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Source link: http://archive.mises.org/13323/death-tax-musings/

Death Tax Musings

July 19, 2010 by

I was reading a Beltway columnist’s cry this morning over the can’t-return-quickly-enough federal death tax. The tax does not apply for deaths in 2010 — but it will for deaths in 2011 and beyond — which means George Steinbrenner’s sons were spared one heckuva tax bill. This upset the columnist greatly, not because she had anything against George, but because her beloved government was deprived of badly needed revenue.

It occurs to me, however, that it’s not the loss of death-tax revenue itself that supporters mourn; it’s the idea that any tax could simply vanish, even if it’s just for a year. Taxation is supposed to be permanent. If we can eliminate the death tax, why not other taxes? The moment people get it into their head that taxes are not an absolute — like death — the foundation of the modern welfare state risks collapse.

As for the death tax, I think it’s a great quick-test of one’s love of the state. The tax is so gaudy and intrusive that only the true statists can support it without reservation. It’s not just a matter of the high marginal rates, but the amount of paperwork a grieving family is expected to produce at the government’s demand — to say nothing of the massive invasion of privacy inherent in disclosing a loved one’s entire estate to prying IRS eyes.

I speak from experience. As a paralegal, I’ve worked on estate tax returns, and even for relatively simple estates it’s a cumbersome process. Not that I mind the work. But I suspect most death-tax lovers — like our Beltway columnist friend — don’t appreciate the collateral burden imposed by the government’s insatiable need for revenue. Of course, if they could appreciate it, they wouldn’t support the state in the first place.

{ 23 comments }

Greg July 19, 2010 at 8:46 am

A guy at work really likes taxes like the death tax, for utilitarian reasons such as: Estates passed on to children are most likely to be squandered being as the recipient didn’t have to actually earn the money and therefore values it less. (He also went on about natural adversity between parents and children.) The money can then be spent on society’s sake on roads or schools or whatever. I can scream to the heavens that all taxes are theft, most agree but I always run into that wall with people, “well how are we gonna get our yada yada.” I can argue getting rid of post offices and public schools easy but the rest is pretty tough for me to articulate. Guess I’ll just have to read, read, read!

Old Mexican July 19, 2010 at 10:04 am

Re: Greg,

Estates passed on to children are most likely to be squandered being as the recipient didn’t have to actually earn the money and therefore values it less.

You can reply to your co-worker with “If you are so happy with the idea that some stranger determines the exact use your children will have for your inheritance, then you would not mind if, at any time, that same stranger deems your inheritance of no use to your children, and tax it all.”

Greg July 19, 2010 at 2:37 pm

At the time I equated the death tax with the gift tax, which he seemed to understand is just plain theft. He understood if I wanted to give him a million dollars then there’s really no justification for anyone to step in and force him to give up any part of it. At some point if you give over a certain amount of money (the amount doesn’t really matter) all of a sudden the government gets to step in and take a piece of this voluntary transaction. I figure leaving an estate is the same thing, you are still choosing to give someone else money, why does there need to be a middle-man here? He still never saw the similarity like I did, I guess this argument was to emotional to really make an impact.

Daniel Hewitt July 19, 2010 at 10:17 am

Greg,
Death taxes create higher time preferences by penalizing those that wish to pass on savings to future generations. Therefore, they encourage more present consumption, at the expense of future consumption. In other words, they encourage squandering, at the expense of saving. So if your colleague is concerned about folks squandering their money, he should oppose death taxes.

Greg July 19, 2010 at 2:43 pm

Thank you Daniel! Excellent argument, even perfect for the situation. I think these economic-type arguments are a much more solid ground to stand on. I usually try to go all right and wrong when talking about government, but you just turned his argument upside down very simply. We were talking about this like two weeks ago, now I’m gonna have to find a way to bring this up again, nailed it.

Wandering Cynic April 8, 2011 at 4:35 pm

“A guy at work really likes taxes like the death tax, for utilitarian reasons such as: Estates passed on to children are most likely to be squandered being as the recipient didn’t have to actually earn the money and therefore values it less.”

So, since the children didn’t earn it they don’t know how best to appreciate and spend it. Therefore the state, which also didn’t earn it, knows perfectly how to spend it and will show boundless thanks and respect for the gift given to it.

Air tight logic.

S.M. Oliva July 19, 2010 at 9:03 am

Greg, it’s interesting that death tax supporters inevitably cite “children squandering an unearned inheritance” in defense of their position. It’s not a given that everyone has children to bequeath an estate to, or even if they do, that they’ll inherit. Furthermore, nobody ever makes the argument that a spouse might squander an inheritance.

Nate July 19, 2010 at 9:39 am

Nor do they mention that the Government is even more likely to squander the money on things such as lavish Congressional offices or unnecessary wars.

CliffyK July 19, 2010 at 9:52 am

But are not these squandering ne’er-do-well children, unlike the miserly dear departed, helping the economy through their unbridled and well supported consumerism –70% of the economy I am reminded constantly? And having no estate tax means that they can help even more as they will have the government’s cut to squander as well.

An interesting exercise would be to see which entity, the self-indulgent inheritor or the Federal government, could dispose of the family jewels most quickly, extravagantly, and wastefully–my bet goes on the Feds…

Dan July 19, 2010 at 10:19 am

Boy I’m glad my grandfather died three weeks ago. I’m not even joking.

Pathos July 19, 2010 at 10:47 am

I just finished taking my CFP® exam this weekend. Studying for it really boiled my blood, having to read about the estate tax, as well as the gift tax and generation skipping transfer tax. It amazes me (though maybe it shouldn’t) that the government will tax you if you die, and if you try to avoid it by giving it away, they’ll tax you there too.

Shay July 19, 2010 at 2:39 pm

It amazes me (though maybe it shouldn’t) that the government will tax you if you die, and if you try to avoid it by giving it away, they’ll tax you there too.

Maybe you could report it as stolen (by someone other than the government, that is)?

iceberg July 19, 2010 at 11:23 am

… not to mention the awesome destruction that this Tocquevillian-divestiture does to family businesses, big and small

mpolzkill July 19, 2010 at 11:32 am

“The tax is so gaudy and intrusive that only the true [lovers of the state] can support it without reservation.”

Cue Michael.

Daniel Hewitt July 19, 2010 at 1:20 pm

mpolzkill, ha ha….please don’t encourage him…..

mpolzkill July 22, 2010 at 7:44 am

Yeah, I know. I vacillate between playing with trolls and having a life. Today I’m on troll alert. I wanted to tell any of the newer people here about all the worst:

Hey Jason,

Billwald, while not prolific like Michael, is probably the trolliest of all the trolls around here. Years and years in economics kindergarten with no end in sight. I could have also said: “cue Gil and Billwald”

Bruce Koerber July 19, 2010 at 4:26 pm

The Death Tax, of All Types, Is Unethical.

Taxation, as the best means to attain the ends, will be voluntarily chosen very rarely. What ‘ends’ after the death of an individual could possibly be justified as identifying the State as a preferred beneficiary over family and friends and associations near and dear to the heart of the person leaving this world?

It is clear that the death tax is extremely coercive!

J.S. July 20, 2010 at 12:19 pm

The Death Tax is merely the state taking back what always belonged to it. All property belongs to the state.

The property individuals have is not truly theirs, it is just for theirs to keep for the time being. After death, that time is gone.

What the all-knowing, all-wise state should adopt is a Life Tax, for granting citizens the gift of life and allowing them to exist under its rule. It’s like any other tax — if you don’t like it, you can always leave.

Of course, if you do leave, the Death Tax will be applied.

JROGERS August 2, 2010 at 3:00 pm

That is hilarious! I am an accountant and will certainly have to use the live tax analogy in the future. On a lighter note it looks like Congress is most likely to give estates a choice in taxation in the coming years. The choice: Estates can use the rules now in effect and pay no tax, but heirs can exclude no more than 1.3 mill of gain when inherited assets are sold, plus an extra 3 mill for surviving spouses. This rule would increase the tax due on assets’ sale. Or estates could use 2009′s rules… a 3.5 mill exclusion with a 45% rate, and the basis of inherited assets would be the date of death value. Over the next 10 years, the plan would decrease the estate tax rate in steps to 35%. and the exemptions would rise to 5 mill. Again, this is all still up in the air, but at least Congress is tossing things around! We have put together a monthly tax newsletter that is free to the public. We have put together a newsletter relating to recent tax law changes and how it will affect everyday taxpayers at http://www.federaldirecttax.com. Please feel free to visit and subscribe to the newsletter for free monthly updates to the tax code and how its effect on tax payers and tax practitioners the like.

tralphkays August 2, 2010 at 3:19 pm

Fabulous!

billwald July 20, 2010 at 8:17 pm

There is a BIG difference between putting a death tax on an estate of a person who will leave his family a paid off house and enough cash to bury him if he is lucky and a death tax on an estate large enough so that his kids, grandkids, and great grandkids & etc. will NEVER have to work for a living for the rest of their lives and lives to come..

Jason July 22, 2010 at 7:28 am

Billwald,

Lets say your mother bought a house in 1950 for 70K…it is now worth 1.5 million. She dies and leaves the house to you, your mother wanted you to keep the house in the family. You now owe the goverment 55% of the value of the house minus the orginal 70K…you owe the goverment 786500.00 now is that fair?

£1 July 24, 2010 at 3:34 pm

My cousin got death tax on her late husband which was £867, incredibly unfair especially in this economy, hopefully one day it will scrapped

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