A tax proposal: eliminate income tax, increase inheritance tax

Great Debates
1

I’ve been kicking this idea around in my head for a while.
Let’s eliminate income tax, and possibly sales tax/property tax/whatever tax completely, and in its place drastically increase inheritance tax?

Suppose we let someone leave 1M in assets (or whatever number works out so that the total governmental tax receipts are equal to what we have today) to whomever they wish, but the rest go into the public coffers.

This seems fairer and more easily implemented than the system we have today. You can make all the money you wish in your life without the government taking one cent, enjoy the fruits of your labor, but once you’re gone, you give it all back to the society that let you earn your riches in the first place.

The only objection of course, is that a person should have the right to do with their money what they wish after death, but how fair is it that bill gates jr. doesn’t really have to lift a finger and earn anything to make it in life? This would, I think, make everyone truly equal. You are entitled to what you earn, but don’t benefit from popping out of one womb versus another.

As I said, I think it would be much simpler than the system we have now. You get your paycheck, and you keep it all. For your entire life. Once you die, everything above 1M goes to the public.

Of course, difficulties include making sure 93-year-old bill gates doesn’t start giving his money to his kid while still alive, but these can be overcome. Say, you’re allowed to only give 100k (or whatever number) in gifts to anyone per year. Any amount above this would be taxed severely.

Well, that’s my idea, anyway. Comments are welcome.

2

Okay, just for starters…what about when ol’ Bill Gates gives Billy Jr. a couple of million right now, before ol’ Bill kicks the bucket; as a gift? (…or hires him to…oh, say…test games for a couple of hundred thou an hour?)

3

zuma answered that by setting limits.

the other objections off the top of my head:

  1. Any idea that elimination of all income tax etc. in favor of this proposal would end up with the relative same amount?

  2. Keep in mind the wealthy folk are able to hire attorneys who are very clever at getting around things like this.

  3. While you may state that "why should Bill Gates Jr. not have to ever work just ‘cause his daddy’s rich (and his ma is good loooooookin’ - sorry, I was on a roll), but more to the point, why should Fred Jones Jr. benefit from Bill Gates Sr?

4

Do you have any idea why ‘inheritance’ still exists. It’s like extending the life of the person who made it. The more money you have the greater the profit you can make on it, a higher percentage profit. ‘Inheritance’ continues to develop the wealth of individuals after death, not to mension paying all the regular taxes such as income tax.

A better system would be to actually tax rich people what they owe not what their attorneys manage to get away with. If that were the case then that system would run rings around yours, both short-term and in the big picture.

5

Zuma, I doubt very much your system would generate adequate revenue. IIRC, estates above $3M are taxed at 55%, and yet the estate tax accounts for only a small percentage of our total tax revenue.

6

Seriously…I apologize for my first post being made before I completely read your original post…but my second scenario still stands…and if you find a way to outlaw my second scenario, then what is to stop ol’ Bill Gates from putting all of his money into a Swiss bank account? This is not just a joke, one of the strengths of our present system is that any person with excess funds is encouraged to reinvest those funds back into the system. Some of the methods that we use to encourage people to do this are called “tax loop-holes”. Some of these “tax-loopholes” are actually quite legitimate, i.e. you get a break in your tax burden in exchange for using your money in a way which is percieved as benefiting the overall system. This would include giving to charity; risky investments which might benefit people in general (…let’s say research into battery powered cars, home loans to high risk borrowers, etc. …)

In an ideal world people might not care what happens to their money after their death, but in the real world people seem to care a great deal…I would prefer that ol’ Bill Gates invest his money in companies that might hire me, as opposed to hiding it under a rock somewhere…

7

Taken to its logical extreme (no gifts allowed to children, all assets forfeited to the government, no giving children cushy 1m/year jobs), i’m quite sure that this plan would far exceed tax income currently generated.

My numbers were admittedly pulled out of my ass, but my argument is valid, i think. there is a lot of room to fiddle with the numbers, but giving virtually EVERYTHING back upon death would, i think, allow room for elimination of all other taxes.

8

I think I agree with you.

Within 100 years the gov’t would own 100% of everything.

No thanks.

9

Dogmatic as Freedom2 can be, he’s right. People die with not just money in their checking accounts. If they did, maybe your system would work. But what people normally pass down to their inheritors include things like real estate, stock, businesses, material possessions, etc. Many times only a small portion of it is actual cash, but often instead revenue-producing tools. If people have to give this all to the government when they die, then the government ends up owning everything eventually. If the government instead is forced to sell it, the resulting glut drives down prices on these things, resulting in less revenue. The more they sell, the less they get.

10

Question on your theory:
What would this do for say Life insurance policys?
tax the policy before the recipiant can claim the money?
then why get life insurance?
Do not tax monies from a life insurance policy.
I could then be covers for a HUGE ammount with only paying in that which I would normally be paying to the goverment in year to year income taxes.

Ok and not to add to the OP.
I personally would go the other direction tax income but not tax inheritance.
When a person inherits a large sum of money they seem to A) spend it like there is no tommorrow (Goverment gets their share from sales tax) or B)they invest the money to make more money which feeds the economy.

Just personal observations here and opinion no facts really.

do I get change from my 2 cents?

Osip

11

I, too, would like to see the estate tax repealed. When not-so-small farms and businesses are passed down to the next generation, the descendents often find out that the deceased was richer than they appeared, and the tax bill, which runs as high as 55% as I said earlier, can easily exceed the available liquid assets.

12

There’d be a lot of talk about how “communist” it would be because the Communist Manifesto mentions eliminating all inheritance rights.

But this reminds me of something from a Howard Zinn book I was reading recently (Declarations of Independence: Cross-Examining American Political Ideology):

13

What is this “National Reform the Tax Code Day” or something?..Suddenly there are 3 threads on tax reform!

As for this proposal, I can envision a few problems:

(1) It punishes people for saving their money relative to those who just spend it. [God, I can’t believe I am now trotting out an argument made by those who want to eliminate the estate tax altogether! May I rot in hell!!! Seriously though, I think it is a matter of balance. I support taxing estates to some degree but I don’t think it is right to make it the only source of government revenue.]

(2) It doesn’t make much logical sense in the sense that the justification for taxing people’s incomes is that they are benefitting from the government services today. Changing from a partly “pay as you go” system to a completely a “pay after you go” system just doesn’t seem logical. I also think there would be a big practical problem in starting it up when you are relying on this year’s deaths to fund the government for everybody.

14

Oh for fuck’s sake. This is such bullshit that’s been swallowed hook, line and sinker by so many people that there appears to be a groundswell of popular support for estate tax repeal – despite the fact that only about 2% of households in the country even have to file a return.

The first $675,000 for anyone is tax free. A couple can pass $1.35 million tax free to their kids. That’s a lot of money. AND that amount is scheduled to increase to $2 million ($1 mil./person) by 2006. In fact, with George W in the White House, that will probably increase to $5 million per family sooner than 2006.

In addition to that current $1.35 million, you can get an additional $1.3 million if your estate consists mostly of a family business, LIKE A FARM. And in addition to that if your estate is illiquid, you can pay in installments in accordance with Section 6166 of the Internal Revenue Code.

Frankly, by the time your “family” farm is worth more than $2.65 million, you are a total idiot and deserve to lose it if you haven’t figured that out. I don’t know where you’ve been, RoboDude, but most family farms are not doing so well. These are the farms actually owned and worked by a family, a family in debt because they’ve had to upgrade their equipment and have had to borrow extensively but haven’t been able to make substantially more money from the venture. You know who benefits from an elimination of the estate tax? The Purdue family - they own their “family” business. Do you really feel sorry for them? How about the Walton family (Wal-Mart)? Did you cry when Jack Kent Cooke’s family had to sell his interest in the Redskins to raise cash? Boo fucking hoo.

The 55% rate doesn’t kick in until the total estate is over $3 million. And it doesn’t even approach a blended rate of 55% until about $10 million (that is, the effective rate is something less than 55% because the tax starts at 37% for the first dollar over $675,000, and the rate increases incrementally).

In short, estate tax repeal will benefit the super-wealthy. Estate tax reform, including increasing the unified credit (that $675,000) and making it a real exemption rather than a credit (so the marginal rate over $675,000 is 1% rather than 37%), is what will benefit the family farms and other family businesses you are so concerned with, without the substantial loss of revenue that complete repeal would entail.

15

Nothing like figuring out how to spend other people’s money for them. How civilized. “There’s more of us than there are of them!”

Yep.

16

Hey, Cantrip…Way to go! I bookmarked this thread so I can refer back to what you said when this argument on the estate tax comes up again, as it inevitably will!

As for aynrandlover’s talk about “other people’s money”…Okay, I am going to try this a new way. In physics, there is something called “the independent electron approximation.” Basically, when you have a bunch of electrons together in, say, a metal, semiconductor, superconductor or whatever…this approximation says that you can sometimes still think of them basically as electrons, i.e., they have the same spin and charge, but they often have a very different “effective mass” due to their interactions with other electrons, the ions in the lattice, etc. Worse yet, sometimes the independent electron approximation breaks down altogether and the system doesn’t look like a bunch of independent electrons at all…but can have bizarre properties. The Nobel prize in physics was awarded a couple years ago for the “fractional quantum Hall effect” where the effective charge carriers are very different and have bizarre characteristics like a fractional amount of charge (relative to the normal charge of an electron).

Why the hell am I telling you all this you ask. Well, I think an interactive society is a lot like this. It is hard to say where we are on the spectrum we are between non-interacting and so strongly interacting that it doesn’t make any sense to talk about individual economic beings anymore. But, I think we are clearly interdependent enough so that the idea that every cent of money that someone earns in our society is theirs and theirs alone and they don’t owe any of it to the society in which they earned it is ridiculous, to say the least.

17

Creative anologies notwithstanding, I fail to see how coexistence implies mandatory wealth-sharing.

  1. Does Bill Gates, for example, owe me money? No, he gave me computers. He can keep him money.
  2. There is no two.
18

Boy, using Bill Gates as an example of the virtuosity of the market? I thought I wouldn’t see that happen! For me, he is an example of how the market awards people for dubious reasons. (Of course, some in the justice department would argue that he didn’t use the market completely legally either!) I think if the world was just, he would be out begging for money on the street-corner. (Okay, I exaggerate a bit for effect…but you get the picture.)

I find that even people who are generally pro-market kind of squirm when you bring the subject of Bill Gates up. They have a hard time rationalizing his reality with their belief in the nobility and omniscience of the market. It is remarkably freeing in terms of the opinions one can have of Bill Gates if one doesn’t believe the market is the judge of all virtue!

19

No, the estate tax shouldn’t be repealed. The rich should be made to feel that they owe something to the society that made their riches possible, regardless of how much they may resent it.
The government provides a ton of services that businesses use: interstate highways, education, police, medical, and, most important of all, a judicial system to which they can turn for a fair and impartial hearing when they have disputes among themselves or between themselves and their customers or employees. Don’t think that’s important? I have one word for you: Russia (today’s, not the Soviet model).
But it’s equally stupid to say that the estate tax should be confiscatory, or anything close to it. What separates a free society from an unfree one, economically speaking, is that we start from the premise that what’s yours is yours and what’s the government’s is negotiable, not vice versa. Same as that we cede certain of our rights to the government in order to have a functioning civil society, instead of having our rights granted to us by a beneficent monarch, or dictator, or whatever.

20

They just must learn. We know what is right. We will teach them.
Even if it kills them.
I think we saw this episode in China a couple of years ago…