raise the estate tax to 100%

The estate tax – or the ‘death tax’ as it’s so cleverly nicknamed – has been a cause celebre for anti-tax proponents since it was enacted. What is it?  Read more here.  I’m not a tax expert, but as someone frustrated by taxes I feel free to opine on such things.  I would hope anyone who accumulated that much wealth in their lifetime would have the good sense to do one of a few things:

  1. Plow that money back into their business in the form of capital expenditures, hiring good managers, etc. in order to leave a good income source to their children;
  2. Donate to a local charity to leave their community better; or
  3. Find a top-notch tax lawyer to protect as much of that money as possible in trusts…and failing all that,
  4. Blow it all on electronics and cars.

And so on.  Failing to dispose of that money should result in a 100% “greedy” tax. Spend it on your kids before you die.  Buy them a house.  Buy them a college education.  Give away the money.  Hell, spend it on yourself. Don’t expect to pass it off in a lump sum to your offspring.  Whether or not that should be allowed is not the point – a democratic, egalitarian society generally doesn’t look favorably on the intragenerational transfer of wealth.

I know everyone hates taxes. I do.  I hate being called rich, when I live a middle class lifestyle.  I hated taxes even more when I lived in New Jersey and paid 10% of my income in property taxes and got horrendous failing public schools, horrible roads and shoddy public services in return.  Thankfully that changed when I moved to Florida.  But I also hate the horrendous imbalances of the progressive tax system (which fails to tax 50% of the citizenry who use the same publicly financed schools, roads and libraries as I do) and the horrendous unfairness of the (hidden) regressive taxes we all pay (think license plate fees, for example – Donald Trump pays the same for his Rolls as I pay for my 10-year old beater).  I don’t think poor people should be taxed at the same rate as the rich, but anyone who doesn’t pay income taxes won’t have a sense of ownership of their public institutions, so I think poor people should be taxed.  I don’t think Trump should have to pay more for his license plate than I should, but at the same time I don’t see why that tax isn’t treated the same as income tax.  Imbalances are rife thoughout the system.  Almost any tax will be greeted with the howls of those taxed, so…

…let’s make the estate tax 100%.  Let’s force everyone to utilize their money while they are still alive.  And let me know if you think I’m serious or not.

photo by Alejandra Mavroski

46 comments

  • What happens to someone who dies unexpectedly? Maybe 50 years old, planning an early retirement, planning to help cover the kids and grandkids college expenses, with a small business.

    Hit by a politician's drunk driving 29 year old and *POOF* no inheritance for anyone but Uncle Sam!

    The estate tax needs to be 0 percent. All that money has already been taxed and the government wants to retax whatever's left.

    • @Ron: I'd say it's again a question of how many exemptions to the standard we'll have – in the situations you mention, it's clear that an estate tax would be a burden, but how many trillions of possible options do we need for every tax? What about the poor mother trying to buy shoes for her children who should be exempted from sales tax? What about the foreclosed homeowner who still owes property tax? At some point a rule is set and it's followed…

    • How many people do you know with a net worth over $3.5 million, Ron? Because I think I've met one. The average (or even above average) 50 year old is not going to have that much in abeyance, even with retirement, house and life insurance.

    • The estate tax has always had a minimum cutoff. I believe it was $1million before it expired, so the first million that you passed on was tax free, and it was only for additional wealth that the tax applied. I would assume that the author would keep a minimum cutoff. If we said that one can pass on $1million but no more, would that resolve your worries about someone dying unexpectedly and leaving nothing for their children? In its usual form, the estate tax affects only a tiny, tiny percentage of the population, and I would be willing to bet that if we kept the $1million cutoff, the average 50 year old would not reach that level.

      My question is this, and I hope someone can enlighten me: Why do we assume that property rights should carry over from one generation to the next? I understand the importance of individual property rights, and I can see the argument that my children should benefit to some degree from my hard work, but should they be excused from working simply because I have been successful? This may be a generalization, but a number of people that I have talked to who oppose the estate tax also oppose welfare because they feel it creates dependency and destroys the initiative of those recipients. Rather than receiving transfer payments, they should “pull themselves up by their bootstraps” like countless Americans have done before them. But how different, really, is receiving welfare from receiving a massive inheritance?

      In America, we like to keep what we earn, but we also believe that people should earn what they get. A low or non-existant estate tax favors the former ideal, while a higher tax favors the latter. I think arguments can be made either way, but it seems that people tend to get outraged about the estate tax without really questioning the assumptions that underly those arguments.

  • Ron is right – it should be zero! Also, you'd better be careful about what you write. Who knows where Turbo-Tax-Tim gets his “advice” for his position. He might just be trolling blogs like this and think this is a good idea! As stupid as the current adminsitration is, they would really go for something like this.

    • @Chris: The current administration is not stupid. If anything, you should be more scared about how smart they are – I think they know what they are doing and they're doing careful cost-benefit analyses. Assuming “Turbo-Tax-Tim” is a dumb boob looking to bripblap.com for advice is unlikely. What's scary is that he's confident in his own judgment, first and foremost.

    • Well, no sh^%! Nevertheless, I find them STUPID in that they are destroying something that is wonderful – our country, our liberties and our independence!!!!!!! Anyone who finds that socialist living to be more desireable than in a democracy/republic is a fool. I think Obama is purposefully devaluing our currency. AND no duh….TTT wouldn't be reading here. Also, I didn't take your post to be serious and I find it interesting that you took my reply to be so serious that you felt you had to reply in this manner. I guess I'll just go back and sticking my finger back up my nose and watching Keith Olbermann, or some such, as that seems to be the value which you have given me here. Oh, and what I really find frightening is those who refuse to stand up and say anything about what is happening to our country under this supposed leader (community organizer, actually). The ones who find all this acceptable and smile while it is happening are more frightening to me than the actual perpetrators. Oh, one more thing – they aren't doing cost-benefit analysis, they are doing cost-destroy analysis. How much money can “we” spend in destroying everything that is/was the United States.

    • Couple of responses:
      1) devaluing our currency would be good for our economy. It dropped 50% during the final years of the Bush administration, before the financial collapse drove foreign investors to the security of treasuries, which was a good thing. As the developing world gets richer, our currency needs to be worth less, or they get an unfair advantage in trade. Our overinflated currency is one of the reasons everything we buy is made in Canada.
      2) The United States is a long way from being destroyed. The Health Care plan Obama supports is more conservative than the plan RICHARD NIXON proposed. The tax rates on the top earners are lower than they were under everyone from Eisenhower to Regan. What I find scary is there are people like you who think that moderate Democrats are equivalent to destroying Americans. I mean, you are describing at least 40% of the country as un-American, which seems a bit excessive.
      3) I'd much rather tax dead people than living people. Large inheritances are more likely to be a burden on heirs than anything.

    • @Chris – You are right.

    • So, Chris, since you hate socialism so much, I'm sure you won't go on Medicare or Social Security, right?

      I'm sorry you're so terrified and I think Samuel has some points for your to consider. (Always good to hear some reasoned arguments, rather than what most of us do, which is knee-jerk repetition of whatever we heard on either Fox News or MSNBC.)

      Overall, I hope you are able to go to the polls and register your disapproval there. Even if desperately hope your guys don't win. (Nothing personal.)

  • MargueriteTO

    Have you read “Die Broke” by Stephen Pollan and Mark Levine? It basically states the same thing – use it up while you're alive.

  • “All that money has already been taxed…”

    Except all the unrealized capital gains which is a large chunk of the wealth owned by rich people.

  • Interesting idea, but how exactly would you implement it?

    In general, the chances of people intelligently spending every dollar they have exactly when they die is pretty low. (You can't expect people to spend the day before they die at a car dealership haggling over their grandson's new Prius.) You'd probably need a set of regulations that allow “purchase on death” transactions, and designate someone on this side of the abyss to make the transactions. Maybe the will/executor system can handle that. What kinds of transactions can they make?

    What about things you can't buy immediately? You mentioned one yourself: a college education, apparently bought in four annual installments. Or a down payment on a house, to be purchased next month. Or next year. Or when their daughter gets married. She'll get married someday.

    What if they want to “buy” their descendants some money? Is that disallowed? Roth IRA contributions? What about some collectible (and easily resalable) coins? Little Bobby loves coins. What about a jar of hundred-dollar bills?

    What purchases are noble enough to be made tax-free, and which ones are so greedy the Government should confiscate the money rather than let the poor (dead) slob waste it?

    Can we put you in charge of the committee to write the laws for this? How about the toll-free advice/complaint line?

    • @Kevin: Thanks for the comment! I'd like to say that the tax law should be geared towards encouraging investment in business, college education, pre-paid long-term care, etc. Ideally we'd have a “401K for elder care” where people would have tax-advantaged pre-paid nursing home care, for example. Is that going to happen? Doubt it. I'd like to say the economics are there, but they aren't – nursing home still home to latch their vampire teeth into the lifeblood of the old and infirm, rather than having a sensibly arranged late-life care program in the states. I'd like to be in charge, but I'd never be a politician, because I'm a human.

  • I think I am one of the few people who don't hate taxes or the “unfairness” of taxes. Just this morning I was happy that I am paying taxes since the roads were clear after a hefty snow storm yesterday.

    As for taxes being unfair, I can only say that this is a matter of perspective. Depending on the perspective, everything can be viewed as fair or unfair. Should I pay the same taxes for snow removal as the next person who uses the same cleaned roads that I am using? Somebody may say it is fair that we all pay the same price for this service. Some others may say that I should pay more since I can afford to pay more than the next guy or vice versa. And either side may claim that their view is “fair”. So, I have resigned myself to thinking that the tax system is both, fair and unfair. Here in the US it is the result of a democratic process, which is the only process I like whatever the outcome. That process makes it fair in my book.

    The same goes for the death tax. This too is the result of a democratic process with very good intentions. The US wanted to avoid (money) aristocracy as it existed in Europe which the first, no, the second US citizens left behind. The death tax would make it more difficult to establish dynasties. In that sense, the inheritance tax is a democratic and very American idea. Also fine by me.

    • @ctreit: I agree with you except in terms of motivation; I doubt it's a result of a democratic process. It's a result of a money-grubbing process; if we seriously wanted equality of opportunity in America we'd kill off a far greater percentage of inheritance earnings than we do now. The current estate tax is a revenue grab. I'd be interested to see a true death tax, honestly – each generation starts from scratch. That would be a true capitalist/democracy – nobody inherits anything. Warren Buffett's children could live in luxury, and enjoy his wealth while he was alive, but he couldn't pass $10 on to them. It would be interesting to see how the Bushes and Clintons and Kennedys and Trumps and Buffetts etc. would fare with a blank slate, hm?

    • J. McCollum

      Wrong. The death/inheritance tax wasn't designed to prevent the construction of aristocracies – It was enacted as a way to make money. Your argument is essentially that if a family earns more money than another, it should be the role of the government to take from that family the advantage they have gained, as it would move us to a more “democratic” playing field. There is nothing and never will be anything “American” about the idea of redistribution of wealth, or the control by a superior power of the personal, private property of individuals. You can believe in property rights, or you can believe in a death/estate tax. If you say you believe in both, you are wrong.

      1) Do we have a right to personal, private property in the United States?
      2) If I have one dollar to my name, do you also have a right to take/use that dollar as your own without my consent? (IE, theft?) If so, then you advocate a right to rob. If not, you advocate a right to property. Following that,
      3) If I have one million dollars, why should my right to decide what is done with that money (personal property) be any less stringently respected?

      Should we have a certain allowable quantity of any given item which we “own” and make any item above that quantity free to the public?

      Silly questions, but they make liberals squirm.

  • @Kevin: Thanks for the comment! I'd like to say that the tax law should be geared towards encouraging investment in business, college education, pre-paid long-term care, etc. Ideally we'd have a “401K for elder care” where people would have tax-advantaged pre-paid nursing home care, for example. Is that going to happen? Doubt it. I'd like to say the economics are there, but they aren't – nursing home still home to latch their vampire teeth into the lifeblood of the old and infirm, rather than having a sensibly arranged late-life care program in the states. I'd like to be in charge, but I'd never be a politician, because I'm a human.

  • @ctreit: I agree with you except in terms of motivation; I doubt it's a result of a democratic process. It's a result of a money-grubbing process; if we seriously wanted equality of opportunity in America we'd kill off a far greater percentage of inheritance earnings than we do now. The current estate tax is a revenue grab. I'd be interested to see a true death tax, honestly – each generation starts from scratch. That would be a true capitalist/democracy – nobody inherits anything. Warren Buffett's children could live in luxury, and enjoy his wealth while he was alive, but he couldn't pass $10 on to them. It would be interesting to see how the Bushes and Clintons and Kennedys and Trumps and Buffetts etc. would fare with a blank slate, hm?

  • @ctreit: I agree with you except in terms of motivation; I doubt it's a result of a democratic process. It's a result of a money-grubbing process; if we seriously wanted equality of opportunity in America we'd kill off a far greater percentage of inheritance earnings than we do now. The current estate tax is a revenue grab. I'd be interested to see a true death tax, honestly – each generation starts from scratch. That would be a true capitalist/democracy – nobody inherits anything. Warren Buffett's children could live in luxury, and enjoy his wealth while he was alive, but he couldn't pass $10 on to them. It would be interesting to see how the Bushes and Clintons and Kennedys and Trumps and Buffetts etc. would fare with a blank slate, hm?

  • Your thoughts are in the right place, Steve, but it won't work with current laws. Your business is a part of your estate, so you lose it. That also goes for the family farm (yes, they still exist). Those who are for a large exemption for the death tax cite the fact that the family business has to be sold to pay it. And gifts to children (even adult children) beyond a certain amount (I think $10K per year) have to be reported as income by them.

    Sheltering income in trusts is perfectly legal, but it's something that many small business owners can't afford, or don't know about. I guess I'd rather get rid of such loopholes that require lawyers and (dare I say it?) accountants to understand and implement, and instead come up with an estate tax that lets a family continue to own and run a small business, yet hits the coupon clippers where they live (and I don't mean discount coupons).

  • You could also call it the “Paris Hilton Tax”.

  • “All that money has already been taxed…”

    Except all the unrealized capital gains which is a large chunk of the wealth owned by rich people.

  • Boy, that might just fix the deficit in no time flat! According to this: http://www.cbpp.org/files/estatetaxmyths.pdf 99.7% of estates pay no estate tax. (So generally, there's an awful lot of hoopla about this issue for a pretty miniscule portion of our citizenry even being subjected to this tax!) In any case, if we started taxing a “greedy tax” we sure would raise some serious taxes, given that this tax doesn't even touch most estates currently.

    Seems like you have single-handedly just fixed the whole national debt/deficit problem everyone is so fixated on.

    Steve for president?

    • Of that 99.7% – how many of those don't pay estate taxes because there is very little money left?

    • J. McCollum

      God, you people are fools. The basis of taxation isn't to raise money for the sake of raising money – it's to pay for necessary services the government provides. Taxes based on “greed” (read: incentive) drive down competition and are, if you care at all about adhering to the original ideas which the country was based upon, abhorrent. If I want to be greedy and send my kids to the best ivy league schools that I can, and If I want to pass on a company, or God forbid a high standard of living (Isn't the notion just SO bourgeoisie? ) to my children, I am going to do it.

      What you propose, and, what the misguided author of this post proposes, is the sort of thing the authors of the the second amendment envisioned needing protection from. Tyranny by the majority (in this case the usurpation of the individual by the government acting on behalf of a supposedly “egalitarian” ideal) is wrong, and the mechanism by which these taxes operate and the ideals proposed herein are prime examples.

      A simple go-over of basic economics will help you to see why the estate tax is a dumb idea, unless you were never taught Hayek and the Market operations in college.

  • I gotta disagree. If someone earns that money, it's not up to the government or anyone to tell them how to spend it. They can choose to spend all or none of it. It's their choice and should always be.

  • “All that money has already been taxed…”

    Except all the unrealized capital gains which is a large chunk of the wealth owned by rich people.

    Keep in mind that the vast majority of the unrealized gains you're speaking of are held by average everyday middle class people like me in their 401k.

    And yes, it has been taxed in most cases. Most of those 401k's and mutual funds with unrealized gains are churned enough to reduce the actual gains by a significant amount.

    • Average middle class people don't pay estate taxes because average middle class people are exempt from estate taxes.

      401k's are pretax investments so theres been no tax paid on them. The gains may be distributed as capital gains, but thats not taxed in a 401k.

    • I wonder what percentage of households are above the death tax threshhold? Remember, the 3.5mm is PER PERSON. Married rich folks are looking pretty good if they have assets below the 7mm mark.

      The only data I can scrounge up is net worth over 5mm, which is 840,000.. That is individuals, so my guess would be HOUSEHOLDS are about half that (since the vast majority of the uber wealthy are married).. For the sake of argument let's say 500,000 households have a net worth over 5MM (excluding primary residence). That equates to a whopping .0044 of American households (which actually is a lot more than I expected)

      Granted, they hold all the power and influence in this country so that number, though minute, means a heck of a lot to them..

  • @Chris: The current administration is not stupid. If anything, you should be more scared about how smart they are – I think they know what they are doing and they're doing careful cost-benefit analyses. Assuming “Turbo-Tax-Tim” is a dumb boob looking to bripblap.com for advice is unlikely. What's scary is that he's confident in his own judgment, first and foremost.

  • @Kevin: Thanks for the comment! I'd like to say that the tax law should be geared towards encouraging investment in business, college education, pre-paid long-term care, etc. Ideally we'd have a “401K for elder care” where people would have tax-advantaged pre-paid nursing home care, for example. Is that going to happen? Doubt it. I'd like to say the economics are there, but they aren't – nursing home still home to latch their vampire teeth into the lifeblood of the old and infirm, rather than having a sensibly arranged late-life care program in the states. I'd like to be in charge, but I'd never be a politician, because I'm a human.

  • @ctreit: I agree with you except in terms of motivation; I doubt it's a result of a democratic process. It's a result of a money-grubbing process; if we seriously wanted equality of opportunity in America we'd kill off a far greater percentage of inheritance earnings than we do now. The current estate tax is a revenue grab. I'd be interested to see a true death tax, honestly – each generation starts from scratch. That would be a true capitalist/democracy – nobody inherits anything. Warren Buffett's children could live in luxury, and enjoy his wealth while he was alive, but he couldn't pass $10 on to them. It would be interesting to see how the Bushes and Clintons and Kennedys and Trumps and Buffetts etc. would fare with a blank slate, hm?

  • Pingback: Friday Finance Findings for February 12th : Generation X Finance

  • I do think the super rich should be super taxed or forced to stop their money sitting in accounts growing away…. The OLD MONEY part of the USA is still running the show so this will never fully happen.

    As for the death tax, I am not so sure, I think as Ron said, people can unexpectedly die and also leaving a lump sum for a child gives better free will on their part… They could start a business, pay for further education whatever they feel best for their life… Some people will always just blow it but freewill is important here.

    • J. McCollum

      “I do think the super rich should be super taxed or forced to stop their money sitting in accounts growing away…. “

      So you propose that we should force them to spend it? At what level of earnings should your monetary and fiscal decisions become subject to the whims of the “people” I must ask?

      Ever imagine that the doctors and lawyers and “super rich” of the Old Money America got there because they worked for it? My grandfather worked as a farm hand and soda hop to put himself through college. Now, he is considered a part of that “old money” America. God bless him for it. What a shame that we should be allowed to pursue our dreams to their fullest extent.

  • The problem is that most people cannot accurately predict their deaths. If I knew the exact day and time I would die, I would make arrangements to spend my money in a way that lets me have the maximum benefit of it without worrying about running out in my senior citizen years.

    For the ultra rich, I certainly do see a class problem of passing on intergenerational wealth. It creates an unfair advantage for the people that benefit from it and shifts power into the hands of the few from the many.

    However, all that money is already taxed and Uncle Sam shouldn't have the right to tax it again. So, what's the solution?

    Make the estate tax 0% on the first $5 million or $1 million per person inheriting whichever is higher. The remaining amount must be willed to charitable organizations or get taxed at 50% up to $20 million. Everything above $20 million should be taxed at 100% if not willed to charitable organizations.

    All estate tax revenue should be used only to pay down the national debt – nothing else. The super rich are the ones that have benefited from all the bank bailouts and they are the ones that should be paying taxes on all that debt, not the rest of us that had no benefit from it.

  • Of that 99.7% – how many of those don't pay estate taxes because there is very little money left?

  • Well, at $3.5 million it's unlikely that the average person would qualify, but don't forget that retirement accounts and houses do count toward the total. So if your loved ones live in a neighborhood that has vastly gentrified, depending on the area, you might edge in on it.

    But that's probably unlikely.

    I think you're using Swift-ian humor to illustrate your point. But you're right that it's pretty ridiculous to complain about the estate tax. Heck, Bill Gates Sr made a speech about why he's FOR the estate tax. He said anyone who can afford it should really just shut up about it. (I'm paraphrasing, obviously.)

    The other thing you forgot to mention is that people can donate to their kids over the years. (A house would probably come with gift tax.) I have a friend whose father gives the exact limit every year to each of his kids. He makes a lot of money and doesn't want them to be taxed on his estate when he dies. He also didn't want to have them taxed if he gave them one lump sum.

    That said, I have to disagree with your outlook on poor not paying taxes. I don't know how much you make a year (and it's not my business) but my guess is that you haven't tried to live on minimum wage recently. Until people can make a livable wage, it's not logical to ask them to go deeper into the hole.

    I think the main reform that needs to go on, in relation to the working poor, is that the IRS should automatically change contribution levels for people who get full refunds. Then people wouldn't wait around until April for the rest of the money they worked so hard for.

    It won't happen, of course. Too many “What if” scenarios. But it would make the most sense.

    • J. McCollum

      The notion of limiting the amount we are allowed to leave to our children at the end of our working life is sickening. It's contrary to the ideas of individualism, individual rights and property rights, which sadly, so many people seem willing to go soft on when the “public good” is brought up. Get an ideological backbone, people. Really.

  • So, Chris, since you hate socialism so much, I'm sure you won't go on Medicare or Social Security, right?

    I'm sorry you're so terrified and I think Samuel has some points for your to consider. (Always good to hear some reasoned arguments, rather than what most of us do, which is knee-jerk repetition of whatever we heard on either Fox News or MSNBC.)

    Overall, I hope you are able to go to the polls and register your disapproval there. Even if desperately hope your guys don't win. (Nothing personal.)

  • How Stupid are you. Estate tax includes corporate worth. You talk like some guy won the lotto and has money sitting in a box. The majority of people that are affected by estate taxes are small business owners like the Dunkin Donuts, Bike shop (Motorcycle), Beauty shop, Contractor. For tax purposes everything is included. How many businesses do you want the government to run? What about those so called managers that you mentioned that lose their jobs to liquidate the business to cover the tax bill. Who gives them a new job? Are you going to support them? Why don't you move to China or get a real life and learn something looser.

    • Is it absolutely necessary to start name-calling people? It's just a debate. Don't take everything so seriously.

    • J. McCollum

      I for one take these things seriously because nearly half of my grandfathers estate was taken by the government, as per estate tax laws. The taking of personal property from one person by the government and the encouragement of it to do so by another should be taken seriously. Essentially, we are debating whether or not Peter should have a say in what Paul does with his things when he dies. I take it seriously because I've seen it happen, and it is theft. The fact that it is facilitated by the government does not change the fact that it is, and we should be angry about it. Unfortunately, a government which robs from Paul to (presumably) feed Peter will always be able to count on the support of Peter. Can anyone really argue that?

  • No wonder I love this blog. Always surprise me every time I’m here. Always know what I want to read. really nice post.

  • J. McCollum

    You sir, are an idiot. We are not a democratic society, nor are we “egalitarian.” Were we France, we would be. The United States was built upon personal property rights and to deny the right to transfer that wealth to someone who has worked to attain it is a violation thereof. Equality is not what America should seek – the protection of individual rights (that would be this silly notion of Liberty) is. Your argument is based upon faulty logic and an apparently poor understanding of the philosophical goals of the country. Read the constitution, read the federalist papers, and read the writings of those who feared the sort of policies you're proposing. Then try and read what you've written without blushing.