Someone's working in both cases. In the case of inheritance it's the person who gave the money in their will. That person also already paid tax when they earned the money in the first place.
If anything I think we should encourage rich people to give their money away (even if only to their children) since wealth consumed by a broader number of people leads to more happiness than if it's all consumed by one person. It's better for a $10 million fortune to be spent by 10 consecutive generations than for it to all be spent by the original owner.
The difference is that when you give money to your children, you're not getting any goods or services in exchange. The transaction is making them richer, but you poorer by the same amount.
(Also, later when the children pay a mechanic the amount of total tax paid will be the same.)
> If anything I think we should encourage rich people to give their money away (even if only to their children) since wealth consumed by a broader number of people leads to more happiness than if it's all consumed by one person. It's better for a $10 million fortune to be spent by 10 consecutive generations than for it to all be spent by the original owner.
I don't understand how you reach this conclusion. If the original owner spends all of it it enters a whole lot of more peoples pockets than his kids.
Increasing the velocity of money doesn't help the world on average. Otherwise the Fed would just set their inflation target higher. Even if you disagree, given that the Fed has a fixed inflation target you can't do anything about it by changing inheritance tax. If you force a bunch of rich people to spend more than they would have, the Fed will just take that money straight back out of the economy.
Sometimes I find all this money swirling around difficult to keep track of. It's easier to forget about money and look at what's happening to the goods and services. Ten families in $1 million houses get more happiness than one family in a $10 million house and nine homeless families. No matter how you shuffle the accounting around it has to add up to that same utility difference.
> If you force a bunch of rich people to spend more than they would have, the Fed will just take that money straight back out of the economy.
So if they go on more vacations, buy a flashy car, have more parties, you are saying that the Fed "takes that money straight back" and that it doesn't go to travel agencies, car dealers, caterers, party planners, service workers etc?
> Ten families in $1 million houses get more happiness than one family in a $10 million house and nine homeless families. No matter how you shuffle the accounting around it has to add up to that same utility difference.
Sure, and I reject your hypothetical and say it's better if 100 people live in $80k (after some tax) houses/condos than 1 in a $10M house, if we're just making things up.
> So if they go on more vacations, buy a flashy car, have more parties, you are saying that the Fed "takes that money straight back" and that it doesn't go to travel agencies, car dealers, caterers, party planners, service workers etc?
They do get the money. But the world hasn't become any more productive; the number of goods and services being produced is still the same. So when they spend that money and consume goods and services, someone else must necessarily be consuming less.
Assuming those savings are invested, it wouldn't change anything. Right now there is an excess of uninvested savings in corporations that is not being invested and sure, distributing that money would help with the economy but betting on inheritance taxes to do the job is weird. It's too unreliable.
Many places in the world you pay a tax for inheritance.
For 100% (or otherwise significant) inheritance tax, the issue is how to implement it. If you know it's happening, you'll just gift what you own to the preferred recipients before you die. If gifts are also 100% taxed, you sell your property to them (and then spring up a company and hire them to do "work", so they get the money back). If sale of property and work are 100% taxed, well, it's a very different kind of economy.
100% inheritance tax only hurts when someone dies unexpectedly. Others will be prepared with workarounds.
Where I live, both inheritance and gifts are taxed with very similar rates. Also, selling things under their market value is considered gifting (which sometimes gets interesting, for obvious reasons).
This is something I've certainly thought about, as another proponent of as-high-as-possible inheritance taxes.
What about taking inheritance and gifts as ordinary income to the recipient? Ideally this would be coupled with a reform on capital gains tax, but even as is, should target high taxes only on large amounts or amounts given to people that are already rich.
There would certainly need to be some tweaks, but it should diminish the inherent injustice of inheritance.
> If you know it's happening, you'll just gift what you own to the preferred recipients before you die.
You can treat all gifts a year or less before the date of death as inheritance. Many wealthy parents will be hesitant to give large amounts of money to children while in good health, as they're scared children won't care about them any more once they get their money.
So as a parent, you gift the money to your children on the condition that they lend it all back to you until your death. If the children don't behave up to your expectations, you'll just spend it all on booze and hookers^w^w^w really expensive elder care and be insolvent by the time you die.
The bottom line is, if someone wants to leave a significant inheritance to their (grand)children, there's little that can be done about it with tax policies only. By the time you have plugged all the holes to prevent inheritance, you've also prevented most of the things we consider necessary for the function of a capitalist free economy.
Because we do not want to isolate children from their parents. A 100% inheritance tax is impossible from a practical standpoint.
>One person gets something for free,
Do you abandon your child as soon as it is born? Do you think your newborn should work and pay the bills?
No, you support it for 18 years and let it grow as much as possible instead of considering your child something to be exploited for money.
> the other works and has to pay tax?
If you inherit something from someone, that person had to work and pay tax.
I can come up with good reasons for wealth taxes, I can come up with good reasons for abolishment of land ownership (replaced by a permanent lease model) or heavy taxation of land but I honestly cannot come up with any reason for inheritance taxes beyond jealousy, jealousy that other people had more fortunate parents than you and your selfish desire to drag them down. If everyone started off on an empty earth it would be fair, but it also would be equally bad for everyone, instead of bad for an unlucky minority. Being poor in the US is a blessing, being poor in India is not.
Especially when there is a fair solution to the wealth inequality problem. Simply split the wealth instead of giving it all to the first born son. If people are obscenely wealthy, let them have many children and let each of those children be less wealthy than their parents. If you must implement this with a tax, then set a maximum amount that a single person can receive through inheritance in a lifetime, say $1 billion and tax anything after that. Yes, that means Jeff Bezos will have to find 200 heirs or lose the money to the state. It would be in his best interest to reduce wealth inequality at the end of his life.
You went from “I cannot think of any reason for inheritance tax” to ... proposing an inheritance tax (at a very high threshold) in the space of a paragraph.
Untaxed inheritance perpetuates inequality. Inequalities are unfair and arguably damage our societies. Functioning societies aim to repair the damage by rebalancing structural inequalities. Hence inheritance tax. The children of the very wealthy aren’t being “abandoned”, they already have surpassing advantages while their parents are alive.
Well if you want to ask why inheritance is moral you should probably also ask why taxes are moral because taxing/abolishing inheritance is a logical extension to that. I urge us all to sit and think about it for a few moments. What are the logical steps and sequence of justifications that led us from a bunch of random people in the middle of nowhere to a point where there is now an entity that [forceably] takes X% of people's labor, by virtue of birth in that entity's area and nothing else? If government didn't have this "aura" of legitimacy and "democracy" attached to it, what it does would be seen as no different to what lords did to their peasants centuries ago. By virtue of a peasant being born on a lord's land, they were subject to their rules. At least back then they could probably leave and go to the middle of nowhere and be left alone if you weren't harming anyone. These days there is nowhere to go, and in some cases the "government" might not even let you leave!
Centuries from now they'll probably consider what we're doing now to be absolutely barbaric and adjacent to plain old slavery.
I'll bite. Governments are virtual machines, aka language runtimes, they provide a baseline for human cooperation by creating the rule of law and a political environment within which an advanced economy can exist. They can only provide these things because they conquered land via a military and protect the land and its citizens from intruders.
You can argue that there are ways of taxation that are compatible with this idea and there are ways of taxation that are counterproductive but you cannot argue that the taxes shouldn't exist because that would mean no government which would mean no rule of law and no political environment in which an advanced economy can exist. Of course, the big problem is that many governments fail to live up to their responsibility. The US and EU countries' government may be failing their citizens, but not as much as many Asian, African or Latin American governments.
Taxes are moral because taxes fund the society which allows us to live. You can debate about the level of taxation, what to tax (labour vs capital vs natural assets) and what functions that society should provide, but there are very few people claiming that national defense, or courts, or city streets, should not be funded from the public purse.
Reading your logic here one would think that your musings have lead you to become an anti-capitalist but for some reason this texts strikes me as if it was written by somebody who's far from that position.
In the UK pro-inheritance folks like to call it a "death tax" and argue it'll rob people of the ability to pass things along to their children. The debate is caustic and unpleasant to say the least.
Something a lot of commenters seem to be missing is that in Adam Smith's time, inheritance meant primogeniture. In other words, the eldest son receives all land, which is indivisible and belongs to the eldest son only. (Who is socially obliged to support the other people in the family as needed.)
This ties up a lot of wealth in ways which slow down economic growth immensely.