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Comment by supernova87a | Hacker News Reader

Much as I take a more moderate view about taxation (some things that taxes go to fund are in fact ineffective and wasteful), I respect strongly the inheritance tax not just in revenue raising but in behavior influencing. (those who are on the receiving end of the tax, for reasons others have given here)

And I do not for one second buy the ridiculous argument, both on this tax and other taxes, that "money shouldn't be double-taxed".

Money is taxed every time it changes hands! Money doesn't have a "history", except where we create loopholes to allow it to, which disproportionately go to those who have the means to track and create vehicles that have "history". Poor people don't have capital gains.

The inheritance tax, though you may not think it intuitively, is a strong way for our society to renew itself and find new talent. It takes work to fight against those who would silently change the rules to start favoring the old and idle. (who are the ones who most have the ability to change the rules)

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> but in behavior influencing.

Ah, yes - because of course we want people to spend all their money before they die instead of investing long-term for their children.

These things aren't mutually exclusive. You could spend extravagantly on your child's education and give them a genuine leg-up on the competition.

Oh, sure - I'll spend extravagantly on their education, take them travelling around the world, do everything I can to set them up for success - but if I can't leave them my company, there's no reason not to run it into the ground for short-term gains before I die. Stock market "only cares about next quarter" anyways, after all...

I see you're taking the Toys R Us strategy. Or is it the Sears strategy? Or the we work strategy?

Huh, I'm starting to notice that people already do incredibly stupid things with their companies for short term gain already.

Now, I'm naturally willing to be proven wrong, but it looks like (from a cursory googling) that most firms only last about 10 years. https://time.com/3768559/company-mortality-rate-survival-stu...

You may think you're building an empire, but you're probably not.

Starbucks, founded 1971, fifty years old next year. Caterpillar Inc., founded 1925. Ford, 1903. 3M, 1902. Kroger, 1883. Campbell Soup, 1869. Pfizer, 1849. Proctor & Gamble, 1837. Colgate-Palmolive, 1806.

Some people already do incredibly stupid things with their companies for short term gain already. Do we need more of them to?

> Starbucks, founded 1971, fifty years old next year. Caterpillar Inc., founded 1925. Ford, 1903. 3M, 1902. Kroger, 1883. Campbell Soup, 1869. Pfizer, 1849. Proctor & Gamble, 1837. Colgate-Palmolive, 1806.

Choosing a handful of successful winners in comparison to "most firms only last about 10 years" is a selection bias.

All of the original members of the DOW Jones industrial average have declared bankruptcy or been absorbed into other companies -- except General Electric! Oh wait, they were just removed from the index

> Choosing a handful of successful winners in comparison to "most firms only last about 10 years" is a selection bias.

"Most firms only last about 10 years" is selection bias because most firms don't even last 10 years. Infant mortality is very high. The firms that do last 10 years usually last 20 or more.

Meanwhile you're ignoring my point -- it isn't a question of how many companies are destroyed, it's a question of destroying even more of them. Some evidence that maintaining a stable company is hard is not an argument for making it even harder.

> "Most firms only last about 10 years" is selection bias because most firms don't even last 10 years.

How is that selection bias?

> Meanwhile you're ignoring my point -- it isn't a question of how many companies are destroyed, it's a question of destroying even more of them. Some evidence that maintaining a stable company is hard is not an argument for making it even harder.

Sure. I'm not proposing we should make it harder

> my company... Stock market...

If you're publicly listed, it's not your company anymore.

> there's no reason not to run it into the ground for short-term gains before I die

Or, you could sell the business to the person most qualified to run it well instead of installing the boss's kid as the new boss. Nepotism is gross.

Or, you could distribute more ownership in the business over time to the employees that help build your wealth.

But no. If you can't pass the wealth to your kid, then there's literally no reason to do anything other than burn everything down.

> If you're publicly listed, it's not your company anymore.

Well, maybe. Something can be publicly listed while being majority owned by one person. But the "short-term vs long-term" dichotomy was meant more as a commentary on valuations and discount rates in general.

> Or, you could sell the business to the person most qualified to run it well instead of installing the boss's kid as the new CEO. Nepotism is gross.

This is completely unrelated to ownership.

>> Or, you could sell the business to the person most qualified to run it well instead of installing the boss's kid as the new CEO. Nepotism is gross.

> This is completely unrelated to ownership.

So if the kid's going to sit back and not interfere then it's kind of irrelevant that it's your business. Might was well be a portfolio.

I take it that you don't have children? Are family business gross? Sure, you could argue on a bigger level because of the power concentration, but you are applying the same thought to a small biz. Usually when the kids are not so bright, and you notice it as a father and company-owner, you just promote someone qualified -that you trust- to manage it and own some shares, but the control stays in your network. If you don't like it, go build something yourself.

> I take it that you don't have children?

Believe it or not, some people want to raise children who are properly incentivized to be productive members of society.

> Sure, you could argue on a bigger level because of the power concentration, but you are applying the same thought to a small biz.

The proposal here is about people with 8+ figures in personal wealth. That's not the typical small family business.

> go build something yourself.

I mean, this is literally the point of the death tax, that people should have to build wealth for themselves...

Note that I can’t see the article because of the paywall.

> The proposal here is about people with 8+ figures in personal wealth. That's not the typical small family business.

Depending on how it’s set up, “personal wealth” includes the business’s assets. I don’t know what your conception of a “small family business” is exactly, but there are definitely cases where a long-running business has a lot more “wealth” than it generates.

I don’t have an easy way to verify this handy, but I’m familiar enough with farming to assert with reasonable certainty that many family farms have several million dollars in assets while generating <$200k in yearly income. For a multi-generational farm, land value becomes a bigger and bigger issue.

For instance, my grandparents owned what most would probably consider a “hobby farm” in central Arkansas. I believe their parents purchased the land originally in the mid-1800s, when it was a rural area. It’s now very much in the middle of a small city and the land is worth many multiples of what it’s being used for today. My grandmother on that side passed a couple of years ago and to be honest I’m not sure who actually owns the land now - I know it’s still in the family because one of my aunts still lives in the original home on the property.

I don’t have a direct interest in this (I see no way I’d ever end up “inheriting the farm”), but I would very much be opposed to the state essentially confiscating the land that my family has owned for five generations. The land alone has likely increased in value in the past two centuries that its fair market value is more than $10m - but as far as I know my family has no interest in selling it, and as far as I know no one in my family has the means to pay taxes on that much value.

> The land alone has likely increased in value in the past two centuries that its fair market value is more than $10m - but as far as I know my family has no interest in selling it, and as far as I know no one in my family has the means to pay taxes on that much value.

One reason for taxing property is to force productive use of the fenced-in commons. If your land isn't being used in a way that enables payment of the full tax burden, then it should probably be sold off to people who are willing to help society extract the full value of that land. And taxes on inherited land should be attenuated, in part, to ensure productive use of land.

Where you see an unfair confiscation of your family's birthright, I see an unproductive use of the commons. The whole moral justification of fencing off the commons is to enable more productive use; if that productive use isn't going to happen, then we should either take down the fence or let someone else manage the land.

Or, suppose that's not the justification for private property and everything is birthright. The just and right birthright to land settled in central Arkansas in the 1800s probably belongs to the Osage.

I suspect we’re confusing two or more concepts here - publicly traded companies versus corporations with a single majority shareholder, and perhaps more, like small and multi-generational family businesses.

In most of those circumstances, “installing the boss’s kid” isn’t “nepotism”, at least not in the common usage of the word. Giving a business to your children is not favoritism because there is no reasonable expectation for it to be based on anything other than the owner’s will.

That point aside, I think my first paragraph illustrates a big barrier to discussion on this topic. It seems like many commenters here are envisioning a multi-millionaire setting up their kids with huge trust funds and giving them a “no-show” job on the board of one of more public companies. Others are envisioning a small family business being passed down between generations.

This is one of those situations where both sides are correct. The legal structure for a huge corporation isn’t that much different from the construction contracting company down the street. Especially in cases where the business requires a lot of capital investment (like construction or farming), a relatively small family business ends up falling under the same laws as the giant company.

It’s one thing to say that the giant company should come with a 15% tax passed on to an heir; it’s quite another to say that the family business should. In many cases, the family business simply doesn’t have enough capital on hand to absorb those taxes, and the only resort the heir has is to liquidate all or some of the business to pay them. This means that small, well-run, multi-generational businesses are damaged or even lost completely.

At the end of the day, the effect is regulatory capture. The owners of those giant companies hire accountants, take advantage of the tax code in every way they can, and just plain have enough cash on hand to make this a non-issue. The owners of the smaller businesses don’t. Over time, it means that the larger a company is, the less competition it faces.

> It’s one thing to say that the giant company should come with a 15% tax passed on to an heir; it’s quite another to say that the family business should. In many cases, the family business simply doesn’t have enough capital on hand to absorb those taxes, and the only resort the heir has is to liquidate all or some of the business to pay them. This means that small, well-run, multi-generational businesses are damaged or even lost completely.

This is a great point.

But, this seems like a problem that can be routed around in any number of ways without just throwing up your hands and allowing generation wealth accumulation at worst or lifelong unproductive consumption at best. And, on a startup board, it goes without saying that this is a problem that we should solve throughout the tax code and not just in case of the death tax.

And I still think inheriting controlling interest in a private (or public) firm is nepotism.

> Or, you could sell the business to the person most qualified to run it well instead of installing the boss's kid as the new boss.

What's your incentive to do that if the government is only going to take the money you got from selling it too?

In fact, nepotism is what you get when you require that, because nepotism is an alternative way of transferring wealth to your children instead of inheritance.

Whether their money is given directly to their children or given to the state does not itself determine whether that money has been invested "long-term for their children".

What matters is how that money is used.

If it all goes to decade-long revitalization projects in a distant town to which their children eventually move for a happy retirement, is that an effective long-term investment?

I can't think of another mechanism from preventing a permanent aristocratic class from passive investment

I can! Spendthrift children.

Or even just plummeting real yields on investment like we've been seeing over the past decade.

Another commenter posted [0], which indicates that there's something besides inheritance taxes driving successive generations back towards the mean.

0: https://www.nasdaq.com/articles/generational-wealth%3A-why-d...

>>> Ah, yes - because of course we want people to spend all their money before they die instead of investing long-term for their children.

>> I can't think of another mechanism from preventing a permanent aristocratic class from passive investment

> I can! Spendthrift children.

Well, in that case, it's all gonna be spent instead of invested anyways, so GGP's argument is moot and we might as well just tax it instead of having employees of public sector companies subsidize the layabout.

> preventing a permanent aristocratic class from passive investment

Well, there's a difference between passive and active investment...

> Well, there's a difference between passive and active investment...

If the child of the wealthy person is bad with money, then having them actively invest that money is net harmful.

And if the child of the wealthy person is not bad with money, having them actively invest that money ends up with dynasties.

And we're back to the same double bind: to defend the wealth tax, you need to either a) justify dynasties or else b) explain why we should subtract from the salaries of employees at public sector companies in order to subsidize dividend payments/bond yields for one or two generations of destructive layabouts.

(TBH there are reasonable arguments for family wealth and for allowing layabouts, but I don't think there's any way out of this bind. "oh don't worry, they'll piss away that money anyways" is a bad reason for not taxing someone.)

> "oh don't worry, they'll piss away that money anyways" is a bad reason for not taxing someone.

IMO that argument is meant to counter people disliking unearned wealth.

But to argue in favor of dynasties:

1. It might encourage a longer time horizon. "Leaving something good for your grandchildren", etc - and in a lot of ways people not doing this is why we have issues fighting climate change.

2. If investment ability is correlated across generations (and I'll eat my hat if it's not) then giving the children of competent investors more capital than those of incompetent investors will lead to better investments overall, and thus faster economic growth. And economic growth is everything. (2% difference in annualized growth for a century is the difference between the US and Mexico)

> IMO that argument is meant to counter people disliking unearned wealth.

Well, sure, for a lot of people. I care less about unearned and more about unproductive.

Hedonistic consumption on the weekends/a few weeks in the summer/20 years at the end of your life so that you can go build something during the rest of your life is net productive in most cases. Hedonistic consumption 24/7 for a lifetime is probably totally unproductive.

> 1. It might encourage a longer time horizon. "Leaving something good for your grandchildren", etc - and in a lot of ways people not doing this is why we have issues fighting climate change.

I think a huge wealth tax would be better. People would probably not let all that go to the gov. They would probably donate quite a lot. Hopefully to causes that address our most important problems (like climate change, but also healthcare, mental health, organizations to promote community fabric to fight loneliness, education, etc.).

>2. If investment ability is correlated across generations (and I'll eat my hat if it's not) then giving the children of competent investors more capital than those of incompetent investors will lead to better investments overall, and thus faster economic growth. And economic growth is everything. (2% difference in annualized growth for a century is the difference between the US and Mexico)

Well, the alternative is taxation. That could mean direct wealth redistribution. Or, that could mean war. Or, that could mean reinvestment in infrastructure/research/etc.

Now the question becomes "do you trust the grandchildren of the rich more or less than you trust the people's government?"

> Now the question becomes "do you trust the grandchildren of the rich more or less than you trust the people's government?"

Yes, I trust a collection of 3rd-generation rich more than I trust a government that is currently led by Trump. Some of those kids will be good, some will be bad - but they'll have diverse outcomes, while relying on the "people's government" is a single point of failure.

Democracy also allows for diverse outcomes; Trump is not emperor.

And, ironically, might not have become the president if he didn't inherit a $400m+ fortune.

There is a difference between diverse outcomes in parallel and diverse outcomes in series. If you have a hundred people flip a coin 10 times, redistributing each time - heads they get back triple, tails they lose everything - you'll end up with around 1000x what you started with. Whereas if you flip that same coin with reinvestment ten times, you'll almost certainly have nothing at the end - even though the average outcome is the same.

The US has 50 states, and each of those states have counties, and each of those counties is further subdivided, and each of those subdivisions is again subdivided, and sometimes even once more.

And each of those jurisdictions is full of people, some quite wealthy, who can make decisions with the wealth that they generate in their own lifetime. And even beyond their own lifetime, by donating generously to churches and hospitals and schools and universities and parks and so on.

There's plenty of parallelism, and even plenty of ways to invest one's wealth in meaningful pursuits posthumously without passing it to your offspring. I don't see why third generation aristocrats are needed to achieve the diversity and parallelism you seek.

You do realize Trump belongs to that very same group of rich-by-inheritance that you're contrasting him with, right?

If we didn't have the system of inter-generational wealth transfer that you're defending, Trump very likely wouldn't be president right now.

President or PM is likely the arena where you need to “have it all”, including aristocratic fluency, and it’s remarkable to any culture when that isn’t the case. It’s a similar argument to why the US should let Harvard be Harvard.

I'm sure you're not arguing a return to medieval feudalism, where an elite few control everything, but then again, I'm not sure what you're arguing

Is there something wrong with someone making a choice that pays off repeatedly (even up to near permanently) instead of only temporarily? Assuming no, then there is nothing wrong with passive investment.

Now power via money in politics is another issue completely, but money isn't the issue, corruption is. I would wholeheartedly agree we need to fix corruption in the government. I just disagree that the fix to corruption is to make everyone marginally poorer via taxation. (at least some margin is lost to bureaucracy)

For me it's a tough sell to convince me that any finite action can merit an infinite reward. Maybe you can make the argument but it's a tough sell

You're arguing in a 0/1 fashion, where the tax itself is a matter of degree.

There is a setpoint (or $ quantity vs. tax %) of this tax where the goals of helping your children are weighed against wealth-hoarding legacy family enrichment. It is most definitely a parameter that the government + people of a country should comment on.

You say "investing for their children". Somebody else might say "perpetuating the aristocracy". Same thing. Why do those children deserve any more investment than any other children? How does that contribute to a fair society, or even to a prosperous one?

This would be far more beneficial to the economy as a whole than the alternative, yes.

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