Thomas Jefferson argued that constitutions should come up for review each generation as the dead have no need for liberty and consequently should not enforce their will on the living through a permanent constitution. Tax is an unavoidable function of government, we trade that liberty in return for consistency of services such as justice, law enforcement and other principles of limited republican government. Ironically it is politically easy for politicians in liberal democracy to argue against a 'death tax' as it raises little revenue and feeds into a fear of government stealing from the nest. However maybe we should look to Jefferson's principle in relation to estate tax; the Economist has done so and comes out in favour of inheritance levies.
The article argues that taxes can be assessed in three areas; "how they affect incentives, how fair they are and how simple". Current estate taxes satisfy the first two but fail the third. The Economist argues that changing it from an estate tax to an inheritance tax would satisfy all three. From the article:
Any tax on capital will tend to dissuade people from accumulating the wealth in the first place, but a death duty is arguably one of the better options. As Alan Auerbach, an economist at the University of California, Berkeley, pointed out in a lecture given in London a year ago, it falls on unintended legacies--money put aside to pay for old age, for example--as well as intentional bequests. Since unintended bequests are, by definition, not planned they should be unaffected by the prospect of the tax. Another argument for death duties is that big bequests make people less likely to work and to be enterprising. Winston Churchill put the argument succinctly in 1924 when he argued that the tax was "a certain corrective against the development of a race of idle rich". Economic research published at Syracuse University in America suggests that the more wealth that older people inherit, the more likely they are to quit the labour market. The fiscal cost of abolishing death duties may seem trifling, but it still means that for a given level of public spending other taxes must rise, which may harm incentives more. This was a point readily appreciated by both Churchill in his 1925 budget and William Harcourt, who introduced estate duty in 1894. Both chancellors of the exchequer used extra revenues from death duties to lower the income tax. Death duties can also be justified in terms of fairness. A thriving economy will generate great fortunes, but there is good reason to check these becoming entrenched through inheritance. The estate tax offers a modest counterweight against the development of a new plutocracy to rival the industrial barons of America's Gilded Age. Furthermore it also taxes wealth built up through windfalls rather than thrift and effort. For example, recent gains in the housing market have accrued mainly to people who happen to belong to the right generation and who own property in the right places.I have zero issue with death duties, estate taxes or inheritance levies; or whatever it is called. I do not have a problem with the generation of wealth in an individuals lifetime, but in return for a simpler flat tax system I am completely comfortable with a heavy amount of death duty taxation, even up to 75% for those that are in the top 25% of all income. I see this as being an area where progressive taxation would come down hardest in a flat tax system. Generation of wealth by the living is the goal of the economic system, passing of wealth from a productive generation to a non-productive generation is not.
