Okay, if a devout communist like me (or so I’ve been described by some of my readers,) dedicated to the violent overthrow of the United States government (so I’ve been told,) were to argue for restoring Washington’s estate tax, some of you would probably just dismiss me as a devout communist, dedicated to the violent overthrow of the United States government. But what would you say if the most vocal proponent of the estate tax were the father of the world’s richest man?
Taxing the estates of wealthy Washingtonians to provide essential services to the state “is a very sensible, very socially responsible thing to do,” Bill Gates Sr. said Tuesday.
…
“This is not a tax on wealthy people, it’s a tax on the grateful heirs of wealthy people,” he said. “It’s a tax on what’s left after having lived … a comfortable life.”
Gates was down in Olympia to support Gov. Christine Gregoire’s proposal to restore the state estate tax, which was overturned last month by the state Supreme Court. Gov. Gregoire would tax estates worth at least $2 million, but Gates says there is “a legitimate argument” for a lower exemption. Under the old tax, the exemption would have been $950,000 this year.
Gates points out that due to its heavy reliance on the sales tax, Washington has the most regressive tax structure in the nation. The estate tax was our only progressive tax, and restoring it would help shift some of the tax burden off middle- and low-income households.
Now before you get all foamy at the mouth defending the rights of rich people, I suggest you first read a two-page Estate Tax Fact Sheet produced by the Economic Opportunity Institute, so that we can all at least be informed enough to know why we are calling each other names.
The EOI has also produced a more in depth White Paper on the subject, that I highly recommend. Again, it is mostly just facts — a more detailed historical and technical discussion — but I suppose some of you might get a little apoplectic at some of its policy assumptions… you know, like that concentration of wealth is a bad thing.
If after pointing you towards these two, very informative documents you still insist on backing up your arguments with bad data and faulty assumptions, I will make fun of you. For example, if you make the claim that the estate tax forces heirs off the family farm, while ignoring the fact that there is a “family farm exemption” and that between 2002 and 2004 only 13 of the 5000 estates that paid taxes in Washington actually took the exemption, and that the American Farm Bureau Federation grudgingly admits that they cannot find a single example of a farm being sold to pay estate taxes… well then, your comments really don’t deserve to be taken seriously, do they?
We are all entitled to our own opinions, but not our own facts. I welcome those of you who vehemently oppose the estate tax to passionately and, um, colorfully argue your opinions. But if you take issue with the facts presented in the EOI documents, I must insist that you cite your sources as thoroughly as they did theirs. Either that, or shut the fuck up.
As to my opinion, well I agree with Comrade Gates’ testimony before the US Senate:
It is appropriate that a special tax be imposed on those who have so fully enjoyed the benefit of the things this country provides: schooling, order, freedom and encouragement to succeed and models of success. In a very practical sense, the wealth that one accumulates derives as much from the environment which this grand nation makes available and it is perfectly appropriate that the cost of its maintenance be paid back in proportion to what is extracted.
Nice, you pick the man that could inherit the earth moon and sun, he says Ill pay my “rich man” tax and inherit 3/4 of the earth if my son dies. Is this your best Goldy?
It’s more’n you’ve got, Chuckie.
Now before you get all foamy at the mouth defending the rights of rich people,
Nah. Rich people are great I guess.
Most people pay a significant percent of their income in taxes, I am sure the wealthy folks who inherit money would enjoy participating in funding our state as well in some portion.
Having generations of trust fund kids go on for their lives and their children’s lives never paying any taxes, would exclude them from the great civic duty the rest of us enjoy, paying taxes.
If there is any tax rate that needs to go down, it is taxes on wages.
If the democrats plan for enacting the estate plan is implemented, no one with more than 6,000,000 will pay a nickel in estate taxes with proper planning.
Comrade Gates is right. If he gave 90% of his wealth away, he still would be “rich”
Speaking of the definition of “rich”, Goldy and the Dems say $2 million, while the “fact” sheet called “rich” $3.5 million.
Lastly, what Goldy showed was that if you buy a house in ’05 for 10k and kept it for 80 years, it would be worth, say 10000k. You didn’t pay tax on that estate or property value gain. Good point, comrade.
But the money you used to buy it was taxed and the income you generate (if commercial or rental) is taxed, the property is taxed, etc. etc.. The only thing you didn’t do is sell it for a gain.
I know of rich people who buy property and just refuse to sell it, whether it makes sense for them or not. Weird.
But I don’t see why the estate can’t be transferred without death taxes. The new people don’t recognize a gain till they sell.
And that gets back to what is “rich”. If I own a house and a small commercial property. By the time I retire it will be worth $2million, if not already. Does that make me rich? I don’t think so.
When I was growing up my dad used to tell me that people who have 100k are rich. My, how the definition of “rich” changes.
Um, hello, he’s Gates Senior .. the 80 year old guy, not the head of Microsoft. And he’s the Gates in the law firm Preston Gates and Ellis and was rich before his son was.
Can’t imagine a more fair tax – one that doesn’t apply until you aren’t affected, that makes provisions for carrying on family businesses and caring for loved ones, one that only applies to those who have reaped the ultimate benefits of our stable system of checks, balances, and capitalism.
Receiving a large inheritance destroys the incentive to work, so I’ve always been in favor of the estate tax in principal. Equal opportunity to get ahead, means everyone should start from roughly the same starting line.
I know some rich people who have kids.
One, lets the kids develop lazy attitudes.
The other, he doesn’t let the kids have anything for nothing.
Guess which kids know how to generate income for the government? And in the first case, the kids aren’t that bad, BTW.
To each his own, but that shouldn’t affect the death tax.
What I started doing as a small business owner about 10 years ago was not working so hard at making money, but in eliminating all the cash that went to the government. The government has lost out on a ton of money from me, but you can also say that the work I did was done by others so it was a ‘wash’.
Aaaah, if only Goldwater were back.
Dear Horses Ass:
Why do you neglect to mention how Gates Senior became rich? As a lawyer. What kind of lawyer? An estate lawyer! Gates Sr. made his fortune helping rich people avoid paying estate taxes. He makes big money from the status quo. He is part of problem, not the solution.
As for yourself, you would have more credibility if you could point to some tax – any tax – that you would lower or eliminate.
Hefty @9 I hardly think that Gates’ motivation here is an evil genius trying to concoct a dasterdly plan to bring back the estate tax. There are much easier ways to make money….
As for reducing a tax, I can’t speak for Goldy, but I would happily reduce the sales tax and bring Washington’s taxation system into more balance by using a combination of sales taxes, income taxes, and property taxes as the main tax base. It would be more fair, more stable, and more predictable from year to year. Not that logic or good sense seems to have much to do with the conversation.
There is a basic right to do with your property as you wish. It’s personal property, not state property waiting to be confiscated.
If you want to give it all to the government, you are free to do so, but I sure don’t hear either Gates saying that. They are saving out enough of their own to make sure their heirs are quite wealthy. This tax will not have any impact on them, so it is pretty easy for them to suggest it. (These guys aren’t dumb – Sr is paid a hefty salary to from Jr’s charitable trust. They aren’t giving away anything they don’t have to.)
Estate taxes are a net negative tax. People spend lots on lawyers on how to avoid the tax, and then spend lots on lawyers on calculating the tax. In the end, the federal gov’t collects less than was spent on all this lawyer-spending.
Hefty @9,
Regular readers know that I am a passionate advocate of major tax restructuring, based on reducing or eliminating the sales tax, and replacing the revenues with an income tax. I’m also a big fan of Ron Sims’ very creative proposal, which would have eliminated both the sales tax and the B&O tax.
Janet @11,
Rhetoric. That’s all you’re arguing. Read the EOI documents, and then come back and argue the pros and cons of the estate tax.
I’m curious,
Do all of you railing for the estate tax also approve of the 80 cent tax increase for cigarettes, the tax increase for alcohol, and the tax increase for canned meats.
You know, all the really rich people I know smoke Pall Mall, Drink 40 ouncers and can’t live through a day without some spam. Geez, are these regressive taxes?
Just curious.
What is this about taxing canned meats? What about freeze-dried?
Nindid, if only I could believe that if an income tax wouldn’t be abused by later raising the sales tax.
The canned meet thing is an adjustment in the B&O tax rate for canning meet. Take a look at our ridiculous B&O tax, with its dozens of different rates for different industries. Pea-splitters pay a very low rate, infinitive-splitters like me pay the highest rate (assuming I earn enough money to pay the B&O tax).
Swatter @14 – Isn’t that a bit like cutting off your nose to spite your face? We have an abusive sales tax right now and an incredibly unstable tax structure. Let’s fix that for the good of all.
I am a simple guy, so moving in the right direction always seems like a win to me.
Janet @ 11
So Janet how do you propose to pay for government? I’m eager to hear your suggestions. If your response is, get rid of government, then don’t plan on having any property rights or personal property, neither of which can exist without government.
swatter @ 14
The same argument applies to any tax system, including the one we have now.
You know what I want to see? I want to see your lemming like article supporting Gregoire’s idea to cut up to a 1,000 jobs from DSHS. The Lib posters on this blog have over the months bashed anybody who suggested that DSHS was over staffed and now your saviour comes out and says that very same thing and not a peep.
Or Schram comes out and says the legislators in Olympia are overburdening the education system with stupid curriclae and not a peep. But I’ll read you bashing what a sad state of affairs the schools are in and how they need more money. Of course they need more money with the kind of crap that is being forced on them from our esteemed lawmakers.
Instead we see the support of taxing somebodies earnings twice. Hey we’ll tax you while you are living and we’ll impose a tax on you when you die. See our compassion? Oh wait ,, we’ll also tax your dwelling the WHOLE time you are alive and then when you die we’ll tax it one more time just for good measure. That is a really easy statement to make for someone who is already Uber rich and their kids are too.
What a bunch of freaking hypocrits. How about, hey we’ll cut this program that is no longer needed instead of raising taxes? Or we’ll scale back employees in the program that no longer has the draw. But nooooo. Hey let’s see how we can tax the hell out of everybody so we NEVER have to be responsible with the state taxpayers money. Now there is a liberal idea.
As Goldy knows, I am for an income tax only if the sales tax were eliminated. In that way, the politicians wouldn’t be able to dip into it and raise it.
For example, the new state budget proposal. The politicos have ignored past initiatives and just want more taxes.
Now then, if they had packaged it and let me vote on it, then that is another story. We are all hearing the horror stories in small cities with all the revenue cuts they have gotten. Perhaps it would be overturned this time. But no, they just decided to abuse their power and increase our taxes.
Goldy~
You can’t ask the righties to give up the Limbaugh/O’Reilly talking points and think for themselves. Rush’s brain is on loan from God…how can it be questioned!
Soundcrossing~
I’m pretty sure that the Governor’s announcement of the 1000 job cuts in middle management was created with applause by the folks on this site. I think most of the folks on this site would agree that the legislature is burdening education with worthless programs (including all the No Child Left Behind bs). The problem is, once you eliminate the things we all agree that we don’t like about government, you still have to figure out how to pay for what’s left. The tired mantra of the right “Cut taxes, eliminate waste” only goes so far. What Goldy and Mr. Gates and others are attempting to do is to discuss the most equitable ways to pay for the services and programs that government does and will provide in the future. So far you have added nothing to that discussion.
Union Business Agent,
then don’t plan on having any property rights or personal property, neither of which can exist without government.
I plan to have all of these cuz’ I have my arsenal of freedom.
If anyone or some guvment’ agent messes with me I’ll put a cap in their rear end.
Swatter @20 – Ok, it seems I am jumping into an old conversation here, and I do see where you are coming from on it.
But are we really so far down the whole of legislative assemblies abrogating their duties to the executive and judicial branches that we call managing your income an ‘abuse of power’? Would it be an abuse if they lowered revenues when we had a surplus? If not, then explain to me how this is pragmatic and not just ideological?
Soundcrossing @ 19
Bravo….
You’ll never hear a peep off this board about government waste.
How about our state supporting the voters & courts instead of just ignoring their voices?
Not with the State legislature this is currently in power. We need to clean house in Olympia…….
Man, can’t type today… whole = hole obviously.
Uhm, I am pretty sure that I posted a couple of approving messages regarding the cuts in DSHS. But don’t let reality get in the way folks… carry on.
Steven @21:
Actually I’ve added much. I’ve been reading and contribuiting to the blog for quite sometime and I’ve never ever seen anybody argue for cutting a program or scaling it to it’s user base. And when somebody has argued for it they get creamed with the talking points “but what about the employees in the programs you propose to cut?” Well it’s time to find a new job. Something most of us have had to do at some point in time due to cut backs or layoffs or a company folding.
As to the most equitable way to tax? A flat no loopholes tax. Sure you can cut it into percentages to incorporate the less fortunate. Yes you can do the same for businesses. You will never see this kind of system argued though because it puts a finite defineable dollar amount on the revenue our legislators have to work with.
This type of system allows somebody to predict how much revenue the state will have and allow them to budget apropriately. As you have it now our legislators create their “spending” budget first and then look for ways to fund it if it falls outside predicted revenues, usually by asking for more taxes, more money, or some auxillary spending bill. And yes I’m fully aware of how Bush is spending and abhore it so you can hold that barb.
sound@ 27 – Just so I understand you, do you mean an income tax?
Nindid @ 28:
Yes. A State Income tax. Do away with the sales tax. Do away with all the crazy little taxes for businesses. You work or live in WA state? You pay an income tax as a percentage based on your income level. You have a business in WA State? You pay a tax as a percentage of the money you bring in regard to your industry and its reliance on WA State resources. i.e. you are a trucking company your rate may be higher do to the added wear and tear to the states roads. BUT that % point has to go directly into DOT not the general fund.
Make our money work for us and make our legislators, both republican and democrate alike, be responsible in their spending of OUR money.
I’m one of those republicans that realizes that there are problems on both sides of the fence. I’m not saying make the Democrate legislators be responsible. I’m saying make ALL of our legislators be responsible, again, with OUR money.
Goldy @ 15
But wouldn’t the potential increase in the B & O tax on canned meats from .138 percent to .484 percent likely be passed on to the consumers?
Even so, won’t the proposed tobacco and alcohol tax increases hit the poorest of the population the hardest?
I often see many of the “homeless” people on the highway interchanges smoking….. Will this lead to more homeless people? They will have to decide – financing state employee pay raises by buying a pack of cigarettes or – keeping a roof over their head.
Why do you neglect to mention how Gates Senior became rich? As a lawyer. What kind of lawyer? An estate lawyer! Gates Sr. made his fortune helping rich people avoid paying estate taxes.
Yes he helped some avoid some estate taxes by estate planning. However, just like a tax CPA helping you on a return, I am sure many of his clients, especially the wealthier ones still paid some estate tax.
If there is anyone who should be arguing against the estate tax it is Bill Gates Jr. and Senior, they have the most to lose, at least their heirs do. Stating that Gates Sr. believes it is fair that he and his heirs should pay some taxes like the rest of us is commendable.
They will have to decide – financing state employee pay raises by buying a pack of cigarettes or – keeping a roof over their head.
I agree. Except I believe thats a good thing not a bad one. Why should taxpayers be subsidizing their cigarette smoking.
I don’t understand, how are tax payers subsidizing their smoking?
Tobacco subsidies?
soundcrossing @ 19
DSHS most assuredly is not overstaffed at the caseworker level. Caseworkers (who earn $30,000 to $45,000 a year for job responsibilities designed for someone with a master’s degree) typically carry two or three times the caseload that would permit doing a conscientious job. Why do you think this state suffers one DSHS disaster after another? It’s because the line workers don’t have the time to work cases properly. Plus, the low pay and high burnout leads to turnover rates that result in an inexperienced workforce. The state spreads its resources too thinly in an effort to serve as many constituencies as possible, in my opinion. Rather than try to be all things to all people, and end up doing nothing well, DSHS should be revamped. The governor should decide which social services are high priority, then concentrate the agency’s limited resources on doing a good job in those areas.
swatter @ 20
Our tax system is structured in such a way that legislators have to raise tax rates periodically just to maintain existing services at current levels. Spell “services” e-d-u-c-a-t-i-o-n because half the state budget goes to education, and there are only a couple other places you can cut enough to get $1.2 billion of savings. Namely, transportation, whose funding needs are critical and will require INCREASED spending; and Medicaid, the biggest piece of which is elderly people who need skilled nursing care (i.e., their families couldn’t care for them at home, even if they had families, or had a home). It would be pretty disingenuous for conservatives to argue that a brain-dead woman’s body should be kept alive at a cost of $80,000 a year but we have no money for chronically ill 85-year-olds who wouldn’t survive a month without nursing care.
So where do we go from here? Putting taxes to a vote sounds great in principle, but let’s see how it works in the real world. The voters of this state approved two initiatives to reduce class sizes and raise teacher pay. In the same election, they voted against the taxes to pay for it. The something-for-nothing mentality is so ingrained in our culture, you can count on this kind of behavior from the voters every time. Where is the conservative cheering for “representative democracy” now? It appears they believe in direct democracy all right — as a means of refusing to pay taxes for the things they voted for.
As for eliminating the sales tax, I don’t think that’s realistic. Most states rely on a balanced portfolio of income tax, sales tax, and property tax. If we enact a state income tax, I would rather see it used to eliminate the B & O tax. The Gates Commission found that in Washington business (mostly small business, because the biggies get juicy exemptions) pays 41% of state and local taxes compared to an average of 30% in the other western states. The B & O tax drives businesses out of state and kills job creation. Everyone agrees the B & O is a bad tax. So that should be the one we eliminate.
You know I wouldn’t mind the estate tax thing so much as long as my businesses weren’t included in the calculations. Take 60% of my personal holding i don’t care my kids didn’t earn that money.
However, I should have the right to pass on my business to my kids. If they continue to make it work, great. If it falls down around them, great. But, they should be able to enjoy that opportunity that I have provided them.
i have no problem paying a higher estate tax that allows my heirs a chance to continue my work. I will however resist any tax increase that requires my estate to sell my businesses to satisfy some tax bill. (yeah there are ways around this but, why should I have to be sneaky to “beat the governor”)
the same argument could be made for farmers having to sell their farms.
how’s that for a right winger like me.
steven @ 21
Not infrequently, the right-wing rant against taxes is coupled with an argument that taxes take money away from business investment. Isn’t it strange that they recognize the need for business investments for the economy to thrive, while failing to recognize the need for government investments for society to thrive. Seems schizophrenic to me.
Rush is My Life ~ how long do you think your army-of-one can hold out against marauding gangs in a lawless land? How will you, with your arsenal and supply of ammunition, guard your business and home at the same time? In a society with no laws, police, or jails, will you stand watch over your hubcaps for 24 hours a day? And if you do, how will you get anything else done? How will you keep people from helping themselves to your crops while you watch your woodlot? What will your money and investments be worth in a world with no government? Do you think one man with a pile of guns can secure for himself peace, freedom, and property rights? You make me laugh. You really should try out for “Survivor” because your social thinking MIGHT have a chance of working in the make-believe world of TV.
The white paper you reference makes no mention of either inflation or incentive effects.
It may be true that most of the wealth transferred at death is in the form of capital gains previously untaxed, but if no adjustment is made for inflation the issue of double taxation does arise. When I add up all the after-tax dollars I have put into the house I have owned for 33 years, subtract it from its assessed valuation, and adjust the remainder for inflation, the “capital gain” largely disappears.
More importantly, any tax does tend to diminish what is taxed. There may be a few people who enjoy their work so much they will carry on regardless of tax rates, and still fewer who are so talented they can make large bundles that would be fun to give away before the estate tax takes effect. But most of us fall into neither category, and will either save less, move out of state, or consider putting all of our assets into working farms the kids can sell to Wal-Mart later on. How can this be good for the state?
If communism must come, let it be Deng Xiaoping’s version: “To grow rich is glorious.”
When I suggest that the state doesn’t need more of our money, I’m not saying we don’t need government or taxes. Of course, you know that, but prefer to say idiotic things anyway.
To the details:
Incentive for charitable giving: Nonsense. Most people give for the right reasons, not to avoid taxes. So Bill Gates wouldn’t be donating the vast sums if it wasn’t for the estate tax? How insulting.
Farm exemption: why are farms so holy? The grocery store on the corner is just as worthy.
Best argument against the estate tax: it is 100% avoidable – just move out of the state. Many retire here now because of the favorable treatment of their estates. Now they will find somewhere else.
Is that good enough, Goldy? I went to your paper and read it, and found it is the same old, same old. I stand by my comment that at the federal level, studies have shown that the tax consumes more in legal expense than it generates in tax revenues.
Tom Rekdal @40,
You raise a good point. I am a big fan of indexing, and would certainly support any effort to index the exemption to inflation, or whatever metric would be most appropriate.
Janet S @41,
We’re not talking about a new estate tax. We’re talking about restoring the existing estate tax that was in place until the court tossed it. So WA would become no less of a retirement destination than it has been. In fact, the Governor proposes an exemption more than twice the current one. I also believe that her proposal includes a small business exemption similar to the family farm exemption, but I haven’t read the details.
Goldy,
Pointing out that a restored estate tax will repel no more residents than were repelled before, even if true, is not a very inspiring endorsement of the tax.
I cannot improve upon an observation of Professor Edward J. McCaffery, which just came to my notice:
“The death tax comes to the industrious, the thrifty, and the altruistic. It spares the unproductive, the spendthrift, and the selfish. There is nothing wrong, and a good deal right with working hard and saving well and, at the end of the day, should fortune so smile, with passing on wealth to the next generation. There is ample time under a properly designed tax system to tax the heirs when and as they spend. Our current tax system taxes people when they work, when they save, when they marry, when they give, and when they die. These are wrong choices, all.”
Tom @ 43
A couple of thoughts …
1. How is the estate tax worse than any other tax? Is it better to tax wages? Workers EARN the money, heirs don’t.
2. There is no such thing as a “death tax.” That’s a bumper sticker phrase coined by Republicans. The dead don’t have any money, and don’t pay any taxes. Estate taxes come out of funds that would otherwise go to heirs. The Estate Tax (its proper name) could just as easily (and more honestly) be called an “heir tax” or a “windfall tax.”
3. There is no GOOD tax, but we have to pay for government somehow. Taxing estates exceeding $2 million is fairer than layering more taxes on top of the taxes already paid by the poor and middle class. Because of exemptions, the estate tax exclusively hits the estates of millionaires. The Gates Commission found that the poor pay 15% of their income to state and local taxes, whereas affluent households pay only 4%. The estate tax is one of the very few state taxes that is not regressive, and as such, it helps restore a little balance and fairness to the system.
4. Gregoire’s proposed estate tax will actually be a large TAX CUT for estate tax payers. She proposed doubling the exemption and raising only half as much revenue from taxing estates as the estate tax that was in effect until two months ago. Anyway you slice it, that’s a TAX CUT. And you’re complaining???
However, I should have the right to pass on my business to my kids.
I see your point. I should have right to pass on the income I earn tax free to my kids. So there we are. Now, what rate, if any should income from work and inheritance be taxed?
I’m getting pretty tired of Mr. Gates Sr. diving in with all of his tax analysis and ideas. His law firm sucked the governemnt tit for decades. Government money buttered his bread. He is biased towards increasing taxes.
Janet S, you claim (at 11 & 41) that “at the federal level, studies have shown that the tax consumes more in legal expense than it generates in tax revenues.”
Can you please back that up with a citation to those studies? I have a hard time believing that wealthy folks spend a large chunk of their estates trying to shelter the remainder from being taxed when their heirs inherit it.
It’s a silly point anyway. So what if people spend money on tax avoidance? There’s nothing “net negative” about that sort of economic activity. If they are spending more on avoiding the tax than they end up paying in the tax itself, either they have brilliant lawyers (and our tax code has too many loopholes) or they’re paying too much for advice.
If the government were spending more to collect the tax than it was receiving in tax revenue, that would be a net negative tax. Not an issue here.
Dubyasux(!?) @ 44
1. I’m not sure I think the estate tax is the worst tax but it is certainly a bad tax because it aims directly at savings rather than spending, and, insofar as it fails to allow for inflationary adjustments, it is also a double tax on income. This simply creates the wrong incentives.
2. Calling the estate tax a “death tax” is admittedly a rhetorical provocation, but it is silly to quibble over this. There is no “income tax” either, merely an imposition on wages received over a certain level. A rose by any other name….
3. Unless you want a flat tax, low income groups will always pay more in taxes as a percentage of their income simply because they earn less. If you think they should pay less–not relatively, but absolutely–it would be possible to refund any sales taxes paid up to a certain expenditure level.
4. I hardly know what to say about Gregoire’s “generous” proposal to replace an awful tax with a merely bad one.
Tom Redkal quotes (at 43) the opinionated “observation” of one Professor McCaffery:
“The [estate] tax comes to the industrious, the thrifty, and the altruistic. It spares the unproductive, the spendthrift, and the selfish.”
The professor has it backwards. The estate tax is an inheritance tax and comes to the selfish, lazy heirs of huge estates, and spares the industrious (or lucky) and thrifty individuals who accumulated that wealth. (Hey, if the professor can stereotype, so can I.) Any way you cut it, an inheritance tax affects only heirs who would otherwise receive a huge amount of income untaxed.
The professor dreams: “There is ample time under a properly designed tax system to tax the heirs when and as they spend.”
Well, I guess we don’t have “a properly designed tax system,” then. The federal government and most of the states rely on income taxes as the primary tax base; sales taxes on goods are regressive and don’t capture a lot of consumption.
Even in an imaginary world with government wholly funded by ideal consumption taxes (VAT?), a tax system with no inheritance taxes would leave a huge loophole for people to pass on accumulated estates to their heirs, who wouldn’t have to spend a penny (or work a day) to live in aristocratic luxury. It’s a recipe for hereditary dynasties with permanently tax-sheltered assets.
It would, in fact, reward “the unproductive, the spendthrift, and the selfish” as much as “the industrious, the thrifty, and the altruistic.” Not exactly the American Way.
Tom Redkal has some knowledge about tax policy: “it would be possible to refund any sales taxes paid up to a certain expenditure level”
Yes, a demigrant like that could make consumption taxes (like sales taxes or VAT) progressive instead of regressive. Theoretically, a comprehensive consumption tax-based system is superior to an income tax-based system: it encourages saving, for instance, and consumption also tends to be steadier than income.
However, there are problems with moving to such a system (surmountable ones, to be sure). Consumption taxes have to be collected at the point of sale by merchants; under-the-table sales are a real issue when consumption taxes are high enough to fund all government. And we can’t make an immediate switch from an income tax to a consumption tax system; today’s seniors, who already paid income taxes and saved money for retirement (i.e., for future consumption), would essentially have to pay the same taxes twice. It would have to be implemented gradually.
Mmm, tax policy.
The case for an estate tax seems to depend upon four assumptions:
1. Government is a better allocator of capital than individuals.
2. Government clearly does not have enough money to do its job, since it does not even receive enough tax revenues to sustain current programs, let alone enough to launch the ones it should.
3. The best place to get the additional money is from rich people, because, well, they have more than the rest of us, and they are not paying as much as they should anyway.
4. The most painless way to obtain the money is when they die, since, being dead, they won’t miss it; and their heirs, not having earned it, do not deserve it.
Each of these assumptions seems to me both dubious and arguable, but I despair of offering anything that might persuade a generally left-of-center audience with regard to the first three. My goal is the much more modest point that the fourth assumption is a mistake. We do not escape the disincentives of a tax on savings by waiting until death to tax wealth. It is true that only the living can respond to incentives, but a concern for what happens to the next generation is one of the incentives that affects the saving and investing habits of the living. Colorfully picturing all heirs as worthless whelps floating in idelness on their yachts is not a sufficient refutation of this fact.
David @ 50 makes an astute political point about one of the difficulties of moving away from taxes on working and saving and toward a consumption tax–namely the large and growing population of people who have paid a lifetime of income taxes and can only support a more rational tax structure by agreeing to pay higher sales taxes in the future. Good luck to us all, on that!
Some Facts:
Bill Gates III is the Microsoft founder
Bill Gates Jr. is his father
Both advocate giving away 50% in inheritance taxes because they feel they have benefited from the educational and economic infrastructure of the U.S.
People are harping on Bill Gates for giving away most of his money. They were harping on him 10 years ago when he was keeping his money. So, for some people, Bill Gates can never win.
Yet, he has *already* given away more money than any other human in the history of the human race.