What would be the implications of a “grand compromise” as follows:
Accept the flat tax (“Fair Tax”), whatever you want to call it, as defined by its most enthusiastic proponents
Crank up the inheritance tax and gift tax to levels that could be called confiscatory (except maybe for 529 savings accounts being sheltered).
I was thinking that this might be a palatable approach to reducing income inequality. Enjoy your wealth while you’re alive, take care of your children’s education. But if you hoard it, it’s going back to the state.
So your belief is the country needs to cut taxes for those of the rich who engage in massive conspicuous consumption? This is the group least deserving of a tax cut; I would be more sympathetic toward the rich who are investing/creating new businesses…
Except most inheritance tax is not passed on as bundles of cash or in a bank account. Therefore this money is not hoarded. It usually comes in the form of property/stocks/shares etc.
I see the likelihood of more crazy accounting schemes to get by such legislation. Money going into dubious Trust Funds, Offshore accounts and so on.
A flat tax is just a disastrously bad idea. It moves the tax burden even more from the rich to the poor and middle class and would wreck the country economically. Adding some tweaks to a such a terrible idea won’t save it from its built-in disastrous flaws.
A hefty effective state tax would avoid the serious pitfall posited by the economist Picketty (as discussed in other threads). According to Picketty, income from wealth outstrips income from personal productivity, so eventually, a small minority owns a vast majority of the wealth (and income) and produces a class society based on inheritance.
One problem with inheritance taxes is that they’re terribly difficult to collect. Rich folks find ways around them.
Another problem is that it destroys things like “the family farm” or “the family store”. Of course, one could avoid that by setting the bar high enough (say, inheritance taxes start phasing in at $10M or $20M). So, they wouldn’t prohibit inheritance of “wealth” so much as inheritance of “fortunes”.
Practically speaking, the biggest problem with inheritance taxes is that many people feel that it’s their right to build wealth for the benefit of their children, and fight tooth-and-nail to protect it. Politically speaking, you’re more likely to get guns banned.
This. It’s one of the fundamental reasons of being alive and having children: Pass on things to them so they can have a better life (hopefully) then you did. You pass on knowledge and try and give them a good education. You pass on your family heirlooms and traditions. Plus, yes, if you’re lucky you can pass on some money, or the family business, or the family home.
Taking this away is just a terrible idea. Why should everyone have to start from scratch? They didn’t earn it? So what? Most of us weren’t alive when the Interstate Highway System was built. We don’t tear that down out of some sense of guilt.
We should be trying to make sure that more people can amass enough wealth to leave sizable inheritances, not punish those that do.
You know the ending scene in Fight Club when the world sort of comes crashing down? That was my first thought.
I don’t believe that this would be palatable to basically anyone. Liberals will hate the flat tax because, rightfully they will feel that the tax burden will shift even more towards the poor. Cecil did an article on the flat tax a few years ago that you should check out if you want a fuller explanation of why most liberals would not go for it.
Conservatives won’t like this because of the confiscatory nature of trying to swipe the wealth from people who build up their estates in the anticipation of passing them down to their kids. It’s going to strike them as abusive in the extreme.
Pretty much everyone else will hate it because they will see right off that it won’t work and will actually be counter productive. You are going to have a short fall in taxes when you go to a flat tax (depending on where you set the bar I guess). You aren’t going to make up for that by swiping the wealth from folks when they die, since people will find ways to protect it regardless. Even if you could, it would be counter productive since people don’t generally stuff wads of cash into their mattresses, but instead have the money invested in various ways. What is the state going to do on the death of some wealthy person? Liquidate their estate and confiscate the money? How is that helpful to the state or the economy?
It’s a ‘grand compromise’ that, literally, everyone will hate and would work towards changing in various ways depending on their political outlook. And they would be pulling and twisting the entire thing so that it would be a pretzel…ironically, it would probably come out looking much like what we currently have anyway, though it would be an even more complex muddle.
Frankly, this seems to me to be more of a worst of both worlds than a best of both worlds. I’m definitely a big fan of tax simplification and I’ve argued many times for a utility-value based tax system (similar in concept for flat tax, but it’s normalized around spending power rather than total income so it’s more progressive). Still, even not as a huge fan of the flat tax, it has some laudible goals in it’s intent, without regard to whether or not it achieves them. For instance, as I understand, in spite of, or in many cases perhaps even because of, the plethora of tax laws, the effective tax rate for the rich is similar to or even below that of the middle class. Thus, part of the idea behind the flat tax is that, with much simpler laws, it’s harder to find loopholes and easier to fix them when they are found. However, if you want to make it more progressive, by attaching it to stuff like inheritance taxes and all, you’re just reintroducing new ways for the wealthy to hide their assets and avoid additional taxes.
In my view, the best thing to do is to vastly simplify the tax system, though I have a preference, I think almost any simplification would work better. And rather than having deductions and credits and exemptions and all that stuff, just have a flat percentage, a utility-based adjustment and percentage, brackets, whatever, and build all that other stuff into other programs instead of tying it all into the income. The point then would be that you could theoretically have a flat tax that’s even somewhat regressive but then give some of that back to the middle class and poor through various programs, and because it’s so simple, the rich can’t avoid it through any method other than hiding their income.
Does it have to be? What if the flat tax had a $25,000 per person exemption? Would you agree that a family of four earning the first $100,000 tax free wouldn’t unduly punish the poor and middle class?
With today’s life expectancies, the “kids” getting the inheritance will be close to retirement age. Wealthier parents get their kids ahead by investment in education, by job support or investing in businesses, or other such ways. In any case there is benefit to kids making it on their own - not that the kids of any such people are going to be found on the street.
However I still think this is a bad idea since there are many ways around it, and in any case an increased inheritance tax is not going to make up for the shortfall in the “fair” tax.
Agreed. A lot of people even suggest a “Negative Income Tax” for people below certain levels, as a substitute for existing welfare plans. A lot of people are on board with this idea.
As for inheritance tax, I’d recommend, instead, higher property taxes. This is the best way to break up large accumulations of wealth.
I’d like to reduce the incredible income gap in this country, but I can’t see how. If the “free market” were actually functioning, CEOs would not be paid insanely high salaries or given insanely high bonuses; the shareholders would ask for a more economical management style, to be paid out in shares or dividends. At present the American corporate system is badly broken, and allows small minorities of directors to pay each other grotesque bribes.
(The “City of Bell” problem in the corporate world.)
It isn’t only corporations… When the President of San Diego State University got a salary boost to $400,000 annually, a lot of us were (and still are) outraged. Do you think they might have been able to attract a competent manager for a lot less? Damn right they could have!
Sure, all income above. But you exclude a lot of things.
If I said everyone gets the widget except for these people right here who get nothing, then I don’t get to go around claiming that I’ve given widgets for everyone.
Terrible, terrible idea. The Flat Tax is a stupid idea, and confiscatory inheritance and gift taxes are actively offensive. Combining the two does not cancel things out.
The new rule is that stockholders are able to vote on executive compensation. And in several cases, they have voted against pay packages. Unfortunately the rule does not say their vote is binding, and boards have pretty much ignored such vote. That’s just like cases where the stockholders have voted a particularly bad director off the board, only to have that same director reappointed to fill the new vacancy.
Anyone who thinks corporations are being run for stockholders needs to start paying attention.
