To reply to the people below as to why @themartorana might be against estate taxes: if the tax system does its job properly, death shouldn't be a taxable event. Treating capital gains as normal income, closing shitty loopholes etc - people are paying their fair share that way. Taxing at death would be double dipping. Instead, it's used as a way to claw back failed capital gains tax and it's an awful way to do it (making people sell property, etc)
No, the point of estate tax is to prevent generational inheritance, not to re-coupe failed cap gains.
The purpose is to prevent a class of non-working super rich that live for generations off of the estate.
So you can be rich and have lots of fancy toys and swim in pools of money while you're alive, but once you die that's it. Your children benefit by starting with a (very large) head start relative to their peers, but they shouldn't necessarily be set-for-life. It's economically bad to have a vast pile of money sitting in one place for a long time, you want to get that back into circulation. And success should be earned, not granted at birth.
The only alternative would be something like actively taxing net worths that exceed some amount, which is less palpable.
And of course practically speaking, death is a great thing to tax, because one of the problems with taxation is that it can be distortionary - when you tax something, people tend to do less of it. That's obviously not a problem with estate taxes.
>It's economically bad to have a vast pile of money sitting in one place for a long time, you want to get that back into circulation.
Although I agree with your point overall this point specific point is flawed unless someone is literally storing physical cash in large volumes.
If I have a big bag of assets that is passed from generation to generation it is not sitting in one place or in any way out of circulation. Businesses do their thing regardless of whether a family member or someone else owns them. Real estate portfolios are similarly unaffected by who happens to own it. Even money sitting in a bank account is not actually just sitting there.
Sweden only very recently (2005) repealed its inheritance tax after centuries of having one. So the current inequity levels in sweden occurred under inheritance tax. Prior to 2005 the inheritance tax rate in sweden was 60%, higher than the estate tax in the US. And vastly more people hit the tax in sweden as the exemption was a mere $8600 USD.
So if anything Sweden is evidence that a stiff estate/inheritance tax helps prevent inequity. We'll see if that changes.
Regardless of its purpose, it is extremely unfair, at least from a purely pragmatic perspective. The money was earned, and the government has no right to take it away just because you die.
No, it isn't taken away. The person that owned it is dead.
If you decided to give it to your children or whatever, it'll get taxed just like if you tried to give them that much money before you died. If in your will you decide to give it to a non-profit charity instead, it's not taxed.
You aren't taxed for dying. The person who died isn't taxed at all. It's the people that are still alive that are now receiving money that are taxed.
How is any of this unfair? Your children didn't do anything to earn that money. Why should they get it at all?
That's not true. Families build wealth together. My children don't do my work, but they work with mom to keep the house in order while I do. It's a family effort. Without the support of my wife and children, I would not be able to produce nearly as much as I do (note: I'm not wealthy, I just happen to value the money I make).
If your children provide you support, great! You have that advantage vs. people that don't have children or that have children that are, let's say, a drain on their time.
Your children still did not earn income, you did. And you got a tax break for that as well in the form of dependents. You are asking to double-dip here, which is unfair.
If you think that's double dipping, then you have a sad view of the world. Here's some news - when you actually earn a decent income, child tax credits do very little to offset taxable income, especially when you are a business owner.
Even if people pay full capital gains, that doesn't prevent the existence of a multi-generation estate. And those kind of estates are the whole point of the estate tax.
If a tax directly taxed holdings on an ongoing basis (a wealth tax, or much better, a land value tax), I could see an argument for doing away with an estate tax, but only then. (And I'd say not even then)
What's inherently wrong with a multi-generation estate? What's wrong with me wanting to pass on wealth to my kids and grandkids without this already-taxed money to be double-dipped by the government? If I want to work so hard that I can leave significant money for my descendants, why should the government get to tax that money twice? That seems incredibly unfair to me.
Look at it as a regular income event. You were taxed when you got that money from whoever gave it to you and now your kids are being taxed when they get the money. Your kids aren't you. Money isn't a taxed-once thing, it's taxed every time it changes hands. Death is an event at which money changes hands (from you to your kids), and is taxed appropriately.
Anyway multi-generation estates are very well tested as being bad for society over time. Just look up monarchies.
There's always a cutoff just due to practicality. If you give a friend $5 probably neither of you filed taxes for that. If you give a friend $10m, well, the IRS will probably notice that one.
If you want to work so hard that you can leave significant money for your employees, the government taxes that twice: once when it goes to the business, and once when it goes to the employees. Why are children different?
Well, not in the US. The money paid to employees is tax-deductible to the business, so it's only taxed once (the employee pays taxes on the money paid to them, but the business doesn't.)
I am failing to see where - salaries are write-offs, and sales tax, which doesn't necessarily apply to all situations, are a tax on the buyer, not the recipient...
Wealth tends to translate into power. Multi-generation wealth transfer translates into dynasties. Dynasties are the antithesis of democracy.
Hence, multi-generation estates are anti-democratic.
Of course there is nuance in the extent of the effect. Some inter-generational wealth transfers are fine. Multi-generation estates wouldn't be a problem if everybody had them. And so on. But the core of an important argument against multi-generation estates is very plain. (Other arguments can and have been made as well, of course, including fairness arguments - I didn't work for my inheritance, for example.)
A wealth tax is inherently limited; for example, you can't tax 100% of wealth-- that would be pure confiscation.
However, a land value tax can scale up to 100%, because you're taxing rent, and not wealth that is bought/created by any individual.
An estate that has its rent taxed 100% will eventually dissolve, unless it's constantly generating new value aside from rent (which is in general not the case).
This seems like an interesting idea but, every time I read about a land value tax (LVT), the description is very high-level and leaves me with more questions than it answers:
- How do you measure the basic value of the land?
Is is it the amount of rent collected minus
maintenance-and-improvement expenses? Does
this mean it is impossible to turn a profit
as a landlord?
- Is the tax also applied to land that is not
rented? Is it harder to assess the value of
that land?
- Does this system discourage conservation by
incentivizing everyone to sell their unused
land to someone who is going to develop it?
- A common type of investment in today's no-LVT
world: I buy an undeveloped plot of land that
noone would pay anything to live on in a town
just outside of Worcester, MA. I spend $100k
building a house on the premises, and then I
proceed to rent out that house for $1k per month.
Under an LVT system, do I still have any reason
to buy that land and build a house on it? How
much money can I make?
I agree that a lot of the questions it raises need to answered (in practice, LVT has run into issues because of poor practices by the assessors office).
To answer your questions to the best of my abilities:
- A landlord should be able to make a profit because the building itself would
not be taxed. The only kind of landlord would which not see a profit is the
kind that rents out land use, but does not actually develop or perform
maintenance.
- Land that nobody wants wouldn't get taxed. (A few square feet of land in
Alaska, for instance) But if there's any demand to own the land, it would have
a rental value.
- It highly discourages sprawl, so it's good for conservation in that
sense. However, I recognize that greenlands near city centers need special
consideration. For instance, the Muir Redwoods in Marin absolutely would have
needed intervention to be saved; the LVT would have been an incentive to
develop so close to SF.
- In a LVT system, undeveloped land would always sell for $0. The tax on the
land is equal to the return on the land itself. So in the current system,
you pay $100k for the land, $100k on the house, get taxed $2k/yr in
property taxes, get taxed on the rental income, etc.
In a LVT system, the land would be free, but would be taxed at $5k a year.
(Assuming 5% rate of return). You're not going to get $5k for that land unless
you do something with it, so you absolutely have the incentive to build a
$100k house and rent it out for $1k per month.
But let's say that the land was worth $500k instead of $100k. Now the LVT
would be $25k a year; you'd have an incentive to build much more than a
$100k house; you'd want to develop it even more to generate even more
return. This is how the LVT aligns the incentives for land use better
than the current system (where property tax on improvements leads
as a discentive to develop, and encourages restrict zoning laws).
I think the valuation of the land is the hard part, but active markets and self-valuation may have secrets to accurate and convenient pricing. I think it merits more research on this field, at any rate.
You want to read Alexis de Tocqueville's comments on early American inheritance law; it's always been structured to try to prevent the accumulated heritable wealth and power that built the European aristocracies, and the estate tax is simply one tool in that toolbox.
This is one of the more common anti-estate tax arguement but I dont see it. At the end of the day the government will raise a pool of tax dollars. They can tax you more while you're alive, or tax you less while alive + estate tax when you die. If you look at it like this, estate taxes actually allow you to pay less tax over your lifetime. So to not have estate tax, one could argue people are paying too much tax during their lifetime.
Ok, I expended sweat and tears and made $X, and obviously I should be able to benefit from my labors in my life. Too much tax denies me that, but too little is unfair as I used the resources of "the commons".
But receivers of inheritance did not earn any of it. It's not obvious that 100% estate tax is unfair.
@hype7 is correct. To others in the thread, I don't mind Canada's system - basically, tax the income from (the potential) full liquidation of assets. In many cases, everything needs to be liquidated before an estate is divided anyway. Income gained would be taxed anyway. That said, I don't live in Canada so I don't know the finer points.
To those speaking of multi-generational wealth, I'll bypass the "it's bad" argument and point greatly towards the "1/10 of 1 percent" that have gained something like 90% of all newly created wealth in the past couple decades (and the innumerable ways they can keep that wealth from the estate tax) as evidence of it being a failed policy, again only hurting those somewhere in the middle.
You have a fundamental misunderstanding of the super rich if you think that hard currency represents any significant fraction of their assets, late in life.
It's only a concern for the middle class, and there are other rules that cover them.
Estate taxes are a problem, but only because inheritances aren't treated as normal income for the recipients. Death shouldn't be a taxable event...but receiving income (even as a result of someone else's death) should be. If there is a desire to allow some level of ubtaxed inheritance, then instead of exempting estates below a certain size, we ought to exempt a certain amount of inheritance income per recipient.
Not really the point. In general, money is taxed when it changes hands. Payroll taxes, income taxes, sales taxes, etc. Taxing on death is just taxing money that is transferred from the decedent to their heirs. It's not a matter of how many times you "dip": the same money has likely been taxed quite a few times for different reasons before it ended up in that person's estate anyway.
No, it just means that after your death your descendants don't benefit unfairly. Instead, the money that would be used to set a trust fund baby for life is redistributed among all people.
In the US, you can give your property to whomever you like... and they have to pay taxes on it as income.
I'm not sure why your children should be exempt from paying taxes on the gift of an estate. Call it "death tax" if you want, but really the lack of an estate tax is tax break privilege for the wealthy. The estate tax is simply a decision of what the income tax will be on income in the form of an gifted estate.
The giver is generally on the hook for gift taxes and it is calculated similarly to the estate tax.
That the giver pays is not really a super important distinction, the money is coming from the same place either way, but procedurally it's the giver that has to do the paperwork.
That is typically not true in the US (2015). In the US there is an exemption on estate tax up to $5.43 Million and the transferred wealth above that amount is 40%. Compared to the highest regular income tax bracket is 39.6% and that is on the income above $464,850. So, it is essentially an income tax on the transfer -- except typically much much less. For example, an estate of $5.44 Million would be $4,000 (on the excess $10,000). Or an effective tax rate of 0.074% not 74% or 7.4% but 0.074%.
Edit: So, yes, if you are transferring 500 Million or 50 Million then you will get close to the 40% tax (slightly higher than the regular 39.6% tax), but if you are transferring 5 Million or below there will be no tax.
That's your definition of a "free society", as is "fruits of your labor". You know, I might say that societies with our concept of property, where a state monopoly on violence guarantees rights, and where wealth is largely the product of appropriation of people's productivity based on those state-sanctioned property concepts, is very far from a free society.
No, wealth does not accrue to "those who solve people's problems the best".
For example, let's consider what I do, cancer research. In my field, lots of scientists and doctors work very hard to develop new therapies for treating cancer. At the end of the day, this results in a product that is covered by a patent, a form of property.
This property is owned by some very rich people who have never lifted a finger to do any cancer research or solve any problems; all they have done is own things. In this case, because of the specific form of property, they are able to make hundreds of billions in profits without having done any work other than the contribution of some capital. That is, literally, property ownership is the only contribution these people make to drug development, yet they accrue essentially all of the resulting wealth.
The extent of this accrual is a product of the specific forms of property that exist and how much they allow this sort of appropriation.
Every form of property is the product of government - property as we know it cannot exist without government help. For a practical example, until 2013 it was possible to own genes via patents, and about 20% of the human genome was under patent. There were companies that were entirely built on the fact that they owned certain human genes, e.g. Myriad Genetics, which made hundreds of millions of dollars off this. Then the Supreme Court decided this was NOT a form of property, and suddenly this possibility of accrual vanished.
This applies to everything we might think of as property - patents, trademarks, land titles, etc., they exist because of legal force guaranteed by the government.
Some of these property forms are extremely arbitrary measures that seem almost designed to produce wealth transfer (for example, granting mineral rights) to certain individuals.
I'm not going to argue for the continued existence of patents or intellectual property.
In the case of cancer research, you sold your time to your employer for a fixed amount of money (maybe you had equity, but it doesn't sound like it). That was the end of the transaction for you. The investor took a risk and was rewarded for it, all within the current system, which is not a free society.
When you spend money on a consumer good, you're going to choose the product that works best for you, given your budget. For the same money, you will not choose a product you deem to be inferior. Thus, you reward the maker of that product with your dollars because they solve the problem better than the maker of the inferior product.
As for "appropriation of productivity," if you're alluding to the workers vs capitalists struggle from Marx, then I can't help you. I will simply point out that nobody in a free society is compelled to work for another. Thus, all salaries / wages / employment agreements are entered into voluntarily. There is no appropriation: each voluntary employee knows the terms of employment and agrees to them.
> I will simply point out that nobody in a free society is compelled to work for another.
Ah, the plaintive cry of the college Libertarian. Of course people in our society are compelled to work for another; you cannot live without eating. You may not be compelled to work for a specific employer, but you are compelled to work, and in an economy where there is massive unemployment and wealth inequality, employees and employers are not on the same bargaining terms.
Let's put it this way: someone comes to you and says, "I have your wife in a secret location. Go and murder my boss, or you'll never see her again." You might accept this contract and we might call it "voluntary" since you agreed to the terms, but that's hardly a fair characterization of the situation. Power differentials matter, and they absolutely produce compulsion.
>You might accept this contract and we might call it "voluntary" since you agreed to the terms, but that's hardly a fair characterization of the situation. Power differentials matter, and they absolutely produce compulsion.
But noo, you enter into a contract voluntarily, it's not exploitation because you can leave your employer. Agh! Marx got it right on the money 150 years ago. It's incredible how the obvious escapes these misty eyed libertarians.
>In a market economy, wealth accrues to those who solve people's problems the best.
That is simply it true, and it baffles the mind how some people obtusely insist on that bunch of wishful baloney, pardon my bluntness.
So a capital holder/landowner simply buys stock/rents out a flat, and by essentially doing nothing but owning stuff he gets to earn a large amount of money while people actually doing stuff are rewarded as lowly as the market can squeeze them. How does this fit with your worldview of "money goes to those who work harder"?
"In a market economy, wealth accrues to those who solve people's problems the best."
By passing large sums of money from generation to generation, you end up with a class this won't apply to. It'll be the family of some relative long since past who once upon a time, solved some problem the best.
Why should I care if someone else inherited family money and doesn't have to work?
Inherited wealth must be invested continually to defend against inflation. That investment will continue to power the market economy, even if the holders of the wealth are not entrepreneurs.
>Inherited wealth must be invested continually to defend against inflation. That investment will continue to power the market economy, even if the holders of the wealth are not entrepreneurs.
This assumes that wealth is being invested correctly, and that money acts in some sort of neutral fashion, automatically flowing where it is most needed. In fact, money just shores up wherever there is some sort of place for it to grow.
It turns out that it is much easier for concentrated wealth to use games and tricks of the economic, financial, political system to make money grow than it is to actually invest it in high-risk areas that might provide stronger growth.
The more diffuse wealth is, the less this will be an issue.
Yes. Every dollar in the pocket of a trust fund baby is a dollar missing from an underfunded public school, a homeless relief program, a cancer research center, a library...
You and you alone have the right to the fruits of your labour. Once you are dead you are not gonna benefit from it anymore, so your children do not have any more claim to it than anyone in the country. Therefore it should be redistributed back to all people.
Do you think your children should have more rights than other people?
They've proposed that, but as far as I can tell it's less of a serious proposal and more an instance of an "overcoming objections" sales tactic. I don't see how a flat sales tax can achieve revenue-neutrality (itself a major selling point of FairTax) while also offering a large enough "prebate" to avoid being enormously regressive in practice. Considering the misleading nature of a bunch of other FairTax claims [1], I pretty much consider distrust to be the only tenable default position with respect to anything else they say.
There's nothing unfair about your descendants (or other heirs) acquiring your belongings once you pass away (assuming proper tax was already paid on said belongings).
