Tuesday, August 2, 2011

Estate taxes

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.


  1. I have been a working-member owner in 3 cooperative businesses, and some cooperatives adopt a principle of 1:8-15 as a maximum wage disparity. The least paid worker can not be any less than 1/8th or 1/15th of the highest paid worker.

    I think that is a strong principle in reducing rediculous disparities such as what we have in the USA where it can be measured in factors of thousands between the lowest and highest paid worker.

    For "death bed marriages" I think a clear distinguishment between partnerships that are, say more than 7 years old, and recent marriages. If an elderly person has only been married for less than 7 years, is it reasonable to assume the first 60-70 year of their life they had another means of financial support? And obviously an exception clause for sudden death of young parents with dependents.

    Personally, my intuitive reaction to a 100% estate tax is excitement! I think it is a great pleasure to give away all of your possessions to your friends and community -- and I rather think that more giving without expectation of reciprocation ought to be encouraged!

  2. As a somewhat related commentary, I think this assumption within the American debate of taxing the wealthiest 1% has shockingly illogical assumptions. Why do we believe the majority of individuals drawing salaries in excess of $1 mil USD must therefore be "small business owners providing jobs for millions of Americans"? Dumb and factually inaccurate!

  3. In a debate on the estate tax, when the Republicans were arguing they had to get rid of the death tax, a democratic senator (or maybe it was a congressman, but I think it was a senator) suggested that if they are concerned about family farms, they should simply exempt estates under $10M instead of eliminating the tax. The Republicans were, naturally, not interested.

    So, to make a point, he suggested, instead of removing the tax, the exempt estates under $1B. This didn't fly either. Got to think of those family farms, handed down from generation to generation, that are worth $2B.