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An Open Letter from Economists on the Estate Tax To whom it may concern: Spend your money on riotous living – no tax; leave your money to your children – the

An Open Letter from Economists on the Estate Tax 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 The estate tax should be repealed.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

throwaway2048 6y ago
Spending money rather than accumulating it is, on the ballance, better for everyone else in the economy. Positing it as an unalloyed good to be frugal and accumulate wealth (especially at massive scale) is extremely murky at best.
- jackcosgrove 6y ago
  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.
  - strbean 6y ago
    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.
    - postingawayonhn 6y ago
      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.
      - strbean 6y ago
        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.
smillbag 6y ago
> The basic argument against the estate tax is moral. It taxes virtue – living frugally and accumulating wealth. Is there something virtuous about hoarding wealth?
- csours 6y ago
  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?
  - winston_smith 6y ago
    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.
    - titanomachy 6y ago
      The very highest wealth level does live within their means. It's hard to spend 10 billion dollars on houses and cars.
  - mstratman 6y ago
    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.
  - akhosravian 6y ago
    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. Per https://www.forbes.com/sites/tommybeer/2020/05/21/the-net-worth-of-americas-600-plus-billionaires-has-increased-by-more-than-400-billion-during-the-pandemic/#5717d90e4a61 https://www.forbes.com/sites/tommybeer/2020/05/21/the-net-wo... the combined net worth of every US billionaire was 3.4 trillion in May of this year. Per https://www.pbs.org/newshour/nation/3-ways-that-the-u-s-population-will-change-over-the-next-decade https://www.pbs.org/newshour/nation/3-ways-that-the-u-s-popu... there were 331 million Americans in January of this year. Dividing that out: $10,271.90 per person. Not enough to live on the passive income even in the cheapest parts of the globe.
danenania 6y ago
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. I highly doubt the answer to #2 is an estate tax.
- winston_smith 6y ago
  > 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.
  - sjwright 6y ago
    But Government is owned by its people, who are effectively shareholders of a corporation.
    - winston_smith 6y ago
      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.
jackcosgrove 6y ago
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.
volkse 6y ago
> 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?
sixstringtheory 6y ago
> 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.
- burlesona 6y ago
  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.
- maerF0x0 6y ago
  > If one thinks taxation is punishment for a decision, Moral or not it is a deterrent
- imtringued 6y ago
analog31 6y ago
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?
ketzo 6y ago
> Spend your money on riotous living – no tax; 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.
- hinkley 6y ago
  I want to know what these people are buying that doesn’t have sales tax on it and then taxes on the people who made it.
tcbawo 6y ago
> 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.
sjwright 6y ago
> The basic argument against the estate tax is moral. It taxes virtue – living frugally and accumulating wealth If you have the means, there’s nothing moral about living frugally. Spending money creates jobs and strengthens the economy.
snowwrestler 6y ago
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.
- compiler-guy 6y ago
  > To have an economist leading off with a moral argument > tells you how strong the economic argument is. This is an ad hominem argument.
  - feteru 6y ago
    Is it really? Seemed to be more of an ironic point.
deleted 6y ago
[deleted]
AQuantized 6y ago
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.
bjustin 6y ago
Great, let's be rid of all this nonsense and let the income tax cover inheritance like any other transfer of wealth.
exclipy 6y ago
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%.
travisjungroth 6y ago
> Spend your money on riotous living 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%.
- frickenhamster 6y ago
  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.
  - travisjungroth 6y ago
    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.
luckydata 6y ago
> Milton Friedman I found the problem.
abvdasker 6y ago
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.
mleonhard 6y ago
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.
bena 6y ago
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?
- agarden 6y ago
  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.
- sokoloff 6y ago
  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.
andersonvom 6y ago
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] [1]: https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax https://www.irs.gov/businesses/small-businesses-self-employe... [2]: https://en.m.wikipedia.org/wiki/Estate_tax_in_the_United_States https://en.m.wikipedia.org/wiki/Estate_tax_in_the_United_Sta...
imtringued 6y ago
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.

throwaway2048 6y ago

Spending money rather than accumulating it is, on the ballance, better for everyone else in the economy. Positing it as an unalloyed good to be frugal and accumulate wealth (especially at massive scale) is extremely murky at best.

jackcosgrove 6y ago
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.
- strbean 6y ago
  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.
  - postingawayonhn 6y ago
    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.
    - strbean 6y ago
      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.

smillbag 6y ago

> The basic argument against the estate tax is moral. It taxes virtue – living frugally and accumulating wealth. Is there something virtuous about hoarding wealth?

csours 6y ago
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?
- winston_smith 6y ago
  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.
  - titanomachy 6y ago
    The very highest wealth level does live within their means. It's hard to spend 10 billion dollars on houses and cars.
- mstratman 6y ago
  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.
- akhosravian 6y ago
  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. Per https://www.forbes.com/sites/tommybeer/2020/05/21/the-net-worth-of-americas-600-plus-billionaires-has-increased-by-more-than-400-billion-during-the-pandemic/#5717d90e4a61 https://www.forbes.com/sites/tommybeer/2020/05/21/the-net-wo... the combined net worth of every US billionaire was 3.4 trillion in May of this year. Per https://www.pbs.org/newshour/nation/3-ways-that-the-u-s-population-will-change-over-the-next-decade https://www.pbs.org/newshour/nation/3-ways-that-the-u-s-popu... there were 331 million Americans in January of this year. Dividing that out: $10,271.90 per person. Not enough to live on the passive income even in the cheapest parts of the globe.

danenania 6y ago

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. I highly doubt the answer to #2 is an estate tax.

winston_smith 6y ago
> 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.
- sjwright 6y ago
  But Government is owned by its people, who are effectively shareholders of a corporation.
  - winston_smith 6y ago
    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.

jackcosgrove 6y ago

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.

volkse 6y ago

> 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?

sixstringtheory 6y ago

> 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.

burlesona 6y ago
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.
maerF0x0 6y ago
> If one thinks taxation is punishment for a decision, Moral or not it is a deterrent
imtringued 6y ago

analog31 6y ago

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?

ketzo 6y ago

> Spend your money on riotous living – no tax; 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.

hinkley 6y ago
I want to know what these people are buying that doesn’t have sales tax on it and then taxes on the people who made it.

tcbawo 6y ago

> 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.

sjwright 6y ago

> The basic argument against the estate tax is moral. It taxes virtue – living frugally and accumulating wealth If you have the means, there’s nothing moral about living frugally. Spending money creates jobs and strengthens the economy.

snowwrestler 6y ago

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.

compiler-guy 6y ago
> To have an economist leading off with a moral argument > tells you how strong the economic argument is. This is an ad hominem argument.
- feteru 6y ago
  Is it really? Seemed to be more of an ironic point.

deleted 6y ago

[deleted]

AQuantized 6y ago

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.

bjustin 6y ago

Great, let's be rid of all this nonsense and let the income tax cover inheritance like any other transfer of wealth.

exclipy 6y ago

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%.

travisjungroth 6y ago

> Spend your money on riotous living 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%.

frickenhamster 6y ago
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.
- travisjungroth 6y ago
  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.

luckydata 6y ago

> Milton Friedman I found the problem.

abvdasker 6y ago

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.

mleonhard 6y ago

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.

bena 6y ago

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?

agarden 6y ago
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.
sokoloff 6y ago
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.

andersonvom 6y ago

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] [1]: https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax https://www.irs.gov/businesses/small-businesses-self-employe... [2]: https://en.m.wikipedia.org/wiki/Estate_tax_in_the_United_States https://en.m.wikipedia.org/wiki/Estate_tax_in_the_United_Sta...

imtringued 6y ago

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.