The estate tax is a bad tax say economists (2001)

Like many wealthy individuals off of Hacker News, you more than likely have a Roth IRA account that houses Vanguard mutual funds. John C Bogle (or Jack Bogle), the founder of the Vanguard Group, has consistently and wholeheartedly supported the estate tax as a time-tested means of reducing income inequality. The estate tax has a deep and lengthy history stretching back centuries and (unfortunately) there is a dearth of economic data pointing to it being beneficial to society. It is nonetheless important to emphasize the mutual respect and shared responsibility between the wealthy and non-wealthy.

I am by no means a rabid Communist but rather a right-leaning individual that feels strongly about this subject -- there is most definitely precedent for the estate tax's usefulness. The basis of the argument against the estate tax is capital flight and that is just a weak red herring that ignores how immobile most wealth is.

As for the content, this letter gives no evidence of its claims, and simply relies on the emotional power of the phrase "death should not be a taxable event". It makes vague, unsupported assertions about the effect of the tax on saving, the cost of enforcing and collecting the tax, the amount collected by the tax, and the prevalence of avoiding the tax. Without actual numbers, though, it's impossible to argue with effectively, which is exactly the point of this rhetorical style.

The letter also falls into the narrowly hyper-rational trap of elevating vague economic principles to the level of an absolute moral stance. Just because some policy doesn't meet a completely artificial and oversimplified ideal of economic efficiency doesn't mean it's definitely the wrong policy. The real world is more complicated than an economic model.

Ultimately, the most important thing to understand is that this letter was a political statement in support of George W Bush's proposed tax policy in 2001, and not a serious argument. The content is no basis for a reasoned discussion of estate tax policy; it's a propaganda piece.

The main points they offer for why are `the estate tax wouldn't raise much money anyway because estate planners have hid the money well` and `it's too hard to enforce`.

Doesn't feel like a very nuanced argument.

I'm not entirely against dynasties, but it does seem against original US ways. This is definitely a return to policies that can allow a landed gentry.

Simply having property escheat to the government at death would seem to address the only real, non-moralistic argument raised by the letter: that the estate tax is expensive to administer but doesn't raise much revenue. Of course, people would probably arrange for inter-vivos transfers instead. That would be fine, because such transfers would be taxable income to the recipient (presumably, while we're getting rid of inheritance, we can get rid of what we call "gift income" which is really just regular income).

There is precedent for it:

> Thomas Paine, like [Adam] Smith and Jefferson, made much of the idea that landed property itself was an affront to the natural right of each generation to the usufruct of the earth, and proposed a "ground rent" — in fact an inheritance tax — on property at the time it is conveyed at death, with the money so collected to be distributed to all citizens at age 21, "as a compensation in part, for the loss of his or her natural inheritance, by the introduction of the system of landed property."

There is a certain libertarian appeal to the idea of property rights ending at death. Maybe there is a "natural right" to property. But surely there is no "natural right" to have a whole apparatus of government dedicated to carrying out the wishes of dead people.

Of course, those recommending the repeal of the estate tax are also probably of the opinion that wealth concentration is not a problem.

In my opinion, a wealth tax (of which estate tax is one example) is much fairer than an income tax. It is somewhat difficult to levy, but I don't think it's inherently more difficult than measuring income for income tax. It's just that we've spent a century working on income monitoring laws and regulation.

> the earnings on the assets were taxed year after year

Given the stepped up basis upon death, gains accrued during life are never taxed.

It seems to me, as usual, that small business owners (their progeny, that is) are the ones who get screwed by estate tax.

Full disclosure: I am not a small business owner, but my father has been for nearly 30 years. I anticipate that my younger brother, who works in the family business, will be more affected by this than I will be, so I consider myself fairly objective here.

In our example, my parents are doing fine, but they are by no means a "wealth center". My dad worked hard building the business. It took about 20 years for him to see meaningful profit (it's manufacturing).

So the problem as I see it is that my parents (like other small business owners) have the majority of their "wealth" tied up in the business. So the business would need to be dismantled in order to pay the estate tax, which leaves my brother (also working hard) in a tight spot.

I'm sure that there are ways around this, and hopefully they are thinking about that. I know that at some point there was a large life insurance policy meant to cover the tax.

Sure, it's still redistribution of wealth, but us folks in the middle are the ones that feel it. The top dogs will still pass most of it on.

I think we should apply a death tax only to dead people. A 100% tax on post-death income to the estates of the dead. That should speed up the settlement process.

What about sales/excise/VAT taxes? This letter seems disingenuous at best.

[0]:https://en.wikipedia.org/wiki/Grosvenor_Group [1]:https://en.wikipedia.org/wiki/Hugh_Grosvenor,_7th_Duke_of_We...

"An exceptionally productive individual can generate billions, but then when he dies the money goes to his heirs which may not have done anything to deserve commanding that much wealth other than having been raised by (and having the genetics of) the exceptionally productive individual, which is a far cry from being exceptionally productive themselves.

My thought was to create a cap on inheritance. Enough so that the heirs would be able to live a normal middle class life without working, but not be disgustingly wealthy like the parent. ~$5 million seemed like enough to live off interest for a lifetime. I don't think productivity would be disincentivized too much by this, as the productive individuals still get to use their wealth as long as they're living. It'd probably be pretty difficult to plug all the loopholes but I think it's worth thinking about.

We could lighten some other taxes (income, property, whatever) for this increased death tax such that the overall government tax income remains roughly the same, to make the proposal more palatable. Overall, everyone keeps more of their wealth, and the playing field is leveled and we're a bit closer to an actual meritocracy."

Now a) have these people never heard of VAT? b) every last bartender, private jet pilot, jazz musician, minder and hooker said wastrel interacts with pays taxes. The truth is, the playboy billionaire is way better for the economy than the upright citizen who sits at home on a pile of money.

And... the author knows this. He’s just hoping that cheap moralism will get you to agree with him when actually it’s part of a programme of action where he doesn’t disclose his actual motivations.

I said dumb at the start, dishonest would be more accurate.

They reject this idea of "collective fairness" because individuals' rights are much more important than the rights of the collective.

Also, I'm now dying to know how many economists in total have an opinion on estate taxation. They ought to know better than anyone else that sometimes proportions are more significant than absolute values.

My own, not-an-economist opinion is that the estate tax is bad, only because it waits until someone has died before making an intervention, then tries to do too much, all at once, and probably too late to make a difference. The letter is correct in that death should not be a taxable event. The tax should probably be invoked every time wealth is transferred from an elder benefactor to a younger, adult recipient, and defined such that all the trusts and offshore accounts and sham business arrangements are transparent to the taxing authority. If your "job" is to be an executive assistant to mommy or daddy, and for that you earn six figures, then the taxing authority should be able to determine the amount paid in excess of the median executive assistant and levy the nepotism tax on that. The idea is not to make money, but to discourage certain behaviors. If the rich people avoid the tax by employing their peers' children instead of their own, that's fine; it gives those kids the opportunity to work for a boss that won't cut them slack just to avoid awkwardness at the holidays.

The estate tax isn't just a tax on a parent's hard work and success. It is a tax on spoiled little rich kids, who never learned the value of actual work in the economy, who then go on to own companies and control what people do in them. It's a tax on being disconnected from the conditions experienced by lower classes, wherein it is essential to earn what you get, rather than accept whatever it is you think you deserve as your birthright.

I don't begrudge rich people their ability to provide additional opportunities to their children. But when their children turn out to be aristocratic twits, I also feel the desire to teach them the hard lessons that the rest of us likely got much earlier in our lives, to perhaps make them better, more empathetic people. And those are lessons best learned by not having so much money that self-discipline and self-sacrifice are never necessary. I get the feeling that fewer people would be laid off by stack ranking or to shore up quarterly results if those doing it had some inkling of what it means to be the one laid off--the panic, the fear, the depression, the austerity, and maybe even the irrational optimism.

It reads likes the latter, but the more interesting discussion is regarding the former.

So as to allow minor things, such as a house, to pass from parents to children, a low level exemption is reasonable, so the tax does not touch the poor or middle classes. Suppose the first $5 million are tax-free. That is more generous than the current system, and since $5 million is too small an amount to lead to oligarchy, it should not raise any concerns. But beyond $5 million, the appropriate tax should be 100% -- all of the wealth should go back to the society from whence it came.

The money raised from such a tax can help give poor children something to start with in life, and thus such a tax allows each child of each generation to start off with roughly equal assets. Thus everyone's accomplishments in life become truly their own, rather than being partly their own and partly their ancestors. The over-reliance on ancestors is a sad state of affairs that holds for many children of the wealthy.