Spend your money on riotous living – no tax; leave your money to your children – the tax collector gets paid first. That is the message sent by the estate tax. It is a bad message and the estate tax is a bad tax.
The basic argument against the estate tax is moral. It taxes virtue – living frugally and accumulating wealth. It discourages saving and asset accumulation and encourages wasteful spending. It wastes the talent of able people, both those engaged in enforcing the tax and the probably even greater number engaged in devising arrangements to escape the tax.
The income used to accumulate the assets left at death was taxed when it was received; the earnings on the assets were taxed year after year; so, the estate tax is a second or third layer of taxation on the same assets.
The tax raises little direct revenue- partly because the estate planners have been so successful in devising ways to escape the tax. Costs of collection and compliance are high, perhaps of the same order as direct tax receipts. The encouragement of spending reduces national wealth and thereby the flow of aggregate taxable income. These indirect effects mean that eliminating the tax is likely to increase rather than decrease the net revenue yield to the federal government.
The estate tax is justified as a means of reducing the concentration of wealth. However, the truly wealthy and their estate planners avoid the tax. The low yield of the tax is a testament to the ineffectiveness of the tax as a force for reshaping the distribution of wealth.
The primary defense made for the estate tax is that it encourages charity. If so, there are better and less costly ways to encourage charity. Eliminating the estate tax will lead to higher economic growth, which is the most important variable in determining the level of charitable giving.
Death should not be a taxable event. The estate tax should be repealed.
> The basic argument against the estate tax is moral. It taxes virtue – living frugally and accumulating wealth
Only insofar as you believe taxation to be a moral commentary. If one thinks taxation is punishment for a decision, then I can see why one might see it this way.
I don't agree, though. Taxation is reinvestment into the society that makes the usage of that tool–money–possible in the first place. I think it's morally wrong to sequester a social tool in the hands of a few people who never made the investment to get that return in the first place, i.e. children of wealthy parents. I think it's morally wrong for anyone to get to pick and choose who will start out having already won the race. This is different from me being a bad business owner and people choosing not to do business with me.
Should parents be able to spend their earned money on their childrens' upbringing? Of course. If a wealthy parent dies should they be able to leave money behind for their children to have a decent shot at life? Absolutely. Does that require millions or billions of dollars to be hoarded, unused, passed from hand to hand, contributing to a skewed money supply that forces the fed to print more, play with interest rates etc to try to keep the system stable? No, I think there's a reasonable amount that the government can request returned.
Now, the _amount_ of tax is certainly debatable. But to take the extremist position of repealing the tax altogether is absurd IMO.
The thing is that it's both. In more appropriately neutral language we would say that any tax creates incentives and disincentives, and as a society we should be very mindful of what incentives and disincentives we are creating.
I would actually argue the government has a pretty bad track record when it comes to creating good incentives and "good" disincentives, so usually a better approach would be to try hard and avoid creating incentives or disincentives at all. Proponents of things like VAT, or other very broad, general, and hard to avoid taxes usually see it in those terms.
>Does that require millions or billions of dollars to be hoarded, unused, passed from hand to hand, contributing to a skewed money supply that forces the fed to print more, play with interest rates etc to try to keep the system stable?
I think you got cause and effect mixed up. Every dollar that the fed is printing is being hoarded because the fed decided to only give dollars to people that hoard money.
There's something virtuous about living beneath your means and ensuring that you can be self-sufficient in your retirement.
There's something virtuous about living beneath your means and ensuring that, at a minimum, you are not a burden to your family, but that ideally you provide them support rather than siphoning support from them. In order to do that, it's almost a given that you will die with money left over. (The alternative being feeding the bloodsuckers who sell annuities.)
One person's "hoarding of wealth" is another person's "natural outcome of frugal living and appropriate planning".
You speak of frugal living, but why live frugally amassing great wealth? There is a difference between having money to be self sufficient and sitting on billions of dollars
I think the frugal living they're talking about is not in the venn diagram overlap of those accumulating Billions of Dollars.
My understanding is that the point would be to not tax someone leaving a much less significant amount to their children, in the case of either an untimely or expected death, and rather using more targeted methods to prevent the accumulation of billions, like taxing those who accumulate billions.
Typically those billions aren't liquid, they're usually shares in some business you've built which you may not want to sell because it'll dilute your control in the business.
No, but our democratic institutions do. If I ended up parking my riches in a particular country, I'm OK with whatever I have to pay (or there're enough legal mechanism to make it less painful).
FWIW, it's not "obvious" that many poor people would decide that rich much pay a lot. That's not the case in US, for example. Sure, there're people who want to "make rich pay", but in general US system is already fair enough [1] (page links to multiple bipartisan sources).
> many poor people will decide that few rich people must pay more
I fail to see the problem, if you have more money than you could possibly use in a lifetime, why shouldn't that be redistributed through programs that benefit all of society, instead of whatever pet projects the rich person favors.
If the wealth was accumulated legally and fairly, as a result of creating such vast value for society that society willingly parted with their money for the goods/services from the company/ies that the wealthy person invested in and retained an ownership stake in, I don't find it obvious that society should have a further claim on the proceeds from the result of those transactions just because the owner "has too much money".
That person/family has shown some evidence that they're capable of investing money to generate an outsized return on that investment. I would tend to think they might be able to repeat that effect with the way they choose to reinvest the money, be it for societal value or charitable endeavors. I don't see evidence in balance sheets that governments have that same track record.
Society has made murder, theft, and rape illegal largely because of a fairly broad-based agreement that those are immoral.
Where there isn’t broad agreement on morality, I would prefer to avoid passing laws to regulate behavior and allow choice. (Roe v Wade/abortion being just one crystal clear case of this tension which I believe is generally best resolved in favor of individual freedom. I am free to follow my own morals where they are stricter than the law; I do not force others to follow them.)
> I fail to see the problem, if you have more money than you could possibly use in a lifetime, why shouldn't that be redistributed through programs that benefit all of society, instead of whatever pet projects the rich person favors.
Who decides that? The great and scholarly politicians we elect?
How many generations deep does "your family" run? Do you really think people with multiple billions of wealth were living beneath their means?
(I agree with your point if they are upper middle class or even have 10-50 million dollars of wealth). But when you are part of the top 0.1% of the population, there is no way you are living beneat your means to be self sufficient in retirement.
Those who "hoard" wealth do not do so by filling a swimming pool with gold coins like Scrooge McDuck. They invest in companies that provide jobs and the goods and services that the rest of us enjoy. Yes that is virtuous.
Sitting on billions of dollars in stock in a publicly traded company isn't really all that different from having a swimming pool full of gold coins. The day-to-day functioning of that company is not going to be affected if the billionaire sells shares to pay taxes rather than giving the shares to their children. An initial investment in a company is virtuous but once you have billions keeping that money in the family isn't really virtuous given that the alternative is contributing to the society that made the initial investment possible.
Investing in companies is contributing to society. Government is not society. Investing in Walmart so that the rural poor have more access to affordable goods is virtuous. And a whole lot of the contributions to government are absolutely not. Like the money that goes to build bombs to kill people in Yemen, or the money that funds your local police department's efforts to suppress protests against their unaccountable violence.
Do you mean supply of credit? Because additional money wouldn't drive demand for credit, it would drive supply as those with money look for places to lend it.
If you are saying an excess supply of credit leads to financial crises, I agree with you. But the federal reserve that intentionally pumps money into the big banks to make credit easy is a far bigger contributor.
I agree that Milton Friedman had his flaws, one of which is this very topic, he never properly connected the federal reserve, money expansion and easy credit to economic instability.
> They invest in companies that provide jobs and the goods and services that the rest of us enjoy. Yes that is virtuous.
They invest in companies and expect a return! If money was directly redistributed, then the people running and working for those companies might able to keep that value that they have created.
This is true to an extent, but in no way is someone worth $200 billion amassing the wealth the same way someone earning and saving $2 million over a lifetime.
This also implies that only the person investing would provide that function of providing goods, jobs and services. Since he government does the same (produce goods, jobs and services), does that the government is also moral? Why is one more moral than the other?
Not all jobs or service contribute to society. But if you invest in a company that provides goods and services that people don't want, that money is lost and you lose your ability to invest further.
When government provides a service that people don't want, that service can continue indefinitely, especially if the few who benefit can contribute back to the politicians who keep it going. Lockheed Martin and Boeing can contribute to some politicians to make sure that wars continue and they reap back way more than they contributed from the taxpayer who's only option is to vote between two pro-war candidates. Those jobs making bombs for Saudi Arabia to drop on Yemen don't contribute to society, they are a determent to society, yet they continue without end because nobody loses on that investment as long as the taxpayer can be forced to pay for it.
The same could be said about people who want to take other's money away. People are spend-thrifts enough as it is, a wealth tax just dis-incentivizes being fiscally responsible.
Suddenly 99% of the world is no longer discouraged from being fiscally responsible. Do I really care if a billionaire is fiscally irresponsible? Maybe for a single generation. After that, we're good.
What GP proposed was a Wealth Tax which is an additional tax on _living_ people who have a net worth over a certain amount.
What you linked is an Estate Tax (aka death/inheritance tax) which only applies when someone passes wealth on after death. If they decide to give all their money away to charity or otherwise spend it while they're alive it does not apply.
What we now recognize (and decry) as greed looks very similar to the force that created intelligent life from primordial soup. Greed, ambition, and Darwinian fitness seem close to synonymous.
Also, there's nothing uniquely American about considering greed virtuous[0].
Virtuous is subjective, but there is the age old goal of leaving the next generation better off than yours. It seems like a personal choice of whether to spend money responsibly, spend frivolously, give it away, or pass it on to whoever you want at any time to do any of those options.
I'm not sure where I stand on a wealth tax, but I would always be hesitant to tax money that in theory was already taxed when earned. I could certainly see the idea becoming more acceptable if the importance of community and a traditional, tight-knit family structure continues to erode.
> but there is the age old goal of leaving the next generation better off than yours
Hopefully we can strike a balance between leaving only your direct descendants better off and leaving everyone in the next generation better off.
> I would always be hesitant to tax money that in theory was already taxed when earned
This is incompatible with having an income tax and any other tax. Although, income tax isn't exactly well loved by economists, so maybe there is something to that.
>Hopefully we can strike a balance between leaving only your direct descendants better off and leaving everyone in the next generation better off.
You're thinking that taxing the wealth of a billionaire is guaranteed upon death. Therefore from your perspective there are two options: taxing the wealth or not taxing the wealth. Except taxation is the exception, not the rule.
If you know your wealth will disappear then you will try to get rid of it before it can disappear.
With the estate tax there is a strong incentive to just hand over your wealth to your children before you die or by spending it all on donations so the government can't take it.
I was just thinking in terms of the morality / virtuosity discussion there. In practical terms, there are of course massive problems with enforcement and the flight of wealth, for both estate taxes and wealth taxes.
There is lots of virtue in giving far more to society (remember that rational free markets are value exchanges, each party thinks they got a good deal).
Someone who has a lot of stored up value has given lots to society without receipt of anything but some electronic digits (yet). Plus if the government's rules were working they'd also have paid at least some taxes on all that stored wealth, leading to additional societal value.
in rational free markets sone does not need to give twice because the contribution to society is in the provision of things people want.
IMO most of the debate is missing that America doesnt have free markets and keeps trying to duct tape around it without fixing the actual bug.
I think it is virtuous to plan and prepare for your own security and the security of those who depend on you. But beyond that (like if you are rich enough for financial security to not matter much) I don't think it is inherently virtuous to save.
People used to argue that saving (investing) is better for the economy than spending (consumption). That's an argument for a lower capital gains tax. But you could argue the US has gone too far in favor of investors, at the expense of consumption. Presumably more $ in the hands of the 1% = more investment, more $ in the hands of the lower 50% = more consumption.
I don't have an answer, but to flip that question: If the very wealthy can live on passive income from accumulated wealth, then why can't all of society?
Let's liquidate all US billionaires and spread that money to every person in the US. Let's also set aside the question of how one could legally liquidate the billionaires.
OR, just parcel out land and give people seeds and allow them to trade with nearby neighbors... There's no longer a need for money and everyone gets to eat - which is all we really need. Beyond that, people can help each other build homes in smallish communities. Money, even on a planet with this many people, isn't necessary, because it's like people driving cars - the system works because everyone is operating to keep themselves alive. HN is not a fan of this take.
Because most people in society, across all wealth levels, refuse to live within their means. I was quite disappointed when I discovered this, because I thought that if I made enough money, I'd be able to support all my family. But then I started noticing that the people who were broke generally had newer cars and computers than I did, and that families with multiple six-figure incomes were spending their way into bankruptcy. And the government does it too, accumulating ever more debt.
You need a large amount of capital for it to do enough good for others (e.g. via investments into companies) that the returns you receive are enough to live on.
I can assure you the vast majority of billionaires did not become that by caring about creating jobs. They cared about the return. A return that does not have to come matched with creating good jobs.
Assuming you're American I believe you still have people in gov that got rich because of their family starting a pyramid scheme. I wouldn't call that a benefit to society.
Remember those guys in the 90's tanking company stocks and reputations then buying em up under the guise of saving them only to dismantle em and make their profit on the sale of the scraps? yeah they made money removing jobs.
Organizing is difficult. Wealth is created because they are able to appropriately organize people into the jobs they are most efficient. They are able to get people to work harder, produce more, and more efficiently use resources. You might not think efficiency is moral but it does result in a higher quality of life across the board. Why are tech companies currently the darlings? Because each was able to find efficient ways to do things, communicate, search, or combine or improve existing technologies. Instead of printing every book they can just be downloaded and on the same device you make calls. It isn’t a natural process, it requires leaders to make things efficient in order to make money. No one should care about “jobs” because they mean nothing. If one person could produce all the food needed to feed the world then we don’t need jobs. That is the progress these people bring and that is the only reason they are able to make money, by improving efficiency. If you are saying their are ways to make money that don’t improve efficiency, obviously that is true but rare, and even if the case where someone tanking company reputations, the owners of the company are not required to sell, look at Tesla which had the most short sellers of any company and a constant barrage of negative articles but that was all able to be overcome by Tesla’s owner Elon Musk.
Virtue should be paying your goddamn taxes, and donating the rest to the government (i.e. destroying it, to offset other inflationary measures the people elect to enact).
Anything else is either an affront to democracy, or at best is is morally neutral. E.g. what this guy did is morally neutral, and only good relative to the Carnegie knockoffs trying to launder their reputation.
I sort of agree with this in the sense that the estate tax seems like a distraction from the larger and vastly more important challenge of implementing a broadly fair, progressive, and efficient system of taxation.
With a better system, we shouldn't have to introduce one-off taxes for "special events" like death because extreme concentrations of wealth should already be heavily and unavoidably taxed--passing wealth to one's children (or anyone else... in any other country) shouldn't make a difference one way or the other.
Estate taxes stir up an irrelevant debate about the morality of inheritance, and puts the government in the role of deciding this moral question for everyone, when that debate isn't necessary and doesn't really matter.
All that really matters is 1 - how much we need to fund the prerequisites for a modern and decent civilization (which includes things like basic income, healthcare for all, housing for all, education for all, etc., imho), and 2 - what is the most progressive, efficient, and sustainable way to raise this money.
> extreme concentrations of wealth should already be heavily and unavoidably taxed
Unfortunately, government is already the most extreme concentration of wealth in the history of mankind, spending $8 trillion dollars a year in the USA alone, of which $1 trillion (that's 1,000 billionaire fortunes, or bankrupting Jeff Bezos 5x over, every year) goes straight to the military.
That's a good analogy, and explains how we ended up with banana republics. They were just hostile takeovers of competing companies in Central America, leveraging our superior military assets. When you phrase it in those terms, Jeff Bezos looks much more like David than Goliath.
And it's why I want government to use its monopoly on violence to stick to keeping the peace, and create an environment where actual companies can compete without violence.
Because when the men with bombs also own the means of production, they do whatever they want, and you get mountains of skulls.
That's a fair perspective, but there are also many essential or mundane aspects of life which don't lend themselves to competition.
Local roads, for example. You can have companies compete for contracts to perform the work, but ultimately the asset needs to be owned by the people, otherwise you inevitably get rent-seeking behaviour—which effectively replaces an elected Government with dozens of smaller unelected ones. Same goes for water, sewerage, and electricity distribution.
Public healthcare service delivery is another example. You can have companies compete for invention, manufacturing and certain boutique services, but for dealing with measles and broken arms, the profit motive does a hilariously poor job. Wealthy people get the absolute best service on this planet; poor people seem to get the most expensive service on this planet. (Yes, that's after factoring in the "cost" paid through taxes.)
Society works best when we all have healthy bodies, clean water and a decent education. Whether we all make good use of these resources is entirely up to the individual—Governments shouldn't mandate equality of outcome—but a functioning society is one where everyone has the opportunity to get a good education and not be a walking disease vector.
To have an economist leading off with a moral argument tells you how strong the economic argument is. (not strong)
A view toward growing the economy would prefer the riotous living, because it moves more money around. Note that in almost any other context, Friedman is concerned with impediments to economic activity. Yet here, we are led to believe that high levels of economic activity are bad or immoral for some reason?
And of course "riotous living" throws off all sorts of tax revenue in addition to revenue and profits. And since such tax revenue is realized earlier than the death tax, it is more efficient.
The irony of this letter is that Friedman gets it right--the death tax exists to encourage the expenditure of wealth during life--but somehow thinks that is a bad thing.
The idea that inheritance tax is a 'death tax' seems like an inaccurate pejorative. The recipient of wealth is the one being taxed, there is no extant individual whose death is being taxed. In almost all large transfers of wealth we have some amount of taxation. If inheritance tax is the exception, it encourage dynasties to hoard wealth to confer the associate power and status on their families.
This wealth would be more efficiently allocated by the innovators of new generations. It is true that the economy isn't a zero sum game, but we can't pretend that so much new pie is created each generation that dynasties hogging the majority doesn't preclude new, more innovative money, from establishing the positions they might otherwise we allowed to, for the benefit of all participants in the economy. The velocity of money matters, and allowing dynasties to guard their wealth indefinitely is bad for everyone.
This also pretends that capital confers no significant power. The reality is that the inheritors of the ultra rich will also inherit their ability to influence society. While not ideal that the ultra rich themselves have this ability to the extent that they do, to be able confer it on an almost arbitrary set of individuals is additionally hazardous, as they have not set themselves apart from other individuals on any meritorious basis.
Why should wealth be taxed? Because inequality is a bad thing and society would be better with less of it. Inequality is bad because the marginal utility of $100 to a billionaire is nothing, but to the homeless it is everything. Egregious inequality is an inefficient distribution of humanity's collective wealth.
Wasteful spending should also be taxed. There is no dichotomy. Yes please, put tax on carbon, on plastic, on all the other things that are bad for society. Ideally the most wasteful spenders should be taxed the most - the ten-millionth dollar someone spends on a carbon-emitting activity should be taxed at 90%.
The letter is BS with the first line. It makes it sound like the options are giving money to your kids or getting drunk. But that makes no sense for the range of money we’re talking about.
Jeff Bezos could throw a $10 million party every night for a year and his net worth would go down 2%.
Thats not how networth works. No one has enough liquid capital to spend money like that. As soon as people found out Bezos was wasteful like that, his network would drop just based on stock price.
Maybe? That doesn’t counter my point. If anything it only enhances it. Estate taxes do not contribute to “riotous living” because cash on hand is not at all a limiting factor on how much they party. There are more important things, like the perception and how that affects them (like you pointed out).
“If I leave this hundred billion dollars to my kids, the government will take a portion. Better to spend it on hookers and blow instead!”
That makes about zero sense, so I don’t at all believe that’s the message the estate tax is sending or it would even matter if it was. The thing that keeps billionaires from partying isn’t the price tag.
Maybe it was the case, a long time ago, that the very rich accumulated their wealth by "living frugally", but it is certainly not the case anymore. Neither is the case that the estate tax discourages saving is just nonsense: at least in the US, the estate tax doesn't even apply is your estate is under $11M. [1]
> "As a result, only about 2,000 estates per year in the US are currently liable for federal estate tax." [2]
I find it shocking that someone of Milton Friedman's stature would begin his argument with something as flimsy as an appeal to virtue ethics. Hard to take the following statement seriously when it begins with such a baseless and by no means uncontroversial value judgment. That Friedman considers "accumulating wealth" a "virtue" in itself is a profound indictment of his worldview.
Ah, yes, such a shame that the only way to spend a fortune is on caviar and jetskis.
This is a purposefully obtuse take. We have specific tax structures to incentivize charitable giving, building businesses, creating things to benefit others.
The limits for the estate tax in the US are pretty high. It's over $20 million if you are married. That means those who are hard working and frugal will most likely never pay an estate tax. Hard work and frugality will allow you to slowly accumulate several million dollars over your life.
At the wealth levels at which the estate tax applies, a fair amount of luck has to factor in. Having been in the right place at the right time. That has little to do with morality because many other people had the same behaviors but never got lucky. The estate tax is more a tax on luck than it is on hard work and frugality.
I agree. The problem with the estate tax is that it does a poor job at what it tries to accomplish. There are better methods of wealth redistribution.
The primary way inheritances concentrate wealth is through the "firstborn son rule" where the first son simply receives all of the wealth. If you were to split the wealth among the children it would disappear within a few generations. So simplify the whole ordeal by codifying that no single person may inherit more than 50% of the wealth of the deceased. If son and daughter receive half the wealth of their parents they are unlikely to collaborate for the sake of maintaining generational wealth. Even if the son kills the daughter he will only receive 75% of the wealth of his father.
No liquidation is necessary and therefore it is easy to implement. Paying taxes on inheriting a family business is far more difficult than simply splitting ownership among the living who are still working in that business.
> The income used to accumulate the assets left at death was taxed when it was received; the earnings on the assets were taxed year after year
Neither of these are necessarily true. Although, an estate tax is probably a poor place to catch this. Typically, the real wealth isn't even directly owned by a human being anyways, but rather beneficial trusts, etc.
In my view, living within your means, and accumulating wealth beyond your needs, are two ways of saying the same thing. And I think there's a point of diminishing returns on it, in terms of virtue.
If a person lives on a million a year, but accumulates a billion, do they become more virtuous if they accumulate a second billion?
Without a large estate tax, oligarchy arises and destroys democracy.
If everyone lived virtuously, then society wouldn't need laws or taxes. Unfortunately, humans are inconsistently virtuous, so we use laws and taxes to help our society function well.
I understand you are not Friedman, so assume I'm using the general "you" below and that any questions I pose are rhetorical and not directed at you. I don't expect you to even attempt to answer anything below or even have considered the questions.
His argument is hilarious:
"We're going to try and avoid it anyway, so you might as well not try to collect it."
I'm sorry, but I'm not necessarily going to trust someone who has a vested interest in the removal of something that its existence was pointless in the first place. If it truly is meaningless, then why bother?
Another good question is why should a person's accumulated wealth go to that person's heirs upon their death? Those people did nothing themselves to earn that wealth. It is only through the accident of birth they were selected. They completely ignore that. It is assumed that passing their wealth down is natural and right and that any other outcome needs defense.
If that money changed hands via employment or purchase of goods and services, it would have been taxed, even if the exchange was between parent and child. Why is an exchange upon death special?
Passing wealth on to one's children is natural. It has been practiced time immemorial. The Jewish faith is predicated on the idea that promises made to Abraham can be fulfilled by giving the thing promised (land) to his descendants many generations after his death. Take away the idea that wealth should be passed down to one's children and the Jewish faith does not cohere. By extension, neither does the Christian faith.
The idea that you think needs to be defended - inheritance - lies near the root of Western mores. It is fine to question it, but it is the sort of thing that one cannot refute without a very, very strong argument.
I don’t see my estate going to my kids as their doing, but instead as my doing.
I have private property rights over my money and house during my life and it’s my choice to consume during my life or live more frugally and pass that property to people I love. When I give my kids money for school or give them dinner, that value is not taxed additionally because it benefits them and not just me.
The savings rate is an important contributor to economic growth because surplus permits investment.
However saving can hurt growth by reducing consumption.
Savings can be thought of as a steady state rate of saving that the economy has adjusted for. Saving is a higher order effect that causes an increase in the savings rate, temporarily depriving the economy of the level of consumption it expects.
I'm curious what portion of new investment goes into IPOs, additional issues, VC, etc., compared to the portion that just changes hands between fellow 'savers'.
If I buy $1mil of MSFT, I didn't contribute a cent to their payroll. I didn't create jobs, or grow anything. I just transferred $1mil to another investor, who will probably use that money to invest in AAPL.
Seems to me a huge portion of investment is just moving money around a relatively closed system akin to sports betting.
By buying $1mil of MSFT you helped set the market price for their stock and therefore value the company. Based on that value Microsoft can then go to the market and raise new capital.
That is presuming that MSFT ever issues more stock. They haven't appreciably done so in the past 15 years, and the same trend applies for most of the DOW.
If MSFT never issues more stock, what then? Furthermore, helping to determine the value for possible future issuance seems like a very marginal benefit relative to the overall volume of stock trading.
> The encouragement of spending reduces national wealth and thereby the flow of aggregate taxable income. These indirect effects mean that eliminating the tax is likely to increase rather than decrease the net revenue yield to the federal government.
Very arguable claims there - more “trickle down” economics I guess.
The main argument against the estate tax made by this letter is not “moral” as it claims, it is that few actually pay the estate tax - so how about we close those loopholes?
To whom it may concern:
Spend your money on riotous living – no tax; leave your money to your children – the tax collector gets paid first. That is the message sent by the estate tax. It is a bad message and the estate tax is a bad tax.
The basic argument against the estate tax is moral. It taxes virtue – living frugally and accumulating wealth. It discourages saving and asset accumulation and encourages wasteful spending. It wastes the talent of able people, both those engaged in enforcing the tax and the probably even greater number engaged in devising arrangements to escape the tax.
The income used to accumulate the assets left at death was taxed when it was received; the earnings on the assets were taxed year after year; so, the estate tax is a second or third layer of taxation on the same assets.
The tax raises little direct revenue- partly because the estate planners have been so successful in devising ways to escape the tax. Costs of collection and compliance are high, perhaps of the same order as direct tax receipts. The encouragement of spending reduces national wealth and thereby the flow of aggregate taxable income. These indirect effects mean that eliminating the tax is likely to increase rather than decrease the net revenue yield to the federal government.
The estate tax is justified as a means of reducing the concentration of wealth. However, the truly wealthy and their estate planners avoid the tax. The low yield of the tax is a testament to the ineffectiveness of the tax as a force for reshaping the distribution of wealth.
The primary defense made for the estate tax is that it encourages charity. If so, there are better and less costly ways to encourage charity. Eliminating the estate tax will lead to higher economic growth, which is the most important variable in determining the level of charitable giving.
Death should not be a taxable event. The estate tax should be repealed.
Signed,
Milton Friedman