Proposals to eliminate the estate tax in the United States (also known as the inheritance tax) deserve no substantive consideration. Without an estate tax, the United States will expedite formation of an economic elite. Providing for some minimum amount to pass from one generation to the next (say, $5 million adjusted annually for inflation) and for a spouse or life partner who predeceases her/his spouse/partner to pass their entire estate to the remaining spouse/partner is reasonable.
In all other cases, the estate tax should be 100%. The federal and state governments should rescind all provisions for passing assets via trusts and these governments should tax gifts to family and others in excess of the $5 million at 100%.
In other words, assets remain with an individual (or couple) only during the generation that accumulated those assets. The necessity to impose death taxes (the United Kingdom’s version of estate taxes) to eliminate the economic elite in the U.K. is strong evidence in support of this policy.
Why take umbrage at this proposal?
The proposal is not a wealth transfer plan. Indeed, the plan is just the opposite. The accumulated wealth goes to government to fund general operations; without good government, living the good life is impossible.
The proposal allows parents to give a reasonable amount of assets to their children, honoring the natural care and affection that parents generally feel toward their children. The proposal also works to the children’s advantage by encouraging children to earn their own way in life, becoming productive members of society. The recommended ceiling for legal inheritances is sufficiently high to permit parents to ensure adequate finances for the care of any child unable physically or mentally achieve full financial independence.
The suggested ceiling is sufficient to permit true, family owned and operated enterprises (farms, factories, etc.) to pass from generation to the next. In fact, rhetoric about estate taxes preventing family businesses being passed from one generation to the next is mostly a shibboleth. The number of real family farms has dropped precipitously. Beyond a certain market capitalization (perhaps $5 million?), a business generally becomes more of an independent corporate entity than family concern.
The proposal may discourage individuals from accumulating vast wealth. By default, this inherently creates more opportunities for others. Alternatively, the proposal may result in more high net worth individuals donating their assets to charity.
Does this proposal seem radical? High worth individuals such as Warren Buffet and Bill Gates advocate similar proposals for the same set of reasons, perhaps setting the ceiling for assets passing from one generation to the next at a slightly higher level than what I have proposed.
What I fail to understand is why the vast majority of U.S. citizens, who have no realistic prospect of ever accumulating sufficient assets to trigger estate taxes, so vehemently oppose a policy that is in their, and the nation’s, best interest.