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What's the appeal of a 100% inheritance tax? (twitter.com)

submitted 1 year ago by [email protected] to c/[email protected]

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I asked the question on Twitter, but I don't know if I'm going to get any real answers or any answers at all over there. Here it is:

What's the appeal to taxing inheritance differently than other types of income? Aren't flat taxes bad and regressive?

I've occasionally encountered emphatic support for a 100% inheritance tax, but I'm never sure if that's not really a joke coming out of people's frustrations with nepotism and generational wealth accumulation. It seems like there are better ways to address those things than making exceptions to the progressive income tax.

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[–] Sami 4 points 1 year ago (1 children)

I don't think anyone legitimately calls for a flat 100% inheritance tax across the board. But if that we're the case then it wouldn't be regressive since it's affecting everyone equally regardless of the wealth they stood to inherit. In practice, the wealthy would have a lot of incentive to hide assets through illegitimate means or loopholes which would make it effectively regressive if the less wealthy do not have the means to do the same.

On the other hand, a 100% marginal rate make more sense as an interpretation of what you're saying (I haven't heard it suggested so I'm just guessing). eg. After 20 or 50 million or whatever threshold the rate is 100% to avoid generational "empires" from being passed on. In that case, that's just a very progressive tax.

In both situations, the tax can be used to lessen wealth inequality but the first is a bit more of a social decision instead of just a means of reducing inequality.

[–] [email protected] 1 points 1 year ago (1 children)

I always thought that flat taxes are regressive because they hit poorer people harder even before accounting for the various tax avoidance schemes available to the wealthy. For example, 20% means a lot more to someone who only brings in $50 thousand per year than someone who brings in $50 million.

[–] Sami 4 points 1 year ago* (last edited 1 year ago) (2 children)

You're right in thinking that in practice, but to my understanding it's usually in context of "equal pain" so a 20% tax burden on income would be equally "painful" to the poor and wealthy (without accounting for avoidance).

When you're talking about a sales tax on necessities like food and shelter then an equal rate is regressive because it represent a larger share of the poor person's available income.

[–] [email protected] 2 points 1 year ago

Okay, I understand now. Yes, compared to a flat sales tax, a flat income tax in not regressive.

[–] [email protected] 2 points 1 year ago (1 children)

You're assuming marginal cash has the same value for everyone. It doesn't. Losing 20% at the top bracket might barely be felt. Maybe can't buy quite as many classic cars for the collection, or can only have eight yahts, instead of nine. But at the bottom, that 20% can mean the difference between being able to make rent and ending up homeless, or between being able to pay the power bill or not. It can be the difference between having to get a payday loan or not (and thus cause a loss of considerably more than 20%).

Look up the term "marginal utility" for an academic treatment of the subject.

[–] Sami 2 points 1 year ago

I'm not assuming that. I'm just explaining the rationale behind tax progressivity. A 20% flat income tax is not regressive by definition. It sucks but its not regressive because that term refers to something specific.

I'm well aware of what marginal utility is and why it's not really equal pain which is why I used the quotes.