100% Estate Tax and 0% Income Tax

I'm not even sure if the math works for this in terms of providing enough revenue for the Government, but my two questions are:

1) Would you personally agree to to a 100% estate tax in exchange for a 0% income and capital gains tax?

2) Do you think this would benefit or hurt the economy as a whole?

My answer to number one is a resounding FUCK YES! I'm pretty sure most people who aren't going to inherit millions would have to agree.

I'm not too sure about number two. On the plus side it would force trust fund kids to do something productive with their lives and it would be much easier to build wealth for anyone who wishes to do so. On the down side it creates a disincentive to accumulate more wealth than you can spend in one lifetime.

Edit: I know this is an unrealistic proposition. I just wanted to see how people felt about the concept on a philosophical level.

Also, here are some key assumptions for this hypothetical world:

1) There is no way to beat the system for ANYONE, rich people included.

2) When the government takes over a business from someone that died, it must be sold to the highest bidder. I'm not advocating for government run enterprises.

3) Stop finding loopholes.

 

Coming from someone who has never inherited anything and will likely not inherit anything of substantial value, I say no.

First of all, I would very much like for any fortune I accumulate to go to whom I wish to receive it. Secondly, the rich would find ways to avoid this tax, or otherwise significantly reduce how much of their money actually goes to the government. But the regular guys who are looking to inherit five-figure and low six-figure estate would be the ones who get screwed.

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SureThing:
Secondly, the rich would find ways to avoid this tax, or otherwise significantly reduce how much of their money actually goes to the government. But the regular guys who are looking to inherit five-figure and low six-figure estate would be the ones who get screwed.

I'm asking this question as a philosophical question not a practical question. Let's say there are no loopholes and the people working for the IRS are smarter than the best private sector accountants.

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I don't remember seeing this anywhere, unless it's deep in my subconscious memory somewhere. I thought about this while writing my book report for The Republican Brain by Chris Mooney and was starting to get pissed off about about liberals... so the idea of this compromise came about. An egalitarian society that still promotes capitalism.

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Best Response

For a brief time, at least, there would be a surge in economic activity and technology. Not only do (most) people have more disposable income; they know that if they don't spend it, they lose it. Older people especially would be dropping lots more money on toys (i.e. cars, vacation homes, high end TVs and other electronics, etc.). Companies would be flushed with cash and investment in new products and technologies would skyrocket.

Small businesses, however, would eventually die out, as children wouldn't be able to inherit the business. This would drive a change towards megastores (i.e. Wal-Mart), and salaries could ultimately plummet (maybe not), potentially resulting in a major, long-lived economic depression.

Anyway, that's just my semi-uneducated guess (while I know finance, I can't say I'm much of an economist).

 

You can't stop people from giving their wealth away to others, tax free. You can't impose a 100% transfer tax (well, suppose you do..). If you did.. the parents would hire their spouses and kids, and pay them an absurd amount of money (there's no cap on annual income, after all).

But let's suppose incomes are capped for people to prevent this sort of transfer. What's the cap at? $20 million/year? $30 million?

Suppose you can't transfer it at all (can't employ family members, can't give them money or things because they'd be taxed 100%), why give government ALL the excess of your labor when you die? What's the point of working? Hit $5 million, then tap out because that's all you'll probably need. Hit $50 million in the NFL, tap out.

There's also a logistics problem - there are trillions of dollars worth of stocks alone, nevermind the tens of trillions in real estate and so on, that are generally passed on to family. So, government eventually confiscates the lion's share of wealth in the US.What does government do with it? Just give it away to the poor? Now, there's no lower class to do any work (why bother working when you can get $40,000/year ONLY IF YOU DON'T WORK?).

But the real problem, who will have the money to buy these businesses at their current prices? For a while, there will be people with money. Once the rich die off though... nobody. So, property values will drop, stock prices will fall, there will be deflation, wages will drop...

Debts won't get easier to pay off, people will go underwater on their mortgages (since housing prices will drop), they'll just walk away, maybe buy something cheaper.

So who really wins? Anyone who'd support this is extremely short-sighted about the trouble of having government control all the "excess" capital in a country.

Lastly, there's also the logic flaw - by trying to be more "fair" by confiscating money from the rich, the US will be MUCH more friendly to foreign investors. There will be tons of wealthy foreigners looking for bargain investments. People whose families built this country won't even be able to keep the house their parents lived in, some Chinese crook (or Mexican telecom thug) will buy it and rent it off to them. Why give rich foreigners priority over Americans' parents' property?

When foreigners send their money back home, that 100% estate tax won't be enforceable on them. And so on.

 
kfuzion:

You can't stop people from giving their wealth away to others, tax free. You can't impose a 100% transfer tax (well, suppose you do..). If you did.. the parents would hire their spouses and kids, and pay them an absurd amount of money (there's no cap on annual income, after all).

But let's suppose incomes are capped for people to prevent this sort of transfer. What's the cap at? $20 million/year? $30 million?

Suppose you can't transfer it at all (can't employ family members, can't give them money or things because they'd be taxed 100%), why give government ALL the excess of your labor when you die? What's the point of working? Hit $5 million, then tap out because that's all you'll probably need. Hit $50 million in the NFL, tap out.

There's also a logistics problem - there are trillions of dollars worth of stocks alone, nevermind the tens of trillions in real estate and so on, that are generally passed on to family. So, government eventually confiscates the lion's share of wealth in the US.What does government do with it? Just give it away to the poor? Now, there's no lower class to do any work (why bother working when you can get $40,000/year ONLY IF YOU DON'T WORK?).

But the real problem, who will have the money to buy these businesses at their current prices? For a while, there will be people with money. Once the rich die off though... nobody. So, property values will drop, stock prices will fall, there will be deflation, wages will drop...

Debts won't get easier to pay off, people will go underwater on their mortgages (since housing prices will drop), they'll just walk away, maybe buy something cheaper.

So who really wins? Anyone who'd support this is extremely short-sighted about the trouble of having government control all the "excess" capital in a country.

Lastly, there's also the logic flaw - by trying to be more "fair" by confiscating money from the rich, the US will be MUCH more friendly to foreign investors. There will be tons of wealthy foreigners looking for bargain investments. People whose families built this country won't even be able to keep the house their parents lived in, some Chinese crook (or Mexican telecom thug) will buy it and rent it off to them. Why give rich foreigners priority over Americans' parents' property?

When foreigners send their money back home, that 100% estate tax won't be enforceable on them. And so on.

This is the exact thing that comes to my mind when people say " the wealth of the billionaires is enough to cure poverty 4 times over" or whatever they say. How the hell do you liquidate all these assets without people to buy it ?

Beyond just that, people's motivation for building up their businesses is usually not about them, beyond a certain point it tends to be more about preserving their family's monetary standing over time. Are you really sure that taking away one of the greatest motivating factors for continuously growing one's business will be offset by the increase in disposable income ? Assuming what you said was even possible,of course.

Let's also be honest though the primary driver of economic growth in the long run (40-70 years) is really productivity increases and technological advancement not arbitrary increases in demand...now considering you just constricted the primary driver of long term economic growth what do you expect will happen ?

I like money
 

So basically a giant "fuck you" to everyone who busted their ass so their kids could be better off? Nah.

"You stop being an asshole when it sucks to be you." -IlliniProgrammer "Your grammar made me wish I'd been aborted." -happypantsmcgee
 

I'm in favor of no estate tax until $15 million, and then 15-20% for the marginal amount over $15 million, adjusted by inflation every 5 years.

I think the problems with the OP's proposal have been outlined--philosophically people may agree (I can sort of philosophically digest the idea), but the implementation would make the U.S. an oligarchy of rich foreigners with pretty much the death of small businesses long-term. It would take about 20 years for society to be completely turned on its face.

 
DCDepository:

It begs the question, who is left to buy the businesses? If there is little wealth among individuals, how will you auction off businesses and assets to the private sector?

I understand you're trying to get at this philosophically, but it's really difficult for us to separate the philosophy and the implementation.

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