What’s the argument FOR an inheritance tax, when it comes to fairness? The person who’s passsing the money down already paid tax on the money, whether income tax or capital gains tax. The government already got a hefty chunk of that earned money. Why should it be taxed again? Especially when we see how inefficient the government is at spending money for the public good.
The egregious-ness of taxation is seen only by the amount of money spent, not in the fashion in which it's collected. If you want lower taxes, you have to specify what things you're going to cut. (And you have to be honest about it: singling out tiny programs you disagree with doesn't even begin to cover it.)
All taxation is "double taxation". There's only a finite amount of money in the system. It just moves around. The government pays for its spending by taking a bit of it every time it moves. There's no single fair way to do that; everybody will always say that it should fall on somebody else.
Eliminating "double taxation" isn't a reasonable or useful goal. To cut taxes, you have to cut spending. And "cut spending on everybody but my priorities" isn't a useful way to think about that.
Came here to say this. Everyone wants the services taxes provide, no one wants to pay taxes.
> If you want lower taxes, you have to specify what things you're going to cut. (And you have to be honest about it: singling out tiny programs you disagree with doesn't even begin to cover it.)
I read an article saying that if the US federal government wants to cut the deficit to zero with no tax increases and avoid touching the entitlement programs (social security, medicare), they need to cut 70% of every other program. If you cut it evenly, it's 27%. 27%! Here's the article: https://www.nytimes.com/interactive/2023/03/06/upshot/balanc...
If you want to cut spending, bring on the detailed proposals.
You're forgetting that what we [should] optimize for is the general welfare of the population (based on human moral code). Taxes are just one way to redistribute [some] gains that are lopsidedly awarded by the market, since in certain cases we do not want winner-take-all behavior (but instead to optimize the welfare of the many).
This is a middle ground between communism and capitalism and seems to be what works best in practice. Or you could call it market socialism (though that's leaning more into socialist direction).
Unregulated, un-taxed markets do not do that. They support exploitation and extraction (at the extremes).
Forget the moral code... how long would this rich people last without the government protecting them? Should we have a free for all? That's the way you start the revolution and the rich loose their heads...
Yet how woefully it has failed to curtail growing inequality. The well off have proven for millennia they won't support the hardest hit on society. Governments have to do that.
At the moment of death, capital gains tax on unrealized gains has not yet been incurred. The estate tax is one way to force those gains to be taxed (but not the only way, of course).
Forgive my ignorance, but I see 2 possible scenarios for the assets to be passed on to the heirs:
- simply transfer possession - in this case, there is no realised gains, so no need to charge taxes. they can be charged when the gains are eventually realised.
- realise the gains and transfer the money - in this case, tax is charged on the realisation of the gains.
> aren’t the inheritors gaining wealth they did not have before?
In terms of stocks and land, yes and no. They are receiving assets they did not have before, and those assets have a market value that is not realized until they sell them. They are receiving paper wealth, and while paper wealth can be beneficial (you can borrow against it), it is not the same as actual spendable cash. A government could tax them on the value of those assets at the time of transfer, but that may require the inheritor to dispose of some or all of the assets in order to pay the tax bill. Governments typically require their citizens to pay taxes in currency, not assets.
Note that governments do sometimes treat asset transfers this way (e.g. restricted stock awards), but they typically view unrealized gains as something to be taxed when they are realized (ie. converted to currency).
What's really beneficial with inheritance is the step-up basis. When assets get inherited, the cost basis is reset to the market value at the time of the transfer, which means taxes are never paid on any gains made between acquiring the asset and the death of the owner. So even if the inheritor sells them at a later date, they still pay substantially less in taxes than they would normally pay.
That sounds fair and reasonable when you're talking about stocks, but if you talk about a small family farm who's owners typically have very little capital other than the land, are you proposing that they sell the farm in order to keep it?
I'm merely correcting an objectively incorrect claim: "The person who’s passsing the money down already paid tax on the money, whether income tax or capital gains tax."
I'm not advocating for increasing the estate tax (nor even necessarily closing the capital gains stepped-up-basis upon death). I am advocating for having our facts straight.
Exempt the farm from taxes if you like farms. Whatever. That’s a public policy choice.
But don’t say we’re talking about a fucking farm when you’re advocating for no taxes on a diverse network of private equity positions and real estate holdings.
Don't assume you can read "fucking" more into what I wrote than what I wrote and cast your anger on me.
It's all public policy choice, and if you think that it's simple, than lay it all out for us after you've considered all the consequences (immediate, secondary, "unintended", and unintended) and get back to us.
The one I know intimately is worth less than $1m for the land. I believe there are far fewer of those left than in 1960, but my perception is there are still quite a few.
> The person who’s passsing the money down already paid tax on the money.
If they're passing down cash yes, but if they pass on assets like stocks or real estate, the cost basis gets stepped up to the fair market value at the time of death (in the US at least). So any capital gains accrued on those assets prior to the death of the person passing them on are just never taxed.
There isn’t a deemed disposition at the fair market value at the time of death? I thought the estate paid that capital gain which is why the inheritor receives it at the new FMV?
I think the argument is that certain kinds of inheritance, like real estate and ownership in small businesses, cannot survive the taxes. It's the "what about the family farm/store/restaurant?" argument.
Speaking in extreme generalities, the people in favour of taxes believe that there is only a tenuous link between improving society and getting paid money. That the state's view of what would be an improvement is superior to the view of wealthy individuals. Anyone being wealthy is somewhat suspect because they have claim on resources and the pro-tax types don't believe they can use those resource more effectively than a government.
From that perspective, the handover of assets that happens during an inheritance is a great time for a tax - they don't believe that the inheritee will use the money to improve the world, they don't believe that the deceased was making optimum use of those funds and so this is an opportunity to level the playing field for the next generation and redirect assets to a more fundamentally wise and fair state.
I don't agree with that view (the USSR alone, let alone all the other attempts...) but it is internally consistent.
Pro-tax type here, this quote is not accurate for me: “ pro-tax types don't believe [private entities] can use those resource more effectively than a government”
It’s not that they’re less effective, it’s that the public should get some say in how the money is used. I don’t want a small group of people single handedly deciding the “most effective” way for them to use their wealth, because it inevitably leads to whatever allows them to continue holding power.
I’d rather money be used less efficiently, but in the public’s interest, than in the interest of a few powerful people. No matter how philanthropic they appear.
I don’t trust the US govt much. But I trust them to spend money in a way that’s, say, 15% more democratic than the Koch brothers would. That’s good enough for me.
Let individuals fight for their own wealth as it should be. Society should take care of leveling the playing field... And helping those that cannot take care of themselves.
Getting a leg up in life because your parents left you a big inheritance, is unfair to those who don't. There are many different types of fairness, not just one.
It's not "fair" that I'm only slightly above average height and will therefor never be an NBA star. It's not "fair" that I'm a competent musician at best -- far, far below professional level.
Are you arguing that no one should be allowed to be a pro basketball player or musician?
You should go read a story called Harrison Bergeron by Kurt Vonnegut.
Yes, it isn't fair that some people are taller than others, or more talented.
The way we account for that is is not by outlawing behaviors. Rather, we levy progressive income taxes so that people who are lucky can help people who are less lucky. The most talented basketball players pay a large income tax that helps provide services to those who were not born lucky.
I don't see why estate taxes are any different. It is not fair that some people are born into rich families while others are born into poor families. Nobody is suggesting we outlaw inheritance. But levying an appropriate tax on inheritance and preventing tax avoidance schemes is one way to compensate the unlucky.
Vonnegut was also a socialist (according to Wikipedia).
Sorry, you're dodging. Most professional musicians (and other artists) are far from wealthy. Should they have to pay high taxes as well, for "fairness"?
Maybe instead we could, e.g., force streaming services to play an equal number of songs from every musician (or imagined musician), regardless of talent. Want to listen to Bach? Okay, but you have to listen to five hundred songs from untalented randos before hearing a Bach piece.
You’re strawmanning me. It would be better to let people stream songs by whatever artist they want. Then the fair thing to do is to levy progressively higher taxes on more popular/profitable artists to redistribute money to those who were not born as talented or motivated.
This is one of the silliest comments I’ve read on HN: it’s not fair to have successful parents that love you, therefore the government must step in and fix that.
The argument is slightly different. It's not economically efficient to allocate wealth to children according to their parents' abilities (as opposed to the children's abilities). Doing the latter (as opposed to the former) will maximize the aggregate wealth of a society.
There a meritocracy argument in favor of inheritance tax. Those inheriting did not earn that wealth, therefore they should not receive it.
Maybe instead there could be a lottery. Any wealth over some threshold (say $10M) is divided into $100k prizes and awarded to random citizens like a lottery.
This angle makes me think that we're going about the whole inheritance tax thing the wrong way.
It's not the parent's estate that should be taxed. They have indeed earned all the money fair and square, and should be able to pass it on as they see fit.
Instead, let's think about a tax on receiving inheritances. Limiting the money hose where the inequality actually happens, at the person that hasn't worked for the money and through pure happenstance comes into riches while others are not getting remotely equal opportunities. That person should be the one to consider when proposing an inheritance tax.
Maybe a lifetime tax-free limit on receiving inheritances, cumulatively, from any source.
[Edit: This way, we can also elegantly solve the "can't pass down the family business" problem: Allow the inheritance tax to be paid in long-term installments by the recipient, with interest, allowing the inheriting child to keep the asset but make them work for part of the value they got out of it. Remaining tax debt at the time of the child's death would be due immediately at the time of their own death.]
The money is gained on the backs of so many other people who helped make the infrastructure that made wealth accumulation possible. Taxes ideally pay for things that benefit enough of us, like roads, education, housing, and health care and sure, defense, since we're still combative and territorial humans.
This "double taxation" argument has nothing to do with fairness. It's rules lawyering, not ethical reasoning. It also ignores the fact that money is usually taxed when it changes hands - income tax, sales tax, etc. Yes, again and again and again. The one notable exception - which the article even mentions - is certain kinds of inheritance. Thanks to the basis step-up, a lot of wealth has evaded the kind of taxation that every other kind of transfer typically incurs.
> Especially when we see how inefficient the government is at spending money for the public good.
Pure political cant, unrelated to the matter at hand and particularly to any issue of fairness. It does, however, underscore the ideological motivation behind an otherwise ridiculous argument.
If you spend that money you pay VAT. The company you paid pays their employees, who pay income tax. Whenever money exchanges hands, it's taxed - pretty much.
Seems fair to me, though as a father working to leave something for my kids, I fully understand the sentiment. In Germany, children already pay inheritance tax starting at 400k EUR (half a house where I live).
Neither did the government. Why shouldn’t the person who did earn it get to decide what happens to it? After all, they could choose to donate some to the government. No one does though, voluntarily, because we all know that money would get wasted.
“The government” isn’t a fixed entity. It is what people want to be funded. Wealthy Americans donate enormous amounts of money to entities that would be publicly funded in many other countries: universities, hospitals, concert halls…
Everybody wants to give money to something where they get their name on a wall and the envy of their rich peers. Meanwhile projects that could be more beneficial to society but don’t have the prestige factor languish. An inheritance tax would level the playing field.
That’s something people can change by voting, even in America. The Roosevelt administration allocated tax money very differently from the Hoover administration, for example. Whether the New Deal was beneficial to society could be debated, but enough people believed in the change to keep voting for it.
The government provides physical and legal infrastructure that allows the person who made the money earn it. Society provides a market for whatever goods and services they sell, and collectively pay by suffering environmental and social externalities resulting from business activities.
If you'd like a modern tech view of government, think of it as a platform that creates the marketplace (aka an app store) where you pay a tax to do business.
The question was about fairness. When concentrated wealth goes to a selected individual or group of individuals, it is usually seen as "fair" when it has been earned in some way. This didn't need to be explained, right?
If you're the spouse or child of an earner you technically didn't "earn" their money either, right? Inheritance is the same concept... you work and make money to provide to your family.
Actually the capital gains basis gets reset at either date of death or 9 months later. So no not all that capital was taxed properly. Even saving $100K a year and getting 8% growth can't generate that scale of wealth, even if you save at that level for 40 years.
