Proposal : stop the accumulation of all wealth into fewer and fewer hands through inheritance taxes.

Great Debates
1

It’s an undisputed fact that more and more of all wealth, in both the United States and worldwide, is flowing into an ever smaller group of people’s accounts.

Whether you think this is good or bad, whether conservative or liberal, this is a fact. More and more income is going to the top 1% and really 0.1%. Presumably this process, if nothing is done, will grind forwards and in 30 years, it’ll be the top 0.01% making all further gains in income. I don’t know exactly what property of capitalism is causing this, but this is what is happening.

Well, the whole point of capitalism, initially, was that as you, in your lifetime, do things for other people, you get rewarded by getting tokens that let you ask for things from other people. If your labors are more in demand, you may get far more tokens per unit of time you expend than others, but that’s totally fine.

If a small number of people get to be born and start with more ‘tokens’ than the lifetime earnings of thousands of people…how does that make any sense? Did the person who originally earned those tokens need the ability to leave all of it to their descendants?

This doesn’t work. So we can just fix it. You can leave a few million to your kids, that’s fine. But not more than the lifetime earnings of an average American, I’d say. Any more wealth than that, when you die, it goes back to the assets of the country in which it was earned.

If we did this, I suspect we wouldn’t even have a national debt. The total assets of the United States are 270 trillion dollars. Eventually the government would get almost all that money back (basically it would get all of it except for the amount of wealth that is under the ‘cap’ you can legally pass on to your kids).

Foreign owned property and property placed in trusts and stuff would be seized after about 100 years after the sale of the American owned asset to someone else.

This would have several profound beneficial impacts on our society :

a. Wealthy people would have a far greater incentive to fund longevity extending scientific research, since otherwise the government gets every penny save a small amount.
b. Wealthy and powerful people would be in favor of far better public schooling and healthcare, if they can’t guarantee that their descendants get elite private coverage after they die.
c. We wouldn’t have a national debt.
d. There wouldn’t be any problems funding medicare or social security.
e. Wages for ordinary workers might be higher, since the wealthy owners of companies have little incentive to horde excessive amounts of wealth.

2

Err, one quick addendum before I start receiving hostile messages : I think the cap would be 3 to 10 times the lifetime earnings of the average American. So if you become a billionaire through hard work, you do get to spend all the money you want on yourself (leading to more consumer spending and more economic activity…) during your lifetime. You can spend it all if you want. But if you die, you can only leave that 3 to 10 times a base number (lifetime earnings of average american) to whichever list of beneficiaries you specify. Heck, we can abolish any income or inheritance taxes on inheritances under the cap.

The asset seizure is for unclaimed trusts. Basically, the government would stop allowing trust funds that have no owner. A living person must be designated as the owner of any trust or asset on U.S. soil. When that person dies, the usual reclaiming applies, whether the owner is foreign or domestic.

The government, upon taking possession, would convert all assets to cash over time. It would auction off any non cash assets, sell any securities (gradually, according to some procedure specified by law), and auction off any developed lands. Undeveloped lands might be added to national parks or auctioned as well, at the government’s discretion.

Oh, and an upload to a computer system, making oneself immortal, counts as death for the purpose of the law. Same with post death brain preservation.

3

You better have one helluva gift tax mechanism, and an entire department of the government doing nothing but fighting back against the many, many ways people would try to get around the taxes, especially by sending their money out of the country, and moving out of the country entirely.

You’d also collapse a lot of investment in the U.S. – why buy real estate in the U.S. if you’re only going to lose it on death? Why invest in the U.S. stock market at all?

The whole point of capitalism is private ownership of property, which includes the government not taking it away just because you die.

4

Make up your mind, will you?

5

Some people would agree with the first part of that, Others would say the whole point is provide an incentive system to increase productivity for the benefit of all people while enforcing a system of free enterprise that prevents excessive accumulation of wealth.

Some people would agree with the second part of that. Others would say that’s bullshit because dead people can’t own things.

Either way, for almost four decades the wealthiest people have backed a political rollback of the competition and accumulation of wealth to moderate capitalism.

6

So wealthy people, once they have accumulated a few million dollars, simply stop working. Or, they continue working but destroy their earnings out of spite. Spend it on hookers and blow. Or build a mansion and then burn it to the ground. Is that going to help the economy?

Or, they evade the tax in numerous ways. They give a “gift” to a trusted friend who is younger than them. After they die, the friend gives a similarly sized “gift” to their children, or hires the children to mow their lawn for 1 million dollars a year.

You want their to be incentives for people to produce. Some tax percentage is okay, but if you cap inheritances and tax them at 100%, then there is no incentive.

7

SamuelA, could you offer a firm # for the cap you propose, so that we can perform some analysis on it? So far, I’ve seen a range from 1-10 times “the lifetime earnings of the average American”. Which is it? 1? 3? or 10?

8

the greatest barrier to any significant inheritance tax or outright forfeiture, is that the “American dream” has got most people believing they could one day be one of the top 1%, and wouldn’t it be a shame if I ended up sticking it to myself by voting for such a measure!

mc

9

Does it matter? Let’s just say it’s 15 million, indexed to the average wage.

10

I’m reasonably sure that most of the good that parents do for their kids comes before death. By the time someone is in their 60s, it doesn’t really matter whether they inherit a bunch of money or not. They’re not going to be doing much with it but investing in stuff anyways. It’s before that, when they’re taking up slots in schools and positions in companies that they’re in the way of someone else who, perhaps, had better talents but less access.

11

There’s one small problem with this type of reasoning:
The assumption that the flow of wealth is strictly one-way.

It isn’t. Here’s a couple of old sayings: “Riches take wings and fly away”; “shirtsleeves to shirtsleeves in three generations.”

That last one may need some explaining. The first generation starts out poor, and accumulates wealth. The second generation is usually an adequate steward, but doesn’t necessarily add too much to the accumulation. The third generation, having been brought up in the lap of luxury, and being accustomed to wealth, makes the assumption that “I can’t spend it all.” That assumption is virtually always proved false.

Where are the Astors in the Forbes list of billionaires? Where are the Vanderbilts? Where are the Fords? Where are the Mellons? For that matter, where are the Rockefellers, a name that for over 100 years has been a byword for incredible wealth? Now, certainly, some members of some of those families are still wealthy; but they have been eclipsed by self-made billionaires, or in some cases the first generation of heirs.

12

Just do a wealth tax if the goal is to stem growing wealth inequality.

13

That’s what this is…

It’s just posthumous, so in no way does it disrupt a the person who earned the wealth’s ability to enjoy the fruits of *their *labor. (or whatever amazing exploit/scheme they came up with)

14

An Estate Tax, you mean?

Nah, it’ll never catch on.

15

That’s not an undisputed fact; it’s spin.

It is equally undisputed that people who create wealth keep most of it. It doesn’t “flow”, it “stays”. Or rather it gets invested and returns a profit overall.

The property of capitalism is called “investment”.

It makes sense because of another concept called “property rights”, which means that I own what I make.

It also makes sense in this context because of another concept called “family”, which means that there are people I want to benefit, like my children. And my desire for their benefit is much greater than my desire to benefit strangers I have never met.

Sez you.

You are going to have to run the numbers for me on this.

Currently there is an inheritance tax on estates (IIRC from a cite Bone gave me) over $5.45 million, and it raised (in 2011) $8.5 billion. IIUYC you are suggesting a 100% tax on the value of all estates over $15 million. We currently have a deficit of $440 billion and a national debt of something like $19 trillion. How many estates do you believe exceed $15 million, by how much do they exceed $15 million, and is that enough to eliminate the deficit and start paying down the national debt?

I’d also like you to flesh out the details a little. Suppose Mark Zuckerberg and his wife both die (which God forbid). Much of his wealth is in stock. Does the government get the stock directly, or do his heirs have to sell the stock and give the money to the government? What do you expect to be the effect on the stock price if investors know that a huge block of stock in a company is going to be dumped onto the market?

That doesn’t seem realistic to me. Most of the time I would expect people to die long after their children are educated, and I would also like to see the figures on how many rich people’s children are covered by their parents’ healthcare when those parents die.

Why would I give my workers a raise if I don’t benefit from it, to put it crudely? And where does the money to give them raises come from, if I have no incentive to make the money?

Suppose I own a business that is worth $15 million. If I take risks and expand the business, if the risks pay off I can raise the value of the company to $20 million and give everyone a raise. Or the risks don’t pay off and the company value drops to $10 million. I am taking risks for no reason - if the value goes up I don’t benefit, and if the value drops I lose.

Maybe I do that anyway out of the goodness of my hear and a desire to benefit somebody even I don’t. I am much more likely to want to benefit my children than my workers, and much, much more than I want to benefit the government.

Regards,
Shodan

16

Myself, I think a number of your assumptions and assumed benefits are just left wing talking point talk and based on fantasy not cold hard reality of economics, the way governments work, and tax avoidance.

Laughable to think that your plan would eliminate the national debt and fund Medicare or social security.

17

My goal for retirement is 12 million so I don’t think you 15 million is too far off. At 3% return, I can live on $15 million for the rest of my life without touching the principle. If your system was in place why would I bother to do any work after I had my $15 million?

Right now, Let’s say I have four grandkids and I don’t want them to ever work a day in their lives. I’d need to give each of them $6 million so now I need $24 million on top of my $15. Now I have the incentive to earn to $39 million. Obviously the farther down the line I look the more money I need to earn. So if I want to have the next Stanford or Vanderbilt be Oredigger University then I really need to get cracking to give them a $20 billion endowment. You plan kills all of that unless I find ways around your law so all you’ve accomplished is getting productive people to stop working.

18

It does if we want to evaluate your claims:

Just curious, have you made any attempt to “do the math” and estimate what a 100% death tax on 15+ million would bring in an average year?

And do you know how much our national debt is? Or how much it costs to fund medicare and social security?

Shodan gave you a good start on this already.

19

How is it that worldwide poverty has been declining for decades, then? Seems counter intuitive if more and more of the wealth is flowing to a smaller and smaller group that at the same time more and more people worldwide are moving from extreme poverty to…well, less extreme poverty I guess. What’s your take on that?

20

Given the average effective tax rate for those that file an estate return that is taxable is around 17%, and the amount collected is about $16.6B (2013 figures), if that rate went to 100% that would yield a collection amount of $98B. Of course, in 2013 the exemption was $5.25M, and the proposal on the table is an exemption of around $15M, so the collection amount would be lower than $98B.

But that’s assuming no behaviors change. That type of assumption would naive, at best. What would likely happen is there would be all manner of avoidance strategies implemented such that the $98B would be greatly reduced. I’ll make a bold assertion that something less than $98B would not eliminate the national debt.