of birth and accumulates capital in less competitive markets thus delegitimizing the purported meritocracy that is capitalism.

munificent2• 6 years ago

Tax money must come from somewhere. Imagine this as a zero-sum game where you have some fixed total amount of taxation that you're trying to reach and the question is just who pays how much.

Given that, is there anyone who could possibly need their money less than the dead?

rs999gti3• 6 years ago

I've never understood why people think that just because, e.g., their parents created a business worth millions of dollars, they should get that for free.

None of your business?

lazyjones3• 6 years ago

There is no point in building wealth or a family business other than to ensure your family will benefit from it when you're gone. Sure, childless young people with no perspective don't understand this mindset of intergenerational family businesses.

happytoexplain3• 6 years ago

This makes no sense. There is also no point in starting a (for profit) business except to make profit. Neither inheritance nor profit are eliminated by taxes - they are reduced.

ceejayoz12• 6 years ago

There is no point in building wealth or a family business other than to ensure your family will benefit from it when you're gone.

Sure there is. They'd still get to keep the majority of it.

AdamN3• 6 years ago

The only reason you think long term is for your children and not their wider community or society?

phone8675309• 6 years ago

If your kids can't make it in America with the $23 million that's exempt from this tax then you did a poor job raising them to manage their money.

therealdrag04• 6 years ago

Maybe because working hard and doing good work that people value adds to life satisfaction and status.

That's all the rest of us have going for us. Passing on billions isn't even an option.

SkyBelow• 6 years ago

But that isn't the argument being presented because if the parents don't will it to the children, then no one thinks the children should get it (well, a few such children might and may legally challenge the will, but that is a very small minority opinion). The actual argument is that, having paid the taxes, the ones who own the business should be able to do with it as they wish including giving it away on death. At the core is a basic question of how should taxes work. Should you pay them up front when you get money, at the end of your life when you die, all throughout depending upon your wealth (such as property tax)? Each of these has positives and negatives associated with them, which is part of a larger discussion on how taxes should work.

elric3• 6 years ago

Indeed. This enhances generational affluence and generational poverty.

It's understandable that (grand)parents want to do right by their (grand)kids, and leaving them a pretty penny is a pretty thoughtful thing to do. But when this then has huge negative effects on society, it stops being a nice thing to do. Inherit for free up to a certain amount. Redistribute the rest.

Shivetya• 6 years ago

tl;dr the same logic that people use to justify taking more of an inheritance also is applicable against anyone having that much wealth in the first place

Because it is their parent's wealth to do with as they please? Why does death suddenly mean all or some of what you have worked for now belongs to the state? Why do the rules change when it comes to children of an estate compared to a spouse? That spouse could be there as little as a few months by the way law works.

It has been taxed as it was earned and accumulated. When it gets spent it will be taxed as well. If it is the transfer of investments they will be taxed when the recipient uses them.

It is private property and we need to stop with the jealously angle being the primary motive of voiding that right. Oh I know, some will fire back with fairness well if it is not fair for the child of a person to receive their wealth in death how was it ever fair for the person to have it in the first place?

Got to love that article, lamenting that the funds about twenty three million are ONLY taxed at forty percent. Seriously why are they taxed at all.

hummo56• 6 years ago

This is one of the questions whose answer is not immediately obvious if you think only one step. If you generalize this in a society, riches will accumulate further over subsequent generations because it is easier to make money if you have money. Even if you are. It that skilled, your financial advisors will just turn your money into more money.

As a result, the split between poor and rich will widen and widen. Until at some point, where the situation will implode or be unfavorable in some significant way. Hence, to have a stable system, the limitless accumulation of wealth should be reduced.

There should be inheritance, of course, and half of few million is still lot. However, this requires some progressively adapting tax percentages, based on the amount of inherited wealth.

kingraoul3• 6 years ago

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

― Upton Sinclair

“Men sooner forget the death of their father than the loss of their patrimony”

― Niccolò Machiavelli

zip1234• 6 years ago

If someone decides to give you a bunch of money that they have earned and paid taxes on, should they be able to?

willturman• 6 years ago

Absolutely, and it should be taxed as unearned income for the recipient above some reasonable level - perhaps the median per household annual income.

bhupy4• 6 years ago

While I generally agree that we ought to have an inheritance tax, I want to push back on this because I think it's a poor argument in favor of inheritance taxes.

The question is never about what the children think they deserve, it's entirely about what we as human beings work for. Most parents don't care about their own consumption, and instead work entirely for the well-being of their children. It doesn't matter what the children think. The argument is that it matters what the owner of that wealth thinks should happen to their own wealth, and that nuclear family values are deeply entrenched in society.

There are a number of arguments that you can make that the cost of inter-generational wealth and the benefits of taxing it far outweigh the familial considerations of wealth transfer (especially after a high enough dollar amount). But THOSE are the arguments that we need to be making.

odshoifsdhfs3• 6 years ago

I work more time nowadays, to the tune for 70 billable hours per week (and generate more tax revenue to my country as I both get more revenue and my tax bracket increases) so I can give a better life for my kid, and if something happens, he will face no difficulties.

If I knew he would not get it, or would get less than half of my savings/everything else, I would not work a single hour above what we need currently to live as we do, taking decreasing tax revenue for my country. Maybe I am biased as I also am set to receive some money when my parents die, but my grandfather immigrated, worked his ass off, built savings, returned here, started a business, built properties, my father inherited it, and works hard to keep them well so I inherit them, which I will do the same for my kid. What would be the point of my grandfather sacrificing a lot of his life away from his home if not to build a better future for his future generations?

AdamN3• 6 years ago

Can you give real numbers? How much are you currently expecting your kids to receive post-tax after your death under existing regulations? How much would it be under the proposals?

mchaver• 6 years ago

A wealth/inheritance tax does not necessarily mean 100%. The flip side of everyone working lots of hours would be the chance to spend more time with friends and family. That also seems valuable for future generations.

mensetmanusman2• 6 years ago

This post inadvertently reminded me of why communism always fails.

Communist policy makers assumed worker-cogs that thought nothing of providing for their family which resulted in people’s productivity falling dramatically and the resulting mass starvation, etc. (historians cite >100M deaths from attempts at implementing communism! yikes)

sergiotapia• 6 years ago

I don't understand why you think the government should double dip into other peoples hard earned money. If I work hard it's for my kids and family, period.

chasd002• 6 years ago

i'm glad there's at least a handful of comments like this. I'm watching my 8 year old through the window while on a conference call discussing raising KPIs for myself and my team yet again.

If I'm able to leave some money for my kids and save them from the grind i've spent the best years of my life enduring I don't see how the government has any right to one penny.

beamatronic3• 6 years ago

Because they spent their entire life sacrificing for their children's benefit. They poured blood, sweat, and tears into their business. The parents presumably followed the laws and paid all the taxes they were legally obligated to pay.

lazyjones3• 6 years ago

Obligatory reading for believers in inheritance tax:

https://iea.org.uk/blog/how-high-tax-sweden-abolished-its-di...

klmadfejno• 6 years ago

This post is about sweden. Off the bat, they don't seem especially comparable because they note that spouses needing to pay inheritance tax was one of the primary problems. Spouses don't do that in the United States (for good reason).

noja3• 6 years ago

I doubt any sufficiently wealthy family "inherits" anything, the owning is done by a trust or company with obscured cross-border ownership.

Inheritance is for the rest of us.

elliekelly• 6 years ago

Indeed. This is why I also take issue with the “wealth is lost in three generations” line that’s often repeated. When I worked for a Bank & Trust Company we had a lot of clients who were “broke” on paper but had a substantial trust (controlled by the bank) that paid for just about every conceivable expense.

thomasfromcdnjs7• 6 years ago

People who think billionaires are so rich have never seen a federal budget.

You could guillotine a billionaire a day and their money wouldn't pay for nought. (Not even considering that their "networths" are always tied up in stocks.

As for using the term 1%, people rarely stay in the bracket for long, people change and move through different economic brackets all the time through their lives.The biggest indicator of wealth is age.

Others have commented on it, but inter-generational wealth is important for various reasons. Cultures that plan for their children's children make a lot of sense. I'd wager the West has some weird hedonism/individuality and we rarely just stop thinking of ourselves. Adding further estate taxes just removes even more incentive to work towards creating an inter genertional family. Rich families are also just better with money because it's what they know. Redistributing that money to others could just make it end up in coin machines.

psychometry2• 6 years ago

Clearly you didn't read the article, otherwise you'd know that even slight increases in this tax would fund important public services. You'd also know that the U.S. has among the lowest levels of class mobility among developed nations. People born rich stay rich; people born poor stay poor.

thomasfromcdnjs7• 6 years ago

This is simply not true, read the other comments on how much wealth is retained per generation.

As for the your last sentiment, I'd also remind people that wealthy inequality is not a very big problem if the standards of living are also improving.

Most "poor" people have plasma televisions, iPhones, fridges, their own living quarters and more choice of food than a king 300 years ago would have.

Someone12342• 6 years ago

This seems like an attempt to side-track a discussion on individual wealth (and inherited wealth) with complete irrelevancies.

The Federal budget, nor how many people move into/out of a definition, have anything to do with this topic. Discussing it won't add anything, nor does its existence undercut the problem raised in any meaningful way.

aqme28• 6 years ago

It might pay for some federal arts programs though

jacobush5• 6 years ago

https://3pic.github.io/money

https://mkorostoff.github.io/1-pixel-wealth/

koliber• 6 years ago

I don't think this article is about the 1%. It's about the 0.01%. In many cases, that wealth is inherited, hence not correlated with age.

PopeDotNinja• 6 years ago

The median earner in the USA makes ~60K USD per year

Federal income taxes on 60K is ~6K USD per year.

The F-35 costs ~30K per hour to fly.

It takes 5 median workers to fly an F-35 for an hour. And that’s doesn’t account for firing a 1000K missile.

jeffbee2• 6 years ago

This is quite incorrect. If you guillotined the 1000 richest Americans, or at least their bank accounts, none of the rest of us would have to pay any taxes at all. It's quite a lot of money.

A good comparison was made in the early weeks of the pandemic. Instead of "reopening the economy" and killing a quarter million people, we can distribute the same amount of economic activity by just staying home and seizing all the money from the Forbes 500. Even if we had to kill them to get it, that's still a 1000x reduction in deaths.

thomasfromcdnjs7• 6 years ago

How long would none of you have to pay taxes for?

Not even going to comment on that comparison... Is it meant to be a joke?

avernon2• 6 years ago

There is a simple fix to this. You have to get rid of the stepped-up basis. Then anything passed down will be taxed at the prevailing tax rates. All these extra rules and tricks wouldn't be needed.

This is extremely unpopular because the upper 20% of society wouldn't be able to pass down their homes and what is left of their retirement accounts tax-free. That is why you have a stepped-up basis with an exclusion limit that has an extremely punitive tax rate that encourages gaming the system.

But you can see the political equilibrium. Regular folk think big inheritances are being taxed while they get to pass on their house tax free and the big inheritances go through all kinds of loopholes to avoid actual taxation. It is very American.

toast0• 6 years ago

The step-up in basis is super useful though, because you can't ask the decedant what their cost basis was, and it's not always easy to find that out (especially if their record keeping was poor).

The current exemption amounts are rediculous though. Something closer to $1M with inflation adjustment and a lein/payment plan option for illiquid assets such as the family business/farm would make a lot more sense.

avernon2• 6 years ago

If they can't obtain the cost basis then it should be zero. The vast majority of people have assets like stocks and property where records are maintained by third parties. And if its so old or so disorganized to not know, then a cost basis of zero probably isn't too far off.

lmoml• 6 years ago

I'd posit that the passing of substantial wealth and capital between generations is one of the chief drivers of social decay. In the long term, it causes an immense amount of power to devolve into the hands of a small group of people who have done nothing to prove that they have the wisdom necessary to wield such power for the benefit of humanity.

JamesBarney7• 6 years ago

The vast majority of the super wealthy right now did not inherit the bulk of their wealth.

I don't think this would even rank in my top 5 list of causes of social decay.

bialpio• 6 years ago

Interesting point, I think I could get behind this way of thinking. Normally, I'd prefer to be taxed mostly on consumption (sales tax, VAT, etc), so my views were that inheritance tax should be lowered - the heirs will be taxed when they spend what they got anyway (or they can sit on the unused pile of cash, fine)1. Unfortunately, society seems to equate rich with smart, hard working, or deserving in some other way, and that is not really the case with people that got their money from their parents.

1) This assumes there are no tricks around inheriting assets that have unrealized gains, I don't know how this works in the US.

EDIT: fixed (?) asterisk. EDIT2: replaced asterisk with 1, cannot figure out how to escape it.

austincheney5• 6 years ago

I have always wondered what would happen if an inheritance tax were pushed to 100% for sums greater than 10 million. At that point the only way to hide the money would be to move it off shore, but then that money would be permanently off shore. The consequence of that is that it is mostly beyond reach of US taxation but in order to access that money people would have to leave the US, so it almost becomes a citizenship tax. I am basing a lot of this reasoning on what happened to the billions in wealth when large tech companies tried to dump it in Ireland to avoid taxes. The money doesn’t just disappear unless the companies are willing to never get it back or move to Ireland (corporate offices and primary investors).

There would also be economic consequences for those not wanting to evade tax laws because there is now a compelling reason to perform the impossible: spend all that damn money before the tax man gets it. That is one hell of an economic stimulus, but also means large injections of cash into charities and scientific research, and commercial investment.

To me all these options seem like a net positive.

josephcsible2• 6 years ago

there is now a compelling reason to perform the impossible: spend all that damn money before the tax man gets it.

Isn't that a recipe for hyperinflation?

throwawaygh16• 6 years ago

> there is now a compelling reason to perform the impossible: spend all that damn money before the tax man gets it.
Isn't that a recipe for hyperinflation?

But of prices on... what? Yaacts? It's not like people are going to start buying 1000x more bread loaves and corollas.

On the contrary, it'd probably deflate prices of housing in major "investment" markets, as families off-load second/third/fourth houses.

And for the luxury goods, it might even drive down prices of certain goods. More demand => economies of scale => more efficient production => lower prices => suddenly affordable to a larger market => more demand => ...

But the original premise is kinda depressing. There is an alternative to blowing all your money on hedonism. You can substantially ramp up your donations, for example. I think you'd see an explosion of small churches/local colleges/community centers/etc. with $100M+ endowments.

tryptophan• 6 years ago

Yep. The parent makes the ever-so-prevalent mistake of assuming that spending( as opposed to greedy hoarding of investments!) is what drives growth and progress.

JamesBarney7• 6 years ago

It's a recipe for increased inflation by increasing money velocity marginally. Not hyper inflation.

Of all the money being transferred per year, little of it is transferred via inheritance. And and even smaller amount of the total money transferred via inheritance is above $10 million range. So maybe you'd see a 0.1% or 0.01% tick up in inflation.

Setting inheritance rats at 100% above 21 million is a silly idea, but not because of a risk of hyper inflation.

charwalker3• 6 years ago

It likely won't inflate the price of apples or whole chickens. It may drive up home prices or create a new market for super luxury vehicles. Consider that some big name billionaires could spend millions per day and not see a dent in their overall fortune. Imagine if you needed to spend $5 million a day, how quickly would you run out of things to buy that isn't collector cars, houses, or private companies?

nullc2• 6 years ago

Marry someone young before you die, give them the wealth tax-free.

That is a loophole which is extremely hard to close.

austincheney5• 6 years ago

Is that really a loop hole? If anything it’s just a temporary delay.

m-ee• 6 years ago

Wouldn’t they just do what a Apple did? Hold it offshore and wait for a conservative administration to declare a tax holiday that allows them to repatriate it at little to no cost.

austincheney5• 6 years ago

How patient is the recipient? Either they are willing to wait, for possibly longer than their life, or they have to leave the US to access that money and not return to the US with that money.

If those are unacceptable and they have no wealth, because it’s locked up overseas, they could bring it all back for taxation minus 10 million.

turbinerneiter2• 6 years ago

I mean that is what taxes on companies are supposed to do.

In all smaller companies I know, at the end of the year, they try to spend as much of their profit as possible in a way that enabled growth the next year. They keep the profit low because it is being taxed.

For the state, both is fine - more profit leads to more tax, more growth also leads to more tax AND more employment, and better products due to research and so on.

Tax evasion and off shoring breaks this and the negative effect is far greater than the actual loss in tax. It breaks the system that incentives companies to invest in their futures rather than their shareholder's cashing out.

elicash• 6 years ago

I once looked into something like this -- a UNIVERSAL, 100% death tax. When I googled it, it appeared that it could almost, but not quite, replace the federal income tax if you should solve for the fraud and loophole issues. (Which, I don't think you can btw.)

Then you think about, what happens when parents die in a car wreck to the kids? So maybe what you implement is some type of National Life Insurance federal program, geared towards minors or maybe more broadly across the population. Tweaks to Social Security survivor benefits, essentially.

There are also weird questions like, what happens to a company that's singularly owned by the newly deceased? It's sold to the highest bidder, even if it's company run by the whole family?

I don't actually favor this policy for the obvious reasons people will list. But I think it's an interesting question that gets to what it means to have something closer to equality of opportunity.

msla• 6 years ago

Then you think about, what happens when parents die in a car wreck to the kids?

Assuming the parents had sufficient foresight, there would be a blind trust established for the children which will provide for them.

Or maybe not a blind trust. Maybe some other instrument or institution. Whatever it is, you can be assured it would be common to the point of being established using a standard form in the local library, much like how simple wills can be created today.

jayd16• 6 years ago

Wouldn't you just invest the money and leave the stocks to be inherited? Not that that's bad.

tathougies5• 6 years ago

Or people would just gift the money via a business. Add you and your kids name to an LLC. Invest money. Voila...

charwalker3• 6 years ago

I doubt any of us on this forum have all the information, expertise, etc to create a fully fledged tax overhaul bill. There will always be a loophole if the people writing the bills (or influencing those writing the bills) stand to benefit. We also need to address lobbying and dark money in politics. Like everything, these issues are way more complex beneath the surface than are generally understood.

CorruptedArc• 6 years ago

I see no world were this doesn't end poorly. You either see mass emigration of the wealthy at old age or an incentivisation of illicit off the books banking (both domestically & offshore). I can't think of anyone who'd be willing to hand over the majority of their wealth to the government upon death. It would become common practice to attempt to circumvent this.

If everything above 10 million is taken as a death tax you can be sure no estates are going to be worth over 10 million publicly.

austincheney5• 6 years ago

My thinking about the emigration is that if wealthy old people leave so that they can leave wealth to their heirs they are dooming their heirs to a hard decision: leave to access that wealth or stay with access to the wealth capped at 10 million. The only harm that I see in this is that a few inheritors leave the country.

Creatively reducing the values of estate wealth to the taxable cap would increase access to like conditions for people who normally have access to that much wealth and not much more which greatly lowers wealth distribution in the top 1% which is still a good thing.

mnm1• 6 years ago

Emigrating does not absolve one of the duty to pay taxes in the US. Renouncing citizenship does, but doing so for tax reasons is already illegal and those that do would be taxed anyway when renouncing.

AnthonyMouse11• 6 years ago

At that point the only way to hide the money would be to move it off shore, but then that money would be permanently off shore.

Moving money offshore is how companies avoid income tax. The way families avoid inheritance tax is employment.

Your family has a business. It's worth a hundred million dollars and makes five million dollars a year in profit. The five million dollars is going to be taxable income to somebody anyway, so you pay it to your kids as salary (a tax deduction for the parents/business), and most of the compensation is paid in the form of shares in the business. By the time the parents die the kids already own most or all of the business and what's left is below the threshold for inheritance tax.

There's a reason they say the only people who pay it are the ones who didn't plan ahead.

gdubs2• 6 years ago

I hope that we could carve out exemptions for first-generation wealth. Reparations may never happen in the US, but if a family went from slavery to wealth in a few generations, perhaps the least we could do is exempt them from the inheritance tax. Maybe this is a controversial take, I don’t know, but it seems like it might make a small step towards lessening inequality.

Someone12342• 6 years ago

So you want to carve out an exemption that will largely benefit non-minorities and increase wealth inequality, in the name of helping minorities and closing the wealth inequality gap? That's quite some spin there.

How about we take in more tax from the wealthy, regardless of their ethnic origins, and use that money to provide better social safety nets for the poorest who are also disproportionately minorities due to system and historical racism? You know, close the wealth gap, instead of further increasing it.

Or heck, if you're really serious about this then tax the wealthy and pay actual reparations.

It doesn't make any rational sense to pass a tax cut for the wealthiest in the name of "some of them could be minorities too!" It makes far more sense to tax all the wealthy, then help minority populations who would benefit more greatly.

The top 1%'s kids will have to survive without that third house or yacht, even if they're minorities.

gdubs2• 6 years ago

Why such an antagonistic reply? An honest reading of my comment is that I’m speaking primarily of black millionaires — while leaving the door open that there are other groups also deserving of exemptions.

It’s fine to disagree — but the tone is rather over-the-top considering. Let’s have a conversation. I’m open to hearing why it’s a stupid idea. But if we attack each other for posting ideas — then people won’t put forward ideas out of fear of being attacked.

cptskippy• 6 years ago

Honestly the exemptions are the problem. People find ways to exploit them.

Inheritance and Estate taxes don't kick in until over 1 million dollars or more and impact less than 2% of the population.

If you're the 2% of the population this applies to, you're probably already doing estate planning and can plan for a portion of the inheritance you're passing on to be immediately liquidated to pay taxes.

czbond14• 6 years ago

Chaps my hide with broke journalist mentality: "This means that 40 percent of why some Americans are extraordinarily well off has nothing to do with smarts, hard work, frugality, lucky gambles or entrepreneurial ingenuity. It is simply because they were born to rich parents."

In the US at least, it isn't hard if in lower middle class or above to invest small sums over long periods to get large amounts. It is simply that they are not doing it, or do not know why one should. To blame that one's own parents or grandparents did not do it, yet anothers did is victim blaming another's actions when they should look at their own descendants action.

ianleeclark6• 6 years ago

In the US at least, it isn't hard if in lower middle class or above to invest small sums over long periods to get large amounts.

Roughly 3/4 of the country lives paycheck-to-paycheck.

czbond14• 6 years ago

I don't disagree, but one cannot say "i want gobs of money in the future - but I'm not willing to sacrifice my lifestyle down a notch or two today to get it".

tathougies5• 6 years ago

That says nothing because the US has forced investment schemes (401k, HSA, etc). You may be saving substantial amounts of capital and yet still live paycheck to paycheck.

czbond14• 6 years ago

Furthermore, why is an inheritance tax needed? The income was taxed upon earning, and any growth in that sum was taxed via capital gains. To then take even more via 'inheritance tax' is just government thievery.

graton6• 6 years ago

That is not true. The capital gains have not been taxed and won't be taxed on death. It is a giant tax free gift upon death.

If your parent dies and they had bought a house for $100,00 and now it is worth $1,100,000. So a capital gain of $1,000,000. If they had sold the house they would have had to pay capital gains on the house, minus an exemption amount ($250,000 for single and $500,000 for married).

But you as the beneficiary get to take that house and immediately sell and pay $0 in capital gains on it. So that tax is actually forgiven on death.

slg2• 6 years ago

Inheritance is a transfer of wealth, also known as income. Why should the people receiving that income get it tax free just because it came from a family member or close friend?

luanraithz• 6 years ago

Because you can't work to leave money for your children, if you want to do that you are basically Hitler.

I hope everyone is able to get the sarcasm

sachdevap2• 6 years ago

And how many steps is your reasoning removed from "Taxation is thievery"?

MisterBastahrd2• 6 years ago

Because power is money and unearned money is unearned power.

Zimahl• 6 years ago

The government doesn't want it's citizens to horde money. A ton of money sitting in the bank or in assets doesn't really do anyone any good. An inheritance tax pushes the rich into using their money - instead of leaving your kids cash and assets, you leave your kids a company or something similar. They can either continue to own the company and get paid for it or sell it and get taxed on it. Regardless, a company that provides jobs is a much more interesting prospect to the gov't than just rich people with assets.

mrfredward• 6 years ago

Earn a living is taxed. Groceries and clothing are taxed (in my state at least). Homes are taxed. Investing your hard earned savings back into our economy is taxed.

Getting a large sum of money from your extremely wealthy parents is also taxed.

Why is the last of these things less deserving of being taxed than the ones before it? If anything, it should be the other way around.

tom_mellior3• 6 years ago

This "multiple taxation" nonsense is nonsense. Everything is taxed multiple times: I pay income tax on my salary. I spend my salary buying apples, and I pay sales tax on this. From the money I paid for apples, the store pays the cashier's salary, and part of this goes to income tax. The cashier spends their salary on software from my employer, and part of this goes to the state as sales tax. My employer uses the cashier's money to pay my salary, and I pay income tax again to close the circle.

Money flows in circles, and every single transaction in the chain is subject to taxation. Picking out one particular tax on one particular kind of transaction -- surprisingly, one that only affects rich people -- and claiming that it is somehow extraordinary is intellectually dishonest. Abolishing the inheritance tax is what would create an exception from the general rule.

As for:

why is an inheritance tax needed?

As a method of redistribution from the very rich to the very poor, to create a more level playing field for everyone. (I'm not claiming that there is a particularly level playing field anywhere, especially not in the US. But abolishing inheritance taxes would certainly not make it more level.)

zionic2• 6 years ago

The purpose of the inheritance tax is to prevent any competition for the truly elite. Wouldn't want the middle/upper-middle classes from actually achieving financial independence over 3-4 generations and checking out of the system would you?

czbond14• 6 years ago

To follow up with the approach:

As engineers, this is actually a very easy problem to solve multi-generationally individually for us. It is a resource constraint algorithm.

I believe the "habit" should be modified. Educate to begin saving small sums from ages 15-23. More from 24-30. Lot more as career progresses. Savings over 50 years for individuals, then pass a part on to their kids so it can compound another 70 years. Do that a few generations, and the compounding IS big.

My take away is any family, from anywhere, can become wealthy in their future lineage. Which is an amazing thought. If you are reading this, your family can! THAT is amazing - mainly bc this game has been around for thousands of years, and only a subsection act on it.

sarora27• 6 years ago

It's possible to invest small sums over long periods to get a large payback IF you're aware that such avenues exist. Having an understanding of personal finance and how money works is a privilege many people take for granted.

For most folks in the socioeconomic band you're mentioning, this is not something everyone knows and understands. Many times, they are already living paycheck to paycheck. It's hard to think about anything long term when you're in that cycle whether it's investing or even having the time (and energy) to educate themselves further on personal finance.

Reedx• 6 years ago

That mentality seems to mostly come from people who were born into wealth and had parents who gave them everything. They project that perspective onto the world. That was their reality after all, and probably their surrounding community.

They're too far removed from how that wealth was achieved and don't understand it. See also: clogs to clogs in three generations.

PhineasRex• 6 years ago

Ah yes, the old "poor people just aren't as smart" myth. It's definitely their fault for not investing smartly and not the fact that they live paycheck to paycheck. Increasing inequality has nothing to do with the fact that wealth compounds on itself, it's just a coincidence.

The reality that you and other "bootstraps" people ignore is that there is a basic cost-of-living. People need to make rent, they need to pay medical expenses, etc. If your income doesn't rise above this cost-of-living (which is true for literally half of the US population) you don't have any small amounts of money to invest. A lot of long-term investment vehicles have costs for taking out money early, which is a significant risk if you might need that money for an emergency.

The wealthier you are, the more ways there are to increase your wealth and there is absolutely a floor under which you have no opportunities besides luck

czbond14• 6 years ago

I made no reference to intelligence, it was inferred.

Many first generation wealthy live paycheck to paycheck, grind it out, figure the rules of the current game (which take persistent observation but not smarts).

My take away is any family, from anywhere, can become wealthy in their future lineage. Which is an amazing thought.

awinder2• 6 years ago

My family trees actions included such egregious sins as being immigrants (fight a generation to survive), and then the next generation fighting to send their kids to college, that generation fighting to learn what tf this world even is, and then me and my brothers learning from mistakes / growing up in the environment where you’d have exposure to know. So you basically have a system that takes 4 generations to get into “just do the right thing” and I think that’s not altogether uncommon.

Meanwhile, Donald Trump is born to great inherited wealth and manages to, on basis, generate terrible returns on it, and is still labeled “a success” and is still wealthy. In fact we installed extra safety nets to make sure that someone that rich couldn’t hit the pavement, and even built in a back-up job as president for them. That same person ends a family tree in generation 2 or 3.

czbond14• 6 years ago

Absolutely - the first few generations grinding and boostrapping are hard. Doesn't it make you feel great thought that 3-4 generations after you, with the proper planning and effort, they could be centimillionaires?

ryandrake3• 6 years ago

Lower middle class people are not going to become extraordinarily well off by investing small sums over long periods. $1K set aside every month at 6% annually will reach about $1M after doing it for 30 years. $1M in savings is very, very nice but not "extraordinarily well off" as described by the article.

czbond14• 6 years ago

I agree - which is why I believe the "habit" should be modified. Educate to beging saving small sums from ages 15-23. More from 24-30. Lot more as career progresses. Savings over 50 years for individuals, then pass a part on to their kids so it can compound another 70 years. Do that a few generations, and the compounding IS big.

As engineers, this is actually a very easy problem to solve multi-generationally. It is a resource constraint algorithm.

danvoell• 6 years ago

Would be interesting to see what would happen if the tax were increased. Would there be a mass transfer before it went into affect? I wonder how the current age categories of wealth accumulation compare with previous generations.

jacobush5• 6 years ago

The biggest inidicator of wealth is if your parents were wealthy. At least in the US.

jimbob452• 6 years ago

Transferable copyright is way worse imho. I have no idea why we subsidize rent-seeking by the kids of inventors (or sometimes, people who had nothing to do with the original invention).

throwawaygh16• 6 years ago

Transferable copyright and transferable real estate are the same thing imo. Not a huge fan of either, but I don't see how being the landlord's kid is any different from being an writers's kid.

kids of inventors

Inventions are protected by patent or by trade secret, not by copyright. Patents have short shelf lives compared to copyright, mostly because mickey mouse was copyrighted but not patented.

jimbob452• 6 years ago

The difference I see is that a landlord’s kid has to do 100% of the job his parent did or risk losing his landlordship. The writer’s kid doesn’t have to do anything at all.

Also yes, you’re right. I should have said “work of art” rather than “invention” to emphasize that I mean copyright and not patent. Parents have far more reasonable durations.

reese_john• 6 years ago

It is said that 70% of families lose their wealth by the 2nd generation and 90% by the 3rd[1]

Inequality is not static, it is rather dynamic.

Nassim Taleb makes some good points about that here[2], for instance, ~ 70% of Americans will spend a year in the top 20% and only ten percent of the wealthiest five hundred American people or dynasties were so thirty years ago.

[1] https://www.nasdaq.com/articles/generational-wealth%3A-why-d...

[2] https://medium.com/incerto/inequality-and-skin-in-the-game-d...

seattle_spring• 6 years ago

Seems like we're conflating wealth with income?

maerF0x04• 6 years ago

Wealth is just the generative form of income expenditures.

How do you tax the "wealth" that is being able to get free food from a food bank, or a monthly check from the government?

How do you tax a bunch of experiences and education?

I dont think we should tax "wealth" when it's just a choice of what to do with post tax income. And pre tax investments are taxed on their exit (eg 401k)

verdverm2• 6 years ago

Case in point, my father's grandfather was quite rich for the time. He owned 20+ properties and some other things. When he died, his widow went on a spending binge, gradually selling away all the property. My father grew up poor and has set the stage for my generation to become as successful as HEAD~3

thomasfromcdnjs7• 6 years ago

I'd also assume that for the families who don't squander their resources in three generations indicates they are actually good with money. And as a family probably make wise investments that support the economy in a healthy way.

So we don't need estate tax because 1) most families will spend it all frivously anyway 2) the ones who don't are likely the best custodians of wealth in a nation

JMTQp8lwXL• 6 years ago

Maintaining wealth 100 years ago was different from today. Today, you can passively own index funds, and property rights are respected in the US. I would expect the 70% and 90% figures to decrease for future generations.

tathougies5• 6 years ago

I wouldn't. People are irresponsible and like spending money. Even those who 'invest', they're probably going to attempt more dangerous investments at some point and lose significant portions of wealth.

thomasfromcdnjs7• 6 years ago

"Economics in One Lesson" would be a good choice for a lot of HN readers.

zackees2• 6 years ago

I want to add that this tax only applies to people of the mid upper level incomes.

The apex families use a complex network of Trusts that outlive any of the beneficiaries and thus are not subject to an "inheritance tax".

This inheritance tax is nothing more than economic warfare by the globalist central banking cartels to disgorge the upper mid tear capitalist class who aren't big enough or careful enough to go through the complex tax loopholes the megawealthy are able to procure for themselves.

_uy6i• 6 years ago

In furtherance of this point let’s take the article’s author at face value $50m inheritance @21% is $39.5m...not bad! But let’s now be a little more realistic, the family has two kids and not 1 so $19.25m per child - now let’s say that parents died at 85 and had their kids at the age of 30 so the kids are 55 which means they can invest their money for 30 years, and let’s say they invest it in a nice vanguard balanced fund, their after tax annualized return would be 5-7% [1] If we use the past 10-20 years as a guide (this also assumes you live in a place with no state tax like TX or FL). Now inflation is 2-3% so we’re making 3-5% real which means that over our 30 year investment horizon we could expect to increase our wealth between 2.5 - 4.3x if we don’t spend a dime... let’s be real someone with that money is going to want to enjoy at least some of it! So let’s say they spend 2% (or ~$400k/year real) now that 3-5% real is 1% - 3% real or 1.4x - 2.5x the original corpus - now they pass it on to their 2 kids, they’d be lucky to pass along the same amount they inherited - spend a little more along the way, have some bad investments, get a divorce, have more than two kids and your heirs are almost guaranteed to get significantly less than their parents ... Sure they’re still rich, most rich families are in decline once the money’s been made...it may take several generations, but eventually their progeny is back working...

[1] https://investor.vanguard.com/mutual-funds/profile/performan...

octaveguin2• 6 years ago

A lot of people here are concerned that taxing the rich will just make them hide their money offshore.

It should be noted, then, that it's gotten a lot harder for Americans to go offshore with their money due to two recent things:

1. Expatriation tax - https://en.wikipedia.org/wiki/Expatriation_tax

2. Foreign tax compliance act - https://en.wikipedia.org/wiki/Foreign_Account_Tax_Compliance...

When taken together, it means that Americans are basically unable to ever leave American taxation. No other nation has the ability to restrict their citizens like Americans do while their citizens are abroad.

This is bad news if you want to own a company while living abroad (you can't unless it's American or you'll be double taxed), live in a lower taxed country, or renounce your citizenship if you make more than something like 139k a year.

Any tax applied to America's rich would not result in money leaving the country - it's no longer really possible.

I wholeheartedly support strong inheritance tax. Dynasties are bad things and create bad systems. The US is uniquely positioned to enforce it even if it means that citizens are basically serfs to their country.

sesuximo7• 6 years ago

This is definitely what America is going for and definitely not the way things are right now. It’s very much possible to leave and or or move money legally.

octaveguin2• 6 years ago

Please explain because every bank in the world needs to report to the US about their American account holders.

If you own a holding company in another country, you need to declare that and be taxed on it in addition to that country's tax.

I know this because I own a business and wish to live abroad so I really would like to leave but I can't.

tengbretson• 6 years ago

Imagine how much it would stimulate the economy if we did this! Instead of building up wealth to ensure the success of future generations, old people would be forced to use it or lose it. The Buicks, 0-entry bathtubs and high-end mobility scooters would be flying off the shelves with all this unlocked capital being forced to consume. Think of all the new JOBS!

Now that's what I call progress!™️

sesuximo7• 6 years ago

Imagine America but it spent more on end of life care

humanrebar2• 6 years ago

Or they realize they can't set up their grandkids anyway and retire to snowbird life 5-10 years earlier.

bennysonething• 6 years ago

Milton Friedman makes a good point (he completely disagrees with yours): parents passing on wealth to children is a good thing as it makes them invest. Not in trinkets of frivolous utility, but actual investments that puts money in important thinks like factories etc. If you'd. Prefer people to divert their wealth into pointless waste before the tax man gets it, then heavy inheritance tax is the way to do it.

rwcarlsen• 6 years ago

I think the gp was making the same point via sarcasm.

dominotw2• 6 years ago

Instead of building up wealth to ensure the success of future generations

I will and can retire now if I can't pass my wealth onto next generation.

Removing experienced productive people out of workforce would be silly economic policy.

JamesBarney7• 6 years ago

I think only a very small percentage of the population would retire if estate taxes were increased even substantially.

graton6• 6 years ago

Interesting to me is that not-taxing inheritances is sort of a giant tax break. If your parent dies and they had bought a house for $100,00 and now it is worth $1,100,000. So a capital gain of $1,000,000. If they had sold the house they would have had to pay capital gains on the house, minus an exemption amount ($250,000 for single and $500,000 for married).

But you as the beneficiary get to take that house and immediately sell it and pay $0 in capital gains on it. So that tax is actually forgiven on death. If you held on to the house then you would pay capital gains on any gains from the value of it upon inheritance.

Judson2• 6 years ago

IRS FAQ on inherited assets is pretty good here:

https://www.irs.gov/faqs/interest-dividends-other-types-of-i...

Without any estate planning, you would pay $0 in capital gains because the basis resets to FMV at the time of death and the sale would be taxed as regular income (37% marginal bracket on $1,000,000 sale).

By my reading, this doesn't seem like a giant tax break.

Edit: Totally wrong. $0 taxes owed because basis is stepped up and sale is NOT treated as income.

graton6• 6 years ago

Well I paid $0 in taxes on my parent's death. And when we sold it no income tax was paid. Our accountant checked everything and made sure it was done correctly.

From the page it does say: If you sell the property for more than your basis, you have a taxable gain.

But your basis is set upon the FMV (Fair Market Value) of the property upon death of the decedent.

The basis of property inherited from a decedent is generally one of the following:

1. The fair market value (FMV) of the property on the date of the decedent's death (whether or not the executor of the estate files an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return)).

Also, selling a house is not typically considered income. It is considered a capital gain. So you don't pay income tax on sale of a house. There might be exceptions if you are a real estate investor, but I don't have any expertise in that area.

zackees2• 6 years ago

The house hasn't increased in real value. The increase in selling price is due to inflation of the dollar.

voisin3• 6 years ago

Deflation of the dollar. Inflation of the asset. It is crazy that we pay taxes on nominal values and not real values.

AnthonyMouse11• 6 years ago

The step up in basis is not really related to inheritance tax. Suppose you inherit the house and don't sell it. Then you're not getting any kind of tax break because you're not getting any money -- maybe there will be another housing crash in ten years and you'll lose the value, and right now you're just living in the house. But if you impose inheritance tax then there is a new tax that wouldn't be due if you were just doing what your parents were doing and not selling the house. You don't want to force people to sell their home in order to pay the tax on it.

Meanwhile the reason for the step up in basis is that the alternative would make the property inalienable, because after several decades the majority of the value of the property is "gain" and then you never want to sell it because you'll lose so much value to tax. It makes it so people can't move even if it would be more efficient because the after-tax sale price isn't enough to buy a similar house somewhere else.

And all the basis reset is really doing in most cases is accounting for inflation. If your parents bought an asset for $100k in 1950, its nominal value would now be over a million dollars even if its real value is still exactly the same, but then the government wants to claim that 90% of the value is taxable income. Indexing the basis to inflation would fix this, but then the basis reset would be irrelevant or inconsequential in the large majority of cases and could still be justified as not costing very much at that point and being a convenience because you don't have to track down the original purchase price of an asset that has been in your family for decades.

ralmidani4• 6 years ago

Inheritance tax is not a wealth tax (the person who accumulated the wealth has died), it's just another income tax (which NYT wants to raise to an absurdly high rate).

Taxing wealth is far more equitable than taxing income; taxing wealth gives low-medium earners more discretion to spend on needs like housing, clothing, food, child care, education, transportation, etc (needs that differ between families, and which families are better equipped to assess than the government), while taxing income gives the government a share of people's money before they can decide what to do with it. Tax wealth while people are alive (on an annual basis), rather than destroy a company/farm/estate by having the government swoop in and take an enormous share of it (do we really want the government in the business of taking over companies and farms?)

Of course, wealthy people who don't want to pay taxes could buy yachts and fancy cars, but that could be remedied easily by instituting high sales taxes on luxury items.

sesuximo7• 6 years ago

Wealthy people could also leave America

sachdevap2• 6 years ago

This is a big myth. Wealthy people are not going to just get up and leave America. Where do you think they would go?

ralmidani4• 6 years ago

I agree this would be a challenge, but you can limit the percentage of a person's wealth that can be transferred out of the country. It won't be easy, but I still think taxing wealth (or a wealth tax combined with lighter income taxation) would be much more equitable than our current system.

munificent2• 6 years ago

So you're saying we get to keep all of the beautiful natural resources and culture of the country, but the handful of billionaires exploiting it and its people go elsewhere and take their shitty morals with them, leaving a country with reduced economic inequality?

I'm sold.

Analemma_• 6 years ago

Pretty much all economists agree that a wealth tax is conceptually better than an income tax for all the reasons you described, but a tax has to be practical to implement. Wealth taxes would be an endless source of problems: how much is this yacht worth, how much is this painting [which sold on the open market only once, 50 years ago] worth, how much is this opaque financial instrument worth, etc. Wealthy people would be dragging the government into court endlessly to fight tooth and nail over every last valuation. Income taxes are an imperfect proxy for wealth taxes but much easier to implement, so that's what we do.

ralmidani4• 6 years ago

Luxury taxes would alleviate this problem to a large extent. Someone who bought a painting just to hide their wealth would eventually want to sell it (or their heirs would). In the long run, society will get its share of the wealth in most cases.

therealdrag04• 6 years ago

Is there any analysis on how much wealth of the 0.1% is in physical assets vs stock/equity?

When I look at something like this: https://mkorostoff.github.io/1-pixel-wealth/?fbclid=IwAR2j0g... The volumes of wealth in equity is so large it seems like the luxury yachts/mansions might matter less.

dbcurtis4• 6 years ago

High inheritance taxes tend to single out individual proprietorship businesses for punishment. I remember when I was young, watching newly-widowed farm wives lose everything to inheritance taxes. It was heartbreaking. The tax code changed so that stopped happening -- too late for some.

In the end, frequent tweaks to the inheritance tax code is just a full employment act for trust & estate lawyers.

What we need instead of our current convoluted taxation scheme is a progressive consumption tax -- but that is a rant for another day. (No, I don't mean a sales tax or a VAT. The government already gets all the data on your income and your total savings/investments. consumption = income - net_savings. Apply progressive table. Done.)

humanrebar2• 6 years ago

Also, folks with enough money will find a way to spend it on kids and grandkids one way or another: primary residences, targeted endowments, donations to private clubs their families enjoy, businesses that will keep their ancestors gainfully employed indefinitely, and so on.

JamesBarney7• 6 years ago

When was this?

I don't remember there ever being an inheritance tax on property left to ones spouse.

dbcurtis4• 6 years ago

1970's. The limit on what you could leave to a spouse was low enough that during a period of rapid inflation it got badly out of whack with farm land values. It caught main-street businesses, too.

dbcurtis4• 6 years ago

Wow. My heart-felt anecdote offended somebody. Down-votes don't contribute to the debate.

flerchin• 6 years ago

I have a hard time figuring what the purpose of taxes is with our huge deficits. It's almost like taxes exist only to redistribute wealth? Recovering even 50% of all inheritances via taxes does not make a dent in the deficit.

supernova87a2• 6 years ago

Much as I take a more moderate view about taxation (some things that taxes go to fund are in fact ineffective and wasteful), I respect strongly the inheritance tax not just in revenue raising but in behavior influencing. (those who are on the receiving end of the tax, for reasons others have given here)

And I do not for one second buy the ridiculous argument, both on this tax and other taxes, that "money shouldn't be double-taxed".

Money is taxed every time it changes hands! Money doesn't have a "history", except where we create loopholes to allow it to, which disproportionately go to those who have the means to track and create vehicles that have "history". Poor people don't have capital gains.

The inheritance tax, though you may not think it intuitively, is a strong way for our society to renew itself and find new talent. It takes work to fight against those who would silently change the rules to start favoring the old and idle. (who are the ones who most have the ability to change the rules)

DuskStar8• 6 years ago

but in behavior influencing.

Ah, yes - because of course we want people to spend all their money before they die instead of investing long-term for their children.

ianleeclark6• 6 years ago

These things aren't mutually exclusive. You could spend extravagantly on your child's education and give them a genuine leg-up on the competition.

shuntress2• 6 years ago

Whether their money is given directly to their children or given to the state does not itself determine whether that money has been invested "long-term for their children".

What matters is how that money is used.

If it all goes to decade-long revitalization projects in a distant town to which their children eventually move for a happy retirement, is that an effective long-term investment?

dmarchand903• 6 years ago

I can't think of another mechanism from preventing a permanent aristocratic class from passive investment

supernova87a2• 6 years ago

You're arguing in a 0/1 fashion, where the tax itself is a matter of degree.

There is a setpoint (or $ quantity vs. tax %) of this tax where the goals of helping your children are weighed against wealth-hoarding legacy family enrichment. It is most definitely a parameter that the government + people of a country should comment on.

notacoward• 6 years ago

You say "investing for their children". Somebody else might say "perpetuating the aristocracy". Same thing. Why do those children deserve any more investment than any other children? How does that contribute to a fair society, or even to a prosperous one?

MisterBastahrd2• 6 years ago

This would be far more beneficial to the economy as a whole than the alternative, yes.

sesuximo7• 6 years ago

I think America could start by simplifying the tax code so the richest Americans/American corporations still pay taxes.

Then America could stop spending so much on subsidies and global policing.

Once America has done this (this == approach a budget more similar to the rest of the developed world), if it still needs to, then I think a simple wealth tax makes sense.

I don’t see the argument for taxing inheritance which is already fraught with loopholes and complicated edge cases.

lurquer6• 6 years ago

Rich people don't pay inheritance taxes. There are a gazillion ways to pass on money without falling prey to estate taxes. The only people effected are middle-class folks not savvy enough to avoid the tax.

The richest of the rich simply leave everything to a charity or foundation that their children draw salaries from (as well as having the use of the foundations estates, planes, etc.) Case in point... Warren Buffet; he's always going on about he isn't leaving anything to his children, but plans on giving it away to charity. What isn't frequently mentioned is that the kids 'own' the charities.

https://www.nbcnews.com/businessmain/warren-buffett-his-birt...

ceejayoz12• 6 years ago

Middle-class folks are affected by a tax that starts at $23M of assets? I suspect not.

It's fascinating how much propaganda has shaped this debate. People with a few hundred thousand dollars in their 401(k) somehow got tricked into thinking the "Death Tax" had anything to do with them.

lurquer6• 6 years ago

The rates vary depending on who is in power. They've been low, they've been high. You have no idea what the rate will be when you die.

The point is, regardless of the rate, the rich -- people with access to good lawyers and accountants -- don't be pay it. It's a political 'soak-the-rich' tactic used by progressive politicians to get votes... it never 'soaks the rich'.

hpkuarg2• 6 years ago

By definition, charities (well, U.S. 501(c)(3) organizations) cannot have their assets or income inure to insiders. Can Buffett's charity pay a salary to his children? Sure. Can it pay them an excessive salary? Maybe, but the IRS will look closely upon it. Can the children buy a megayacht using charity money and sail around the world, while drawing a salary? Probably not.

I think you're overestimating the degree to which they can "own" the charitable organization. No one is denying that Buffett's children will live very comfortable lives without having to lift a finger, but that should be neither surprising of nor prohibited to one of the world's richest people, who got there by helping rise the tide.

lurquer6• 6 years ago

its a hit more convoluted than that.

One example I have personal knowledge of... The foundation leases an office building owned by ABC, Inc. ABC is owned by child of foundations grantor. The lease payments are double the mortgage payments. Within a few years, the mortgage is paid off. ABC then sells the building and gets the money.

therealdrag04• 6 years ago

Any evidence of malfeasance on their part?

closeparen• 6 years ago

The important inter-generational wealth transfer these days are a) moving to a neighborhood with good schools, and b) paying for college. To intercept this inequality with taxation, you’d need to tax the beneficiaries of these gifts enough to wipe out the lifetime earnings advantages associated with skilled labor.

taxtionistheft2• 6 years ago

France and many other countries already increased taxes before with devastating consequences. Don't think you can outsmart rich people and take their property without their permission.

gadders• 6 years ago

But for those who have children, isn't this the whole point? i.e. ensuring your children have a better life than you did yourself.

In that view, surely passing on an inheritance is a good thing.

Obviously, passing on $5bn to your kids is different than leaving them a $800k house mortgage free.

auganov2• 6 years ago

The notion that there's even significant wealth held by private individuals is total fiction. Compare yearly flows of money to private wealth. The global GDP is estimated at around $150T, and total global private wealth at perhaps $200T.

You could literally confiscate all private wealth in the world and it would run out in a few years.

Most people just don't realize this simple fact. We hear about how just a few people hold most of the world's wealth and it creates this image of enormous control and influence. But when you compare it to flows of money you realize how little of world's economic output these "super rich" people have captured for themselves.

throwawaygh16• 6 years ago

But when you compare it to flows of money you realize how little of world's economic output these "super rich" people have captured for themselves.

Alternatively: starting with a lot of wealth allows you to allocate your time and resources to the accumulation of power and cultural influence, often without ever experiencing life as an average person. So you end up with super powerful people who never experienced the anxiety of waiting for payday or wondering about job security with a new baby on the way.

The corrupting influence of that -- even more than the opportunity cost of the wealth -- is a good reason for a wealth tax on the very, very, very wealthy. Would Trump be president if he didn't have a $400MM head start? Would the Koch brothers have been able to exert so much influence over state policy in places like Kansas if they didn't inherit their father's wealth? And, if so, would they have the same policy preferences and demeanors? Nothing is impossible, by I wager the odds are closer to zero than to one on both counts.

auganov2• 6 years ago

Bloomberg and Steyer have pretty much disproved the notion that you can easily buy your way into politics.

Most people don't even know who Steyer is. How many Steyers are out there? When a rich person tries to become notable and fails you just don't hear about them. When a rich person does something big you assume it's because of their wealth being their most apparent unique characteristic.

President Trump is one of the few who made it. And he actually didn't spend that much money on the campaign at all. Switched to regular fundraising pretty fast. Sure, there's no question that his wealth is a big part of who he is. If anything he leveraged people's obsession with wealth rather than his wealth itself.

You're still going to deal with nation state and corporate lobbying without private wealth. Successful private lobbying efforts get all attention because of how uncommon it is.

How long have Koch brother[s] been at it? They pretty much were life long political activists. And most of that is out of personal conviction. Doesn't seem to me like they have attained any concerning levels of power at all given their dedication.

therealdrag04• 6 years ago

Why does it matter that the super rich are in turn dwarfed by global flows of money? That's apples to oranges.

Run through this exercise: https://mkorostoff.github.io/1-pixel-wealth/

Then can you say it's a fiction that individuals have significant wealth? This is what people care about: "Are wealth gains being shared, or am I just working to pay my bills, not getting ahead, while making someone else rich."

tenpoundhammer• 6 years ago

The first question I have to ask myself about increasing taxes is,

can the government do a better job of distributing these resources than whoever is doing that Job now?

and what does better mean?

Living in the US with the government that is currently in place I feel confident that the government can't do a better job than the current system in place to handle inheritance, no matter what the definition of better is. So giving the government more money via inheritance tax is a bad idea.

Markoff• 6 years ago

i can't believe how many posters here defend this immoral nonsense taxing already taxed legally gained money

if the rich obtain the money legal way and taxed them why they should be punished for being more successful than others and responsibly leaving the money to children? basically what defendants of inheritance tax say you should not try to be successful because you will be punished by losers for it, it's income tax all over again (unless your country has flat rate for everyone)

pintxo• 6 years ago

I am inclined to believe it comes down to a fundamental error in our current way of taxation. Which is that we primarily tax work or the added value. While luck (the lottery, having rich parents) is not taxed at all or at measurable lower rates.

Question is why is that? And wouldn't it be fairer to tax work (effort) less and luck more?

apta• 6 years ago

I am inclined to believe it comes down to a fundamental error in our current way of taxation.

This is exactly it, what almost everyone fails to notice. If you look at other civilizations that do not impose income taxes, yet were successful, they did not have this entire mess that is the US taxation system. Islam dictates a "charity tax" called Zakat, that is calculated based on net worth, or produce (e.g. for farms and cattle). It is much, much easier system to calculate, and is strictly superior to whatever the US has going, as proof by how they have to keep revising the tax code and "closing loopholes", and proposing new taxes every time.

There are several factors at play here. The most important other factor is that the modern economic system is based on parasitic, and morally bankrupt practices, most important of which is interest/usury. Take these out and the wealth inequality gap will fix itself very quickly.

The Inheritance Tax Is Far Too Low

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