Unless you want to force people to pay taxes on charitable donations, then no, there will always be legal ways to get rid of your money to avoid a 100% estate tax. The tax laws, and what is or isn’t deductible, are based on what behaviors the government wants to encourage. They’re not tricks that need to be removed.
Some people would disagree that it’s the government’s job to curb inequality, especially since “inequality” in this case is strictly based on money.
Let’s say I make a wildly popular videogame system. I sell one to every person in America, and now they are all happily playing video games. But by the very narrow definition of “equality”, I have drastically increased inequality, because all those people are $10 poorer and I am $3 million richer. Do you think the government should heavily tax my income to reduce inequality, thus discouraging people from wanting to make something like this in the future? Or is it possible that my device is a net benefit to society, even though I made a bunch of money selling it?
Or to put it another way: Oprah Winfrey has more money than I will ever have. But if she makes $10 million or $100 million this year, it doesn’t affect me one whit. How is “inequality” hurting me in this case?
“A power to dispose of estates for ever is manifestly absurd. The earth and the fulness of it belongs to every generation, and the preceding one can have no right to bind it up from posterity. Such extension of property is quite unnatural.”
- Thomas Jefferson
Also:
“Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise. Whenever there is in any country, uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right. The earth is given as a common stock for man to labour and live on.”
The U.S. already has one of the most progressive tax systems in the world. People are exempt from taxation below a certain point, and are taxes at higher rates as their income rises. But strangely, no one has produced an indicator about what point the taxes become “fair”.
“The problem with socialism is that eventually you run out of other people’s money.” — Margaret Thatcher
As someone who has spent the last decade or so in investment and private banking dealing with UHNWI corporate and family vehicles please allow me to point out this is utter bollox.
Now that’s an interesting claim. I’d always thought we compared quite poorly to other western nations because we give the very rich such low effective tax rates due to capital gains tax rates being lower than income tax rates. Can you provide solid evidence of that claim?
Or evidence of the Ladder curve succeeding?
Or, are these just fantasies meant to justify a status quo that benefits you?
Lots of talking past one another in the last several dozen posts, it seems to me. Everyone is talking about extremes on one end or the other, and how bad they are. Well yes, you can find some really bad examples on the end of just about any spectrum.
100% estate taxes? Probably not a great idea. But neither is zero, or high enough minimums to make the tax effectively negligible, as we continue to move toward. There’s a reasonable medium in there somewhere, significantly to the higher-rate side of things than the USA has now.
Dropping taxes to increase supply and increase economic growth, aka the Laffer Curve? It’s not complete bullshit, as @strollen said, if you have fairly high effective tax rates to begin with. Of course we don’t have those in the USA now, and thus this kind of supply-side economics doesn’t work. But that doesn’t mean you raise taxes to the point where it would matter again. You look for a spot somewhere with higher rates than we have now, but not so high as to make lower rates a net economic gain.
Talking about the all-or-nothing extremes benefits no one except the corrupt political system that uses those extremes to get people riled up and polarized.
But they need not be.
One person’s trick is another person’s long-term estate trust designed to avoid gift and inheritance taxes. If people want to give all their money to a genuine charitable organization rather than leave it to their kids, I’m fine with that, because it has the desired effect of preventing the intergenerational transfer of massive wealth. If on the other hand they want to shield it from taxes so that their kids can enjoy it without paying inheritance taxes, then fuck them, and the law shouldn’t permit it.
Setting aside ‘fair’, I’ve offered an analysis of what constitutes an ‘optimal’ tax rate, one that maximizes revenue. Isn’t that what you said you wanted?
Explain away executive compensation growth compared to employee compensation growth.
Matt_W
1776
There will always be incentive to be wealthy. People were still wealthy in the 1950’s, when the top marginal income tax rate was 91%. It’s not obvious to me that licensing a particular copyright (i.e. making a video game) is ever a net societal benefit over any other copyright. I’m a fan of promoting the arts, but I’m not sure that the slim hope of becoming uber wealthy is the “proper” motivation for it. There’s plenty of great art being produced that provides almost no remuneration to the creator.
Making widgets is more obviously beneficial to society, but any mass production of widgets requires material and labor, which should have the effect of diluting income from it. And in a functioning economic market, widgets should only produce just enough profit to incentivize their production at the price people are willing to pay for them. And then that profit should be distributed among all of the folks responsible for its production according to some scheme that takes skill and effort into account. It’s again, though, not obvious to me that a CEO is worth 271 times what their average worker makes. In a fluid labor market, any CEO that overpriced should be replaced by someone willing to do the work for, say only 100x what they other workers make. If most of that extra income was taxed away and CEOs could only effectively make 5x the average worker salary, would that make people stop wanting to be CEOs?
Money buys influence. If rich people collectively decide that a lower tax rate on capital gains is desirable and then use the resulting deficit increase to decide that social security benefits need to be curtailed, it will affect most people. If Oprah makes $100 million vice $10 million this year, she can use the extra $90 million to buy political and media influence and promote causes she cares about. Indeed it seems that many (most?) prominent wealthy people do exactly this. This gives them a far bigger “vote” than the rest of us and is manifestly undemocratic.
This is absolutely right, but beyond that, there is a problem with the offered example. It isn’t a remote, distant person who makes $100 million, it’s the executive who employs you. He or she is able to make $100m because your own wages have been effectively frozen for 40 years, despite the fact that the company you both work for has continued to grow and prosper during all of that time. In that example, the executive in question is stealing your wages, and their income does dramatic harm to you.
Matt_W
1778
Citation needed. The biggest social program in the United States is Social Security, which works pretty damn well.
And the biggest medical insurance program in the country is Medicare, which works pretty damn well.
Anecdotal claims of “I pay a lower tax rate than my secretary” aside, the higher-income taxpayers pay a higher effective tax rate.
That’s interesting but not what I was asking about. You claimed that the US had “one of the most progressive tax systems in the world” and I was curious about that. Got a good source on the US system compared to other first world nations?
Here’s a quick google:
Notoriously business-hostile bloomberg notes:
There are nations on this earth that tax their citizens far more heavily than the U.S. does. The top spots on the Organization for Economic Cooperation and Development’s rankings of tax revenue as a percentage of gross domestic product in 2017 were held by France (46.2 percent), Denmark (46 percent), Belgium (44.6 percent), Sweden (44 percent) and Finland (43.3 percent).
The U.S. tax burden was 27.1 percent of GDP, ranking it 31st among the 36 members of the OECD, the club of the world’s affluent democracies. That 27.1 percent includes state and local taxes; it doesn’t factor in the big tax cuts signed into law by President Donald Trump in December 2017.
-
The usual GOP response to these facts is usually something like, the other countries don’t have as many poor people as the USA does. /snark
-
What about capital gains and other sources of income? Those are taxed at different rates. Seems to me a good way to approximate actual effective taxation is to measure actual concentration of wealth, which simply shows the rich get richer.
What are you talking about?? The purpose of laws is to encourage some behaviors and discourage others. You deduct 401K donations to encourage investment for retirement. You deduct donations to charity to encourage charitable giving. You deduct mortgage interest to encourage home ownership. Saying that there “need not be” tax deductions is saying that the government has no role in encouraging positive behaviors in taxpayers.
I disagree that it’s the government’s role to prevent the intergenerational transfer of wealth, but clearly we’re never going to agree on that.
My point was that a 100% estate tax will result in effective estate taxes of basically $0, because people will choose to give their money to charity rather than give it to the government.
My views on that topic took an abrupt shift the first time my boss was a rich kid who as no competencies or skills beyond “Daddy owns the company.”
