There’s been a discussion of inheritance taxes going on in my comments that I wanted to make a few small observations about. I have no dog in this hunt. I will have no descendants and don’t have much in the way of a fortune to leave them even if I did. My siblings and I are now the beneficiaries of a small inheritance, the cumulative final assets of three generations of my family. It comes too late to have a material impact on our lives and I know that I join with my siblings in preferring that my mother had lived forever over any inheritance.
For those who oppose an inheritance tax, under what theory of property is inheritance defensible? It manifestly does not derive from Locke’s views since he taught that property rights are derived from labor. If you believe that government should not intrude itself into the transfer of property between generations, by what instrumentality would you accomplish that in the absence of government. If you take the king’s penny, you are the king’s man.
For those who favor a steep even 100% inheritance tax, I can only remind you of Macchiavelli’s advice:
Nevertheless a prince ought to inspire fear in such a way that, if he does not win love, he avoids hatred; because he can endure very well being feared whilst he is not hated, which will always be as long as he abstains from the property of his citizens and subjects and from their women. But when it is necessary for him to proceed against the life of someone, he must do it on proper justification and for manifest cause, but above all things he must keep his hands off the property of others, because men more quickly forget the death of their father than the loss of their patrimony.
The emphasis is mine. There is probably no surer way to undermine the legitimacy of government than by confiscatory inheritance taxes.
Additionally, I strongly suspect that a certain amount of more or less random large capital accumulation is a benefit to society rather than dangerous. It’s a form of insurance, diversifying the economy in novel ways that would not be the case if the capital were centralized in the government. If inheritance did not exist, it might be necessary to invent it.
I don’t have a dog in this fight either, even though I do have three kids who will inherit whatever meager wealth is left when I die. It seems to me it’s completely legitimate to tax inheritance, but at the same time that tax should be reasonable.
I’m always hearing that taxing wealth is far more efficient than taxing income. Is there an easier way to tax wealth than an inheritance tax? Seems to me, then, we should be shifting corporate and income taxes toward consumption and inheritance taxes and not the other way around.
Heh. I didn’t realize I was advocating a view reasonably aligned with Macchiavelli, although with different philosophical underpinnings.
All the hyperbole aside for a moment, and with all due respect to Mr. Locke, in my view my property does not stop being my property simply because of my death. Or said another way, I am allowed to decide how I spend my property/wealth (money) on my offspring, extended family, charitable foundations etc while alive, yet upon my death that right is extinguished?? Why? And of all things, I lose that right to the benefit of the party least interested in my wishes: the state. Why? They will better use the money? They know better than I how to dispose of my wealth? They have loftier goals and values? Please, spare me.
I suppose that’s just a value judgment, but it’s my value judgment. By the way, its not like the money I have accumulated hasn’t been taxed away at very high rates already. (And I don’t mean to sound like a prick, I really don’t. But this is simply a fact: I probably will have paid more in taxes over my lifetime than most people’s gross earnings. Jeez, can’t I at least have a say on my death bed as to how I’d like to distribute the financial aspect of a life’s work??) So I find opposing views crass and ghoulish, somewhere between buzzard-like and “I rob banks because that’s where the money is.”
I have a young daughter who is very interested in the arts. Who knows, maybe she grows up to be a doctor, lawyer (scratch that) engineer, biochemist etc. But maybe she decides to pursue the arts. Except for the very top of the craft, you don’t make much money doing that. I’d like to make that decision less money centric.
We all have seen the horrific way the stimulus money has been spent on goodies, pet projects, and political payoffs. Are people’s value systems so warped (my words) that they think the state grabbing my dough is sensible, when juxtaposed against wishes I might have for my loved ones?
Sam –
Back in my banking days I once financed the acquisition of a Norwegian company that was being divested because of their welth tax. As we talked to the owners it became quite apparent that the wealth tax was one of the most corrosive forms of taxation imaginable.
I made reference to Warren Buffet yesterday. That situation was initiated by a divestiture from a S African company, caused by similarly poor public policy attacking wealth.
I brought it up in the context of a replacement for a corporate tax. If we eliminate one kind of tax, and wish to stay revenue neutral, we need to replace it with something. I nominated the inheritance tax.
Under our current tax system we tax income. It is here where I part company with Drew. First, why should a person receiving millions, remember we are talking exemptions that start at $7 million recently, based upon their parentage pay no tax, while a person who worked to earn their income pay tax on it? (I look at this as a tax on the person receiving, not the person leaving the money.)
Next, I also disagree, a bit on controlling wealth after one dies. After you die, that wealth goes to someone else. We are taxing that person. This is kind of a battle of semantics, but an important one I believe. We really should not have people controlling fortunes from the grave, nor have people avoiding taxes based upon the origin of that money. As an aside this is why I also think capital gains should be taxed at ordinary income rates, though if we switched to pure consumption taxes, unlikely, then we should not tax capital gains either.
I have young son who is an Aspie. I would like to leave him a cushion in case things do not work out well. I think $7-$10 million, the numbers I suggested, should be adequate. I do think it reasonable that people leave enough to care for kids who need it, just not make them ultra-rich. These numbers are just suggestions as far as I am concerned and are negotiable.
All taxes take money that we could spend on loved ones, so I dont find this tax any more egregious than other taxes. I do think there is risk in concentrated wealth accumulation. I fail to see the advantage that you suggest Dave. I envision this as a revenue neutral tax, replacing something else, so government is not centralizing more power. It stays the same. I would oppose 100% taxes, just a return to older or slightly higher rates, not like the current lack of any inheritance tax.
One last correction, just for completeness. You do not pay taxes on your 401k contributions. Currently, you could leave all of that to your heir, never having paid any tax. In a Roth IRA, your heirs will pay no tax on withdrawal. There is not as much double taxation as people claim.
Steve
Which would hurt the economy most: a 100% tax on income, or a 100% tax on inheritance?
What is wealth? Steve is a doctor, he has a significant amount of what economists call human capital, it makes his labor quite valuable in the right market. Is that wealth? Why is it different than being “wealthy” for having a large factory? Why not have taxes set up based on your knowledge? Those with a bachelors degree get a tax rate of X%, masters 1.5*x%, doctorate level 2*X%?
Would we expect people’s investment in human capital to go up or down?
Now, if you think down overall for the above, why is factory different? I’d argue that it isn’t. That if we run around taxing wealth, we are also taxing our accumulated capital. Why invest in capital if you aren’t going to get to keep all of the benefits it generates?
One of the problems with the income tax is it taxes income…from savings. This reduces savings, which reduces capital investment (by capital I mean physical assets that are productive, not cash). Now you want to tax capital investment directly? Most economists prefer a VAT or a consumption tax like the Hall-Rabushka tax. There is a long litany of reasons to favor such a tax and few objections. It is the case of where the policy is very, very good, but yet we don’t do it.
Why?
Because Democracy sucks ass when it comes to making sound policy decision but everyone runs around like it doesn’t.
Talk about being self-deluding.
I think steve makes some interesting points, although I’m not buying. This is, as they say, when we have to agree to disagree.
1. I don’t believe for a second that we would eliminate the corporate income tax in favor of the inheritance tax and be revenue neutral. This is just an overall tax increase thinly cloaked.
2. “I look at this as a tax on the person receiving, not the person leaving the money.” No, I got that. But its a false premise. The tax is something aginst my (dead guy) wishes, and with my property. You’ve taken my rights away. And taken by the worst possible steward of those assets.
2a. “We really should not have people controlling fortunes from the grave” See above. ” nor have people avoiding taxes based upon the origin of that money.” Avoiding taxes?? How so?? The wealth has been taxed multiple times as it was created. After all, its a residual, after tax, number. Second, additional income that wealth produces is in fact taxed. Not one penny of tax has been avoided, unless you start from the premise that the state has the supreme claim on income and wealth. And that is a fundamental mindset that brings us back to: “I rob banks because thats where the money is.”
3. “I have young son who is an Aspie. I would like to leave him a cushion in case things do not work out well. I think $7-$10 million, the numbers I suggested, should be adequate. I do think it reasonable that people leave enough to care for kids who need it, just not make them ultra-rich.”
That’s fine. And if you have alternative uses for your “excess” wealth you are free to make decisions to disburse it as you see fit.
That’s how a free society works, and I suspect you would disburse it well. And others should have the right to make their own decisions. That’s how a free society works. But this notion that the state has a right to the wealth just drives me crazy. The single most financially irresponsible entity known – over time and all geographies, not just the US today – is who should receive and become the steward of that wealth? That’s a working definition of insanity.
4. 401K contributions are quite limited. C’mon, steve. That was disingenuous.
And lastly, a practical note. There was a discussion here recently about the ability to manage one’s affairs to manage taxation. I have no doubt that if we go down the road of migrating towards higher inheritance taxation it will follow the history of any taxation: more, more, more. (Anyone see the story today on the VAT in Europe?)
So I would manage down my wealth with greater consumption to avoid having it go down a rathole, er, to the government. Do any of you really think the proceeds collected would be as projected?? Anyone?
Drew, you can manage your affairs, if you have the wealth, to avoid income taxation. I’m not sure I’m following the argument here, but I favor some taxation of estates. Is somebody here arguing zero percent taxation or one-hundred percent taxation?
I believe we did have a discussion recently about Bill Gate’s beneficent intent to contribute his wealth to charity. Now, how much of that was influenced by the expectation that not only can’t he take it with him, but he can’t easily gift/bequeath it to his family without serious taxation hits? (If we roll back the tape, I was skeptical about the fact that Gates could still retain a lot of control over his charity)
I have no idea what a good estate tax rate may be. Somewhere btw/ o and 100. I would like to move more towards a consumption tax, but I think there are basically four things that can be taxed: consumption, income, wealth and property. Ultimately, if the government doesn’t take a hand in each, the incentives for the upper class will be established.
PD –
I’m basically arguing for zero on these points: 1) wealth is a residual, post taxed amount; its been taxed and taxed; given its bloodied post tax nature, its only civil to not tax it once again, and 2) let ME determine what to do with it; its my honestly earned property, not the states, especially given the state’s godawful track record, 3) as a practical matter, if one knows you can’t take it with you, you can’t give it to family and a bunch of no good government buzzards are going to eat your carcass and waste the proceeds as govt does ………people will manage it down on pre-death conspicuous consumption. That is, it will be ineffective.
By the way, on that last point. We live well, well, below our means. Saving is a value I believe in; leaving for the family or my chosen causes is a value I beleive in. But if I think a bunch of crooked Congressmen are going to get their hands on it just to squander or curry favor with voters, there will be quite a few more Hawaiian golfing vacations in my future.
So far I’ve not seen one convincing argument. Its just some variant of “tax it because we can, and its convenient.” Like robbing banks. That’s a government subserviant mindset I simply do not understand. I understand we must tax for the social good, but I rarely see any arguments about reasonable limitations, or effective methods. Its just more, more, more…..
“1. I don’t believe for a second that we would eliminate the corporate income tax in favor of the inheritance tax and be revenue neutral. This is just an overall tax increase thinly cloaked.”
If you really believe this, then it will be difficult to be objective, I think , about the tax. Would you feel differently if my stipulation of revenue neutrality was correct?
Also, I do not think you have addressed my concern of concentrating wealth, ie power, into the hands of very few people. I think the underlying problem with socialism, or any authoritarian government is putting decision making into the hands of too few people. Whether they have that power via election or inheritance, I think it leads to poor decision making.
I think that you are correct, in retrospect, about controlling money from the grave. Dumb point. We will just disagree about who is really being taxed.
” We live well, well, below our means. Saving is a value I believe in; leaving for the family or my chosen causes is a value I beleive in. ”
I would have guessed this. I think we could agree that personal responsibility is a core value that should be more common.
Steve
Just back from dinner. Tired. I think this will have to be the last of this.
“1. I don’t believe for a second that we would eliminate the corporate income tax in favor of the inheritance tax and be revenue neutral. This is just an overall tax increase thinly cloaked.â€
If you really believe this, then it will be difficult to be objective, I think , about the tax. Would you feel differently if my stipulation of revenue neutrality was correct?”
I take exception to your query about being “objective.” Look, if you’ve understood a word I’ve said, and I think you do, you know my argument isn’t based in any way, shape or form on revenue neutrality. Its much more fundamental. Challenge it or refute it, fine. But don’t take the cheap way out and just question “objectivity.”
As for your query, revenue neutrality is a superficial and theoretical arithmetic based argument. Its an academic construct, with no attachment to reality. Way, way back in college days I did engineering gymnastics about “perfect spheres” travelling through “ideal gasses” with “frictionless surfaces.” Yeah, fabulous. We ain’t in Kansas anymore, steve.
“Also, I do not think you have addressed my concern of concentrating wealth, ie power, into the hands of very few people. I think the underlying problem with socialism, or any authoritarian government is putting decision making into the hands of too few people. Whether they have that power via election or inheritance, I think it leads to poor decision making.”
And yet you advocate a taxation scheme that puts yet more power into the hands of the most overwhelmingly powerful institution in the United States. Dude? Dude!!??!!
“I think that you are correct, in retrospect, about controlling money from the grave. Dumb point. We will just disagree about who is really being taxed.”
Yes, we will. Because my point was correct, factually and practically. Its just math, and reality. Not a trick assertion. You dodge a defense of your assertion.
†We live well, well, below our means. Saving is a value I believe in; leaving for the family or my chosen causes is a value I beleive in. â€
I would have guessed this. I think we could agree that personal responsibility is a core value that should be more common.
Sweet harmony !!
BTW –
steve: Have a good night. Kiss your son good night and tell him how much you love him. And ain’t it great we have a country and venue like this to slug these ideas out?! Unbelievable. Thanks to Dave, our blog proprietor as well.
Regards
Drew-Amen bro. Same to you. Appreciate the civil discourse. You make me think. I learn a lot from you and Dave and even Verdon.
Steve
PS- Smoking pork shoulders for pulled pork today which requires heavy beer consumption. Ignore bizarre comments.