A fairer inheritance tax could go a long way to fixing the worsening wealth gap in America.
But don’t say we’re talking about a fucking farm when you’re advocating for no taxes on a diverse network of private equity positions and real estate holdings.
It's all public policy choice, and if you think that it's simple, than lay it all out for us after you've considered all the consequences (immediate, secondary, "unintended", and unintended) and get back to us.
I'm not advocating for increasing the estate tax (nor even necessarily closing the capital gains stepped-up-basis upon death). I am advocating for having our facts straight.
Like it would be pretty amazing if that value was just due to land appreciation and had nothing to do with their management and investment decisions.
The one I know intimately is worth less than $1m for the land. I believe there are far fewer of those left than in 1960, but my perception is there are still quite a few.
I think you need a better straw man.
- simply transfer possession - in this case, there is no realised gains, so no need to charge taxes. they can be charged when the gains are eventually realised.
- realise the gains and transfer the money - in this case, tax is charged on the realisation of the gains.
What have I missed?
aren’t the inheritors gaining wealth they did not have before?
In terms of stocks and land, yes and no. They are receiving assets they did not have before, and those assets have a market value that is not realized until they sell them. They are receiving paper wealth, and while paper wealth can be beneficial (you can borrow against it), it is not the same as actual spendable cash. A government could tax them on the value of those assets at the time of transfer, but that may require the inheritor to dispose of some or all of the assets in order to pay the tax bill. Governments typically require their citizens to pay taxes in currency, not assets.
Note that governments do sometimes treat asset transfers this way (e.g. restricted stock awards), but they typically view unrealized gains as something to be taxed when they are realized (ie. converted to currency).
What's really beneficial with inheritance is the step-up basis. When assets get inherited, the cost basis is reset to the market value at the time of the transfer, which means taxes are never paid on any gains made between acquiring the asset and the death of the owner. So even if the inheritor sells them at a later date, they still pay substantially less in taxes than they would normally pay.
Everybody wants to give money to something where they get their name on a wall and the envy of their rich peers. Meanwhile projects that could be more beneficial to society but don’t have the prestige factor languish. An inheritance tax would level the playing field.
Seems fair to me, though as a father working to leave something for my kids, I fully understand the sentiment. In Germany, children already pay inheritance tax starting at 400k EUR (half a house where I live).
Why should I pay sales tax? I already paid tax on the money as income tax.
Why should I pay income tax on that money? That money was already taxed through payroll taxes before the employer paid me.
Why should the employer pay payroll taxes on that money? They already paid income taxes on it.
Why should companies pay income taxes on that money? They already paid sales taxes.
You don't pay taxes on literally the serial numbers of the notes being moved, you usually pay taxes when those monies move between entities.
I hope the US can pull themselves out, but everyone seems stuck quibbling over the extremes of minor issues, rather than important difficult topics.
This is a middle ground between communism and capitalism and seems to be what works best in practice. Or you could call it market socialism (though that's leaning more into socialist direction).
Unregulated, un-taxed markets do not do that. They support exploitation and extraction (at the extremes).
All taxation is "double taxation". There's only a finite amount of money in the system. It just moves around. The government pays for its spending by taking a bit of it every time it moves. There's no single fair way to do that; everybody will always say that it should fall on somebody else.
Eliminating "double taxation" isn't a reasonable or useful goal. To cut taxes, you have to cut spending. And "cut spending on everybody but my priorities" isn't a useful way to think about that.
> If you want lower taxes, you have to specify what things you're going to cut. (And you have to be honest about it: singling out tiny programs you disagree with doesn't even begin to cover it.)
I read an article saying that if the US federal government wants to cut the deficit to zero with no tax increases and avoid touching the entitlement programs (social security, medicare), they need to cut 70% of every other program. If you cut it evenly, it's 27%. 27%! Here's the article: https://www.nytimes.com/interactive/2023/03/06/upshot/balanc...
If you want to cut spending, bring on the detailed proposals.
From that perspective, the handover of assets that happens during an inheritance is a great time for a tax - they don't believe that the inheritee will use the money to improve the world, they don't believe that the deceased was making optimum use of those funds and so this is an opportunity to level the playing field for the next generation and redirect assets to a more fundamentally wise and fair state.
I don't agree with that view (the USSR alone, let alone all the other attempts...) but it is internally consistent.
It’s not that they’re less effective, it’s that the public should get some say in how the money is used. I don’t want a small group of people single handedly deciding the “most effective” way for them to use their wealth, because it inevitably leads to whatever allows them to continue holding power.
I’d rather money be used less efficiently, but in the public’s interest, than in the interest of a few powerful people. No matter how philanthropic they appear.
I don’t trust the US govt much. But I trust them to spend money in a way that’s, say, 15% more democratic than the Koch brothers would. That’s good enough for me.
Society is better when we do. That’s why we should.
If they're passing down cash yes, but if they pass on assets like stocks or real estate, the cost basis gets stepped up to the fair market value at the time of death (in the US at least). So any capital gains accrued on those assets prior to the death of the person passing them on are just never taxed.
We always tax money when it transfers from one person or entity to another.
Proving my point that the rule is that money is taxed when it changes hands and the exceptions are exceptions.
Are you arguing that no one should be allowed to be a pro basketball player or musician?
You should go read a story called Harrison Bergeron by Kurt Vonnegut.
The way we account for that is is not by outlawing behaviors. Rather, we levy progressive income taxes so that people who are lucky can help people who are less lucky. The most talented basketball players pay a large income tax that helps provide services to those who were not born lucky.
I don't see why estate taxes are any different. It is not fair that some people are born into rich families while others are born into poor families. Nobody is suggesting we outlaw inheritance. But levying an appropriate tax on inheritance and preventing tax avoidance schemes is one way to compensate the unlucky.
Vonnegut was also a socialist (according to Wikipedia).
That would be "fair", yes?
Maybe instead there could be a lottery. Any wealth over some threshold (say $10M) is divided into $100k prizes and awarded to random citizens like a lottery.
It's not the parent's estate that should be taxed. They have indeed earned all the money fair and square, and should be able to pass it on as they see fit.
Instead, let's think about a tax on receiving inheritances. Limiting the money hose where the inequality actually happens, at the person that hasn't worked for the money and through pure happenstance comes into riches while others are not getting remotely equal opportunities. That person should be the one to consider when proposing an inheritance tax.
Maybe a lifetime tax-free limit on receiving inheritances, cumulatively, from any source.
[Edit: This way, we can also elegantly solve the "can't pass down the family business" problem: Allow the inheritance tax to be paid in long-term installments by the recipient, with interest, allowing the inheriting child to keep the asset but make them work for part of the value they got out of it. Remaining tax debt at the time of the child's death would be due immediately at the time of their own death.]
> Especially when we see how inefficient the government is at spending money for the public good.
Pure political cant, unrelated to the matter at hand and particularly to any issue of fairness. It does, however, underscore the ideological motivation behind an otherwise ridiculous argument.
I don't think they're "ignoring the fact". I think they're arguing that it's wrong. Those aren't the same thing.
I really don't get why so many people are so eager to empower a class of people that can make the rest of us do their bidding.
It shouldn't matter how many websites, shoe stores, or or newspapers they or their ancestors make, that shouldn't make them the boss of us.
Another huge loophole is charitable deductions. There's absolutely no reason the government needs to be helping fund individual charity decisions (for anyone, poor or rich). You have billionaires avoiding the majority of taxes they owe by giving money away to their pet charity causes.
You manage to afford 2 children and own a nice house outright by the time you're 65. You have a nest egg large enough to afford a high quality life in retirement (mostly to pay your property taxes & income taxes & capital gains on inflation [not even REAL capital gains]...)
You die with $1M to your name plus a $1M estate (this is top ~6% or so).
Now you want to take away 50% of that before passing it on to the kids?
I mean, sure, why not?
But also, that probably brings your effective tax rate for your life to close to ~66%...
All while the people with 50% of the money (the top 1%) continue to have an effective tax rate of ~30% or less.
Like, how about we solve the problem where the people with the majority of the money have the lowest effective tax rate before increasing taxes on regular folk to make up for that??
I wouldn't be surprised if the average lower-middle class person already has a close to ~60% effective tax rate...
Not to mention the increased taxes will be paid back, at least to some extent, in enhanced services. Maybe your kids could get a free education and free healthcare instead of $1M each in inheritance.
Or instead of increased services, we could tax other things less such as the income of living people. I'd much rather have dead people, who have zero use for the money getting taxed more and living people, who actually can make use of the money getting taxed less.
Yes, or spend it…
I’ve met too many people who are quite concerned about their parent’s wealth and spending later in life, and it seems to become more concerning for the kids once their parents become closer to death.
I believe, as a rule of thumb, dynastic wealth is bad for society at large and encourages a rise in rentiers and other parasitic behaviors.
> But also, that brings your effective tax rate for your life at close to ~66%…
Such an odd concept: the tax rate of all income you have had over the span of your life. Once you’re dead, you no longer ‘own’ anything. It belongs to your estate, and whoever owns that estate is the person who is taxed.
if the balances were programmed to be slashed - a portion automatically deleted for inactivity - I would be more into that. note that this is an upgrade from what the Federal Reserve already tries to do in tightening phases like now. This is also what some monetary experiments do to validating nodes.
When people talk about wealth gap, they mean the ultra-rich, the multi-millionaires. For someone with a net worth of $20 million, a one time half-a-million does not make such a difference.
If you want to get rid of the estate tax exemption, you don't hit the Bezoses and the Zuckerbergs of the world, you hit the middle class.
And by the way, you don't even need to move a finger to cut that exemption in half. It will do that in 2026. If you so desire, you can write to your representative to tell them you'd be very upset if they vote for an extension of the current levels of the estate tax exemption.
These people are being snookered by the upper middle class. At $12 million, the estate tax exemption excludes all but the top 1% of wealthy. There’s over a million households in that group.
The top 10% own 70% of the wealth. The top 1% holds over 30%. But billionaires hold only about 3%. To meaningfully address wealth inequality, it’s not enough just to heavily tax Bill Gates. You have to heavily tax people like his father, a law firm partner. You need to heavily tax many of the folks here on HN.
Far fewer than 1% of estates pay an estate tax, but rather closer to a tenth of that. It's nowhere near a million households currently subject to it. https://www.taxpolicycenter.org/briefing-book/how-many-peopl...
You might use that fact to support the second half of your argument, of course.
- Income tax: 49.5% (36.93% on income under €73k)
- Inheritance tax: 40% (30% for inheritance under €138k)
- VAT: 21%
Thus, poor people pay 65% tax and rich 76% in such a scenario.