The most popular tax is one paid by other
people. By this standard the ideal tax might be today's federal estate tax, applying only to about 700 estates every year. 99.9% of all deaths incur no federal tax, since it only applies after a $5.6 million exemption for individuals or $11.2 million per couple.
The current estate tax produces little federal revenue. Extremely wealthy people can afford the most expensive legal and accounting advice and find many ways to minimize the tax they pay. So the tax only hits moderately rich families, for whom it is difficult to generate much public sympathy.
If it makes you uneasy to see political majorities enacting taxes that they themselves don't have to pay, perhaps you agree with Jean-Jacques Rousseau. This democratic theorist argued that legislation was legitimate only if it consisted of the whole people enacting for the whole people. Majority support was not enough if the majority wasn't willing to subject itself to the same rules.
Today's property taxes come fairly close to complying with Rousseau's prescription.
Local voters impose a certain millage on nearly all businesses and houses, including their own. Renters may think they aren't paying the tax, but they are just paying it indirectly as a part of their rent.
If the estate tax were applied to all estates including small ones, it would be legitimate by Rousseau's standards. But everything else being equal, its popularity would collapse.
To take an extreme case, imagine an estate tax that applied to all estates and took 100 percent of every estate, not just the 40 percent maximum rate set by today's federal estate tax. At first glance it would be horribly unpopular. But such a tax just might command majority support if incorporated in a total package benefiting the vast majority of the population and moving society in a direction generally recognized as progress.
The key to making a 100% tax on all estates politically possible lies in the uses to which the resulting revenues would be devoted. Rather than putting it in the Treasury and letting government spend the money, it would have to be deposited in a trust fund run by government-as-trustee for the public. Periodically, all of the money in the trust fund would be distributed equally to every man, woman, and child subject to the jurisdiction of the government — a social dividend to the public.
Such an estate tax and dividend would make everyone the heir of everyone. Rather than a few heirs lucking out, everyone would inherit equal amounts of money.
To avoid parents grabbing and possibly squandering the money their children inherit, the government, acting as special trustee for all children, could put the children's dividends into a special trust fund, at interest. It would then pay the accumulated lump sum to each child when he or she reaches the age of majority, a nice nest egg to help pay for higher education, career training, purchasing a house, or otherwise launching into adult life.
It is generally agreed that huge economic inequalities are not good, abstractly speaking. But trying to equalize wages and salaries is a bad idea. Wages totally independent of effort or skill would reduce people's incentive to develop skills and to take their work seriously.
Equalizing inheritances wouldn't undermine motivation to work. It would eliminate one of the major factors that luck plays today, where many people inherit nothing and a few people inherit fortunes. It could reduce the huge average inequality in net worth between white and black families, a lingering effect of past injustices. And it would not produce a windfall to be spent by government, which cannot always be counted on to spend money wisely in the general interest.
As always, the devil in any such tax would lie in its details. Presumably estates could still pass to a surviving spouse. But a 100% tax on all estates might hit family-owned businesses and other non-cash assets very hard, since it could force their sale at a time when markets are depressed. And if both parents die while there are minor dependent children, there would need to be some way to provide for the children.
Because of such awkward details, enactment of a full 100% tax for all estates is extremely unlikely and perhaps even undesirable. But legislation moving our society towards this state of affairs could be a very good thing, even though going all the way might not be.
Paul F. deLespinasse is Professor Emeritus of Political Science and Computer Science at Adrian College. He received his Ph.D. from Johns Hopkins University in 1966, and has been a National Merit Scholar, an NDEA Fellow, a Woodrow Wilson Fellow, and a Fellow in Law and Political Science at the Harvard Law School. His college textbook, "Thinking About Politics: American Government in Associational Perspective," was published in 1981 and his most recent book is "Beyond Capitalism: A Classless Society With (Mostly) Free Markets." His columns have appeared in newspapers in Michigan, Oregon, and a number of other states. To read more of his reports — Click Here Now.
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