Abolish the death tax!

… and tax bequests and gifts as ordinary income.

Now that the Billionaire’s Union has convinced the country that there’s something unjust about the “death tax,” Democrats have to figure out what to do about it. It looks as if we’ve managed to beat back the latest assault, but there needs to be a long-term strategy, optimally one that fits in a six-second soundbite.

So here’s mine: Go ahead, abolish the estate tax. While you’re at it, abolish the gift tax as well.

Then tax money received as inheritance or gift, above relatively low individual annual and lifetime limits, as ordinary income. The soundbite version: “Why shouldn’t people who inherit money pay the same taxes as people who earn it?”

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com

22 thoughts on “Abolish the death tax!”

  1. Not as good as your slogan, but there should also be something along these lines:
    "The Republicans are against a 'death tax.' Why are the Republicans supporting death???"
    "Party of Death," indeed.

  2. If you believe it, why give annual or lifetime exemptions?
    Do you realize that this kind of "reform" would actually broaden the opposition to the tax? Many more people receive gifts than large inheritances–and many receive these gifts as part of planning to avoid taxation.

  3. I like it. It's simple, reasonable and fits on a postcard.
    Frankly, I agree with Thomas that this would potentially broaden opposition, and I'd really prefer an estate tax. But the Goopers have made an estate tax impossible. So this is a reasonable substitute. Set the annual/lifetime limits appropriately and you should minimize opposition.
    BC

  4. That's nice…really nice. Very simple and concise.
    On the other hand I have to agree about the increase in opposition. I guess you would just have to be very careful in allowing exceptions…education expenses, etc.
    Great…let's start the meme.

  5. There is a word for a proposal as outstanding and simply understandable as yours: elegant.

  6. The counterargument will be: but we already paid taxes on the money before we made a gift of it. (Unless we earned that money via municipal bonds, or other tax dodges.)
    Of course, everyone who pays sales tax, cigarette tax, or gas tax has already paid taxes on his or her income, but that doesn't really apply. The "why should we be taxed twice" argument applies only to millionaires. As for the rest of you, too bad suckas!

  7. Give me a way for my partner to keep the tax deferral on the 401(k) and not get killed on taxes on the house, and you've got a deal!

  8. OK, but to make the tax correspond somewhat to life-cycle realities, the inheritor should be able to average the income over something like a 10-year period. After all, most of us will inherit just once and should not be treated like a plutocrat in that single year.

  9. I think Thomas is right– it'll make opponents out of anyone who ever got a few bucks from the folks.
    Why not just rename the estate tax? Call it an "excess property tax" and roll out the founders. They didn't cotton to hereditary aristocracies either.
    Although I do agree that it would be a stroke of genius to make the goopers stand up (ahem) for Paris Hilton's right to be rich because she chose the right ancestors.
    Seriously, the one thing this all overlooks is that half the country thinks they're going to be bazillionaires one day when they hit Powerball and they want the chance to dream of wealth. I don't see too much harm in that.
    I think you could sell the estate tax as a small way to repay the society and polity that empowered the dear departed to accumulate an estate worth more than 7 million, which in turn will help the next generation to develop its successes.
    Lincoln said something pretty close to this in his senate campaign, and aren't the Rs always talking up the wonderfulness of this free society? The estate tax– excess property tax– is a small price for a small number of people to pay to keep it free.

  10. C'mon, guys, the fact that there'd be heavy opposition for the taxes Mark proposes is the Whole Point of his proposing them. All those folks who would shudder at the thought of telling the IRS about every check that arrives with a congratulatory greeting card are his target audience for a Defend The Estate Tax rally.

  11. Great idea–one I've argued for frequently.
    I think that transfers to a spouse probably ought to be excluded. And the limits need to be fairly high–no one wants to worry about keeping track of birthday presents. (I'd set the limit at the 25% of median income in any year, 10x median income once in a lifetime–I'd avoid lifetime total giving simply because it makes tracking all gifts received necessary).

  12. I have to admit to thinking that this whole "Here's some money; Give me a good reason why the government SHOULDN'T take it!" approach puts the cart before the horse.
    Why should we ask what Paris Hilton has done to earn that money? Why not, instead, ask what she's done to owe it?

  13. What has Paris done to owe it? She, like 300 million others, has been born into "original debt" as an American citizen. We all owe it, whether we like it or not. If part of her income includes a $1 billion, or whatever, inheritance, why should she pay no taxes on that when I have to pay tax on the income I work for? If we existed in a state of absolute grace without government debt and no need for any government services it might make sense to ask why the government should ever take money from a rich person.

  14. The idea of taxing inheritance income as income has always seemed to me to be self-evidently obvious, so I figured there must be some really bad side effects to doing so.
    Does anyone know what the negative effects of such a practice would be?
    Also, someone upthread mentioned averaging. I think that would cause even more problems, because for many taxpayers they would still be paying taxes long after the money was spent. I don't see a need for averaging, especially since the top marginal rate is not that high.
    But yeah, I think most people would find it offensive that people who work for their money pay higher taxes than those who just get it for free.

  15. "What has Paris done to owe it? She, like 300 million others, has been born into "original debt" as an American citizen. We all owe it, whether we like it or not."
    That's a tolerable argument for a head tax, I suppose, but does nothing to advance the notion that people who come into a lot of money somehow owe MORE than people who didn't.

  16. Brett, I'm merely agreeing with the post that it would make sense to tax inheritance as ordinary income. When you say "owe MORE", are you arguing that the rate, as part of a progressive structure, might be too high? If so that is a different argument than whether a rich heiress should have to pay any taxes at all on her inheritance income.

  17. I'm arguing that where the costs somebody incurs are uncorrelated to the income they make, the concept of a particular *rate* being appropriate is absurd.
    If I walk into McDonalds, and order a Big Mac, who would think it rational to discuss what percentage of my income the price of the burger ought to be? My income has no logical connection to either the cost of a Big Mac, or how many I ordered, and we don't generally think that the latest Powerball lotto winner ought to pay $10,000 for a value meal because he's flush.
    The taxes somebody pays should be a function of the services they get, NOT of how much money they've got in the bank. Once you're talking "rates", you've already gone terribly wrong.

  18. "The taxes somebody pays should be a function of the services they get"
    Offhand I can't think of a better argument for taxing high-income people, high-asset people, and corporations (especially the bigger ones). So yes, let's assess user fees for filing court cases in proportion to the assets at stake, apportion defense appropriations the same way, and charge tolls on all the interstates. And let's also add the cost of maintaining air traffic control to the price of tickets. And, stickiest of all, don't people with lots of assets gain social peace from the modest bit of redistribution we actually do here? What's the real value of that?
    I would submit that there cannot ever be any system of taxation that is not redistributionist in some way. And it should redistribute to at least some degree, as our 19th-century Republican forebears also thought. Poor school districts shouldn't impoverish the nation by turning out under-educated students.
    If you don't look at income levels but instead look at geography and at corporate linkages, ours redistributes a whole lot. I think it should do some on a geographic basis and some income redistribution. Doing reasonable human good is more important than achieving systemic purity.

  19. To answer your question, "Why shouldn't people who inherit money pay the same taxes as people who earn it?"
    BECAUSE IT'S ALREADY BEEN TAXED, DUMBASS! For cryin' out loud, how many slices of the pie is the gov't due?

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