Why we should keep the estate tax

There's a movement, supported by Republicans, to abolish the estate tax. I disagree.

First of all, I'll start out by conceding that it's bad that our government spends so much money and that we need so many taxes to fund it. But unless we can reduce government spending to zero, we need taxes. So the issue here is whether the estate tax is somehow worse than other taxes.

The general rule is that whenever money is transferred from one party to another, there's a tax. If a hard working middle class person has a problem with his pipes, and he pays money to a hard working plumber to fix the pipes, the plumber has to pay income tax on the money he receives. So if a child of a rich person receives millions of dollars for doing absolutely nothing, why should he pay less tax than the plumber who actually did something useful?

When some working class schmuck wins the lottery, he has to pay taxes on his winnings. Inheriting millions of dollars seems like winning the lottery to me. Why should it be treated differently?

It seems to me that the problem with the estate tax is that too many people avoid paying it. Why are the first few million dollars of an estate exempt from tax? The plumber in the example above has to pay tax on his first dime of income, why should a rich person be exempt from paying tax on millions of dollars?

What are the arguments against the estate tax?

1. Not fair. Well no taxes are fair. Based on the examples above, I don't see why the estate tax is any less fair than other taxes.

2. Double taxation. Because every time money is transferred from one party to another there is usually a tax, multiple taxation is part of our tax system. Why should the working class plumber have to pay tax on the money paid by the homeowner who already paid tax, yet the rich person be exempt from this double taxation?

3. People should be allowed to do what they want with their money. The general rule of taxation is that you can't do what you want without paying tax. Every time you buy something there's a sales tax or a property transfer tax. You even have to pay a yearly tax just for owning property. Whenever you pay someone in exchange for services there's a tax. Once again, I'm in favor of lowering government spending in order to reduce overall taxes, but I don't see a logical reason why rich people should be given an exemption from paying estate taxes when everyone else has to pay taxes.

4. It's a "death tax" and we shouldn't tax death. This is a nonsense marketing word which was made up to make people think the tax is unfair. If the tax were instead called "the windfall without doing any work tax," then no one would be against it.

5. Discourages investment. How is this different than any other tax? It would be better to encourage investment by lowering the capital gains tax on short term gains to the long term capital gains rate. This way regular people could enjoy the tax benefits of investing instead of just super-rich people.

Comments

[Austrian]

"When some working class schmuck wins the lottery, he has to pay taxes on his winnings. Inheriting millions of dollars seems like winning the lottery to me. Why should it be treated differently?"

You are right, they shouldn't be treated differently - government has no business taxing either transaction.

"but I don't see a logical reason why rich people should be given an exemption from paying estate taxes when everyone else has to pay taxes."

Then you are not good at logic. The rich also pay taxes. The estate tax is an additional tax created out of thin air, applying to a small minority (so much for equal representation), due to someone wishing to transfer their estate to whoever they want, said estate having already been taxed multiple times over. Why not just argue that government can take 100% of everyone's estate (rich or poor) after they die, since isn't any inheritence like winning a lottery?

Don't let jealousy of those who have more wealth than you cloud your judgement.

[tiem]

What does short vs long term capital gains have to do with the wealth of the investor?

[michael vassar]

Homo Economicus Public Choice sees a clear difference between a Future lottery winner and a Future heir.

[SciFiGeek]

So...Sigma, why aren't you a liberal? You've certainly pointed out many wonderful weakneses in the libertarian/conservative viewpoint, and I don't see you arguing how abortion's bad. Come on in, the water's fine!

[The Superfluous Man]

But if the tax effects say only the top 10% of voters, the other 90% will not hesitate to impose higher taxes. It's like California's recent proposition 82 for public preschools, where funds are obtained by levying additional taxes on the top 1.7%. It's clearly an externality - the rich are hurt because the public thinks it benefits from higher spending. So it's just more money seized and wasted by government spending. Perhaps if spending was capped at the least necessary (if everyone could agree on what that is) for government, the estate tax would be fine. Perhaps.

It seems (http://www.parapundit.com/archives/003467.html#003467) that higher taxes counteract the appetite for higher spending. So this argues for, as I've commented before, for broad, direct taxes on the electorate. You could even impose regressive taxes, to maximize the electorate's distaste for taxes and spending (not that I necessarily agree with such). Moreover, the IRS could collect the income tax (if not replaced by some other tax) by requesting payment instead of having employers withold salary.

Austrian, telling others to be libertarians is ill advised.

[Austrian]

"Austrian, telling others to be libertarians is ill advised."

Why? I understand that most people don't have a principled view of what politics entails - while they are against theft, they don't seem to understand what taxes are. And let's not get into the economic ignorance that runs rampant in much of today's policies. But unless you point that out to them, how will they ever learn?
I've had a modicum of success explaining the bankruptcy that is the Social Security Ponzi scheme, and once they get over their emotional attachment to what they think is a retirement security blanket, more than a few now understand that the 'trust fund' is empty.
Half is a strange case; while he has a better than average understanding of basic economics (which is probably why he can't stomach being a Democrat), he frequently espouses Marxist-like class arguments in favor of government intervention. But although he may be a lost cause, that doesn't mean some of his readers can't be reached/helped. It is better to light one candle than curse the darkness, right?

[beenaround]

At first blush, then, it would seem that divorce settlements should also be taxed.

And, I guess, everytime someone gives someone else a gift, that should be taxed as well.

[superdestroyer]

The comparison to a lottery is a very poor comparison. The tax from the lottery is withheld before it is received and is liquid. Much of the estate taxes is on non-liquid assests (businesses, land, mineral rights, personal property, etc). Those inherited asses have to be sold to pay an inheretence tax. Thus the family pays a tax while losing the future income from the assest.

The question is why do you want to discourage family business and farms. Why should a son have to take on debt in order to farm the same land his father farmed?

[Intellectual Pariah]

Up here, north of the border, there's no estate tax (or any tax on lottery winnings), but the estate has to pay capital gains (the deceased is deemed to have disposed of his assets upon death). There might be some provision for family farms, small businesses, etc. Anyway, it seems to work, and the U.S. seems downright socialist by contrast.

[The Superfluous Man]

Austrian, you can argue with empirical information or ideology. Neither one is universally effective. But using the latter is arrogant. And besides, people can reasonably disagree on morality, ethics and ideology, but must agree on the truth, on reality; thus the need for empiricism. Ideology, whether libertarian or liberal, inevitably forces you to defend the indefensible, the false. Mexican immigration is one such case, where both such sides assign net benefit to it, when the evidence suggests otherwise.

I was a libertarian about half a year ago. Now I'm more empirically minded, with libertarian tendencies. And I've read The Bell Curve et al.

[Austrian]

Superfluous,

Of course people can disagree on morality, but unless you can get to the moral foundation upon which our policies towards one another are based, much of the talk of politics is just talking past one another. For someone who has not thought about what government is, what it means to take money from someone against their will, regardless of what agency does it - they may continue to support policies which may sound good but run counter to what they normally believe is moral.
I do not see where ideology must run counter to empiricism - to know the nature of man, one must study man. If we were incorporeal beings with no requirements for sustenance, there would be no need for property, or property rights. If scarcity of resources were not a fact of the world, economics would be merely philosophical navel-gazing.
As for Mexican immigration, I believe it's a matter of how one believes the tangled web of interference should be unraveled. If the US was not a welfare state, there would be nothing special about immigration - just another person looking to sell their labor in the free market. You would still have jingoist animosity towards newcomers (especially if they had a different skin color), but their arguments would be exposed for the collectivist prejudice that it is. But the US *is* a welfare state, and so this does color any talk of immigration policy. Some libertarians believe open immigration is a lesser evil, in spite of the current state of the government. Others disagree, and say changes need to occur before we can consider open borders. Perhaps you are mistaking the Libertarian party for libertarianism in general, but there is room within this ideology for much empirical disagreement.

[RogueLefty]

Your argument about the inherent evils of government, believe it or not, does not fall on deaf ears. I was a libertarian once, in my younger years..Ayn Rand and the whole business. I mean, I didn't like gettng shaken down by bullies for lunch money, so why should I like getting shaken down by the government for tax money?
As I became older, it became apparent that (A) the free market fails to provide a good standard of living for everyone and (B) socialist governments like Western Europe (not the brutal Soviet Union) provided a better standard of living for most of their citizens than does America. (C) Both parties engaged in welfare, the Republicans for the rich (corporate welfare) and the Democrats for the poor. Seems to me if they're going to steal my money, it might as well go to poor people, who need it more from a moral perspective and are more likely to spend it and plow it back into the economy. (D) Global warming. No scientist who isn't working for an oil company denies it at this point. I don't think the market can take care of that in time.

[Austrian]

Rogue, there are too many falsehoods in your last post to address here, besides this strays far from the topic of the death tax. But just to address your last one:

1) Contra Al Gore's powerpoint presentation, there is not a consensus on global warming
2) The available temperature sample is statistically insignificant
3) Saying that the earth is warming is a different question from whether humans are a primary cause, which is a different question from whether humans have the means to affect the warming reasonably. "Reasonably" as opposed to supporting Kyoto, which by their own statistics will not affect global temperature by any meaningful margin, at the cost of billions/trillions to developed nations. It would definitely be an example of egalitarianism in action, as first world country's standard of living would drop to resemble the third world. Kind of like how Euro-socialism makes everyone more equal by ensuring the top half is pruned. Oops, I promised to only expose one falsehood. Sorry.
Let's leave it on a positive note we may agree on - any and all welfare (forced takings from one individual to give to another) is wrong. And immoral.

[The Superfluous Man]

Austrian,
What about crime? Ethnicities vary in their propensity to crime, with blacks at one end and East Asians at the other. Crime is clearly an externality, and is not easily eliminated. Even amidst declines in crime, the ratios of say, black: white crime remained. The higher Mexican crime rate (3-4x the white rate) is such an externality.

Everyone has positive and negative externalities, but at times groups are a net drain, even without welfare. There are also cultural arguments, to which I'm neutral, although I'm sensitive to Solzhenitsyn's observation that "The disappearance of nations would impoverish us no less than if all peoples were made alike, with one character, one face."

Yes, if we lived in Robert Nozick's utopia, this would not be a concern, because all the rich open borders enthusiasts would live in White-Asian (with the occasional Indian) enclaves free of crime. How familiar!

Rogue,
your points are ill defined enough to be a matter of definition. But what if those earning money acted like those on welfare, and just quit working? What if everyone acted like the Muslims of France, or the blacks of America? Taking a look at the likes of Detroit, the answer isn't too pretty. Or even New Mexico, which is largely composed of 5th generation+ Mexicans, and has always been a net beneficiary of federal largesse. The welfare state is limited in its application. An interesting article here: http://www.vdare.com/sailer/060611_diversity.htm But then again, so is the capitalist-libertarian one. It takes a despot to rule barbarians, and some countries fit that description.

The welfare state is only superior in the respect you mentioned when there is a small underclass and a large productive middle class. It isn't viable when the entire country is an underclass. Importing more of the underclass will test the limits of the state. Point C is more of a saying meant to be heard and not actually analyzed. The right is generally against corporate welfare, rent seeking, unduly long patents, etc. Interest groups are not.

[The Superfluous Man]

Austrian, regarding immigration, I'm saying that we should refrain from inviting in high(er) crime groups. It's a clear externality, and one that isn't eliminated without eliminating the problem, which is tyrannical and genocidal.

Regarding that sterilization-genetic determinism question, I was floating a question of ethics. Bringing up race is kind of like changing the subject. I don't have an answer to the question, as it is compelling (to me). I don't see anything especially murderous about sterilization (and a good portion of America agreed with me earlier), but it is a question of rights, and whether you can deny someone those rights based on probabilities. And, as I'm not a dogmatic libertarian, I am skeptical of holding certain rights inviolable. The probabilities are not at issue; it is that exactly who will be the murderer is. And, I don't take kindly to governments conducting sterilizations.

[Kevin Purcell]

In the first place, the argument that the estate tax is "double taxation" is illogical. Let us suppose earnings are taxed at 50% when you earn it. That is not double taxation. Now let us suppose that it is taxed at 25% when it is earned and another 25% at death. How is that double taxation? In fact, if you do the math, you will find the overall tax you pay in the latter situation (i.e. with an estate tax) results in a LOWER tax.

The fact is the estate tax is the purest, fairest tax devised. Taxes are the cost of the infrastructure that keeps a prosperous nation prosperous. If you don't want to pay taxes, go to Somalia, the Sudan or the like. No taxes, no infrastructure, no riches, no nothing. The problem is we've developed a spoiled society who want to have their cake and eat it too. Devastating, expensive wars so long as I don't have to sacrifice anything. That selfishness will eventually turn the country of our children and grandchildren into a second rate country. Bush has done a good job getting us well on our way.