[FoRK] A plea for the death tax

J. Andrew Rogers andrew at ceruleansystems.com
Sat Feb 21 19:28:28 PST 2009


On Feb 21, 2009, at 2:05 PM, Russell Turpin wrote:
> It has become a shibboleth among the right wing that the death tax is
> the worst of all taxes.


That is not a true characterization of the right-wing. They foolishly  
obsess over the income tax; if they were economically literate they  
would be obsessing over the capital gains tax, and to a lesser extent  
corporate taxes.  Death tax is more of a fringe interest, like flag  
burning.

It is not so much that the death tax is the "worst of all taxes",  
since it is pretty much near the top of the list in terms of  
minimizing adverse economic consequences, but that it is unfair in the  
sense that the aggregate tax rate on that money is outrageously high.   
There are those that worry about the impact on small businesses, which  
is a valid concern but way overplayed by those that are against the  
death tax.

There are other more legitimate concerns (see below).


> March is the month that I think we should trade the income tax  
> entirely for a
> death tax. Even if it would have to be at an onerous rate to achieve
> revenue neutrality. Let me prosper while I live, and not worry about
> 1099s. And then when I'm dead, the government can have its due.


Unfortunately, if you taxed every man, woman, and child that drops  
dead at 100% of assets with no exemptions or deductions, it would be  
*revenue negative*.  Income tax generates over a trillion dollars a  
year, but two million and change Americans die in a given year.

Since the average estate value at death is much less than $500k, I'd  
say this won't work unless I missed something really obvious.


> Then there are the economic benefits. People respond to incentives. A
> penalty on death will cause people to figure out ways to live longer.
> If the only certainties are death and taxes, what better way to
> minimize their effect that to set them against each other?


People responding to incentives is also the counter-argument.  When  
the government's income is based entirely on the number of people that  
die, with a very strong economic preference for people dying around  
the age of 50-60, the government's incentives are no longer aligned  
with the individual's.

There is a lot of precedent for suggesting that one will almost  
certainly see systemic behavior by the government to maximize revenue  
even to the detriment of the population, a straightforward  
evolutionary dynamic.  Offhand, there have been numerous cases  
involving civil forfeiture and questionable rationing of healthcare  
that were based in large part on maximizing revenue available to the  
government, never mind the selective neglect that is the mark of  
bureaucracies the world over.


While death taxes are not a bad idea in an abstract economic sense,  
they have some very negative incentive issues that are currently below  
the noise floor.  If you make death taxes one of the primary sources  
of tax revenue, there will unavoidably be problems with the government  
systematically attempting to expand their tax base. It is a  
significant moral hazard. The lack of a significant negative feedback  
loop is problematic; at least with the income tax you have a Laffer  
curve.


Cheers,

J. Andrew Rogers







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