In my last post I got a comment suggesting raising estate taxes to pay for more costly electricity generated by solar and wind power. I got to thinking about estate taxes and what we might hope to accomplish with them. Right now we pretty much let people pass on their wealth with some taxation but there is a real question of whether or not that is a good way to do things. One of the biggest issues I think is the image of the family farm being passed down from generation to generation and the children being destroyed by not being able to pay enough to keep up the family business upon the death of their parent. The Republicans used this image years ago to drum up opposition to estate taxes (stop the death tax!) in the US even when the taxes were restricted to those estates worth multiple millions of dollars - hardly starving farmers desperate to make a go of it. I think that the concern of taxing people who follow in their parents footsteps is real but hugely overblown; it happens but it isn't the standard these days that it once was.
Imagine what would happen if the government taxed 100% of estates left over after death. This isn't practical from a policy perspective but it is interesting as a benchmark to think about. Clearly we would need to continue the tradition that spouses are exempt as otherwise we would destroy people very much unjustly. The problem is that we would be directly encouraging people to give away everything they have to those close to them as they aged or took sick and it would create a market for disposable spouses that bought their way into estates for substantial amounts of cash. I don't have any problem with the situation of rich people who die late in life being unable to give their cash to their children but single parents dying and leaving their young dependents with no means of support at all is quite the disaster. I wouldn't have any problem with a 100% tax on those who have no dependents or spouses so perhaps that could be a useful dividing line. We might also just leave the current tax rate for small estates and only have a punitive tax rate levied against really large estates, say those over $1,000,000. In reality a 100% tax would surely have lots of other negative consequences including people destroying value when they are in a nihilistic mood near death's door. A number more like 50-75% would prevent some of the abuses but would achieve the same goals I think.
Increased taxes is a really scary concept politically speaking especially in these days of economic unrest. People would be incredibly upset at not being able to leave everything to whoever they want but from a societal perspective I see a real value in preventing massive quantities of power (money) from translating directly down family lines. Handing over a small business or some cash hidden under the mattress to the person of your choice seems often harmless, occasionally abusive and sometimes really positive but shipping millions to your favourite person is just concentrating power in the hands of the few and that isn't good at all. You can earn it and you can spend it but you can't take it with you when you leave.