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 The estate tax should be repealed.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
Positing it as an unalloyed good to be frugal and accumulate wealth (especially at massive scale) is extremely murky at best.
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.
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.
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.
Is there something virtuous about hoarding wealth?
Per 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-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.
Why do you think that is the right metric? 3.4T is obviously a vast amount of money.
Probably because it sounds like utopian nonsense.
Assuming you're American I believe you still have people in gov that got rich because of their family starting a pyramid scheme. I wouldn't call that a benefit to society.
Remember those guys in the 90's tanking company stocks and reputations then buying em up under the guise of saving them only to dismantle em and make their profit on the sale of the scraps? yeah they made money removing jobs.
The list goes on and on.
It's not sitting around collecting dust.
I'm not sure where I stand on a wealth tax, but I would always be hesitant to tax money that in theory was already taxed when earned. I could certainly see the idea becoming more acceptable if the importance of community and a traditional, tight-knit family structure continues to erode.
Hopefully we can strike a balance between leaving only your direct descendants better off and leaving everyone in the next generation better off.
> I would always be hesitant to tax money that in theory was already taxed when earned
This is incompatible with having an income tax and any other tax. Although, income tax isn't exactly well loved by economists, so maybe there is something to that.
You're thinking that taxing the wealth of a billionaire is guaranteed upon death. Therefore from your perspective there are two options: taxing the wealth or not taxing the wealth. Except taxation is the exception, not the rule.
If you know your wealth will disappear then you will try to get rid of it before it can disappear. With the estate tax there is a strong incentive to just hand over your wealth to your children before you die or by spending it all on donations so the government can't take it.
There's something virtuous about living beneath your means and ensuring that you can be self-sufficient in your retirement.
There's something virtuous about living beneath your means and ensuring that, at a minimum, you are not a burden to your family, but that ideally you provide them support rather than siphoning support from them. In order to do that, it's almost a given that you will die with money left over. (The alternative being feeding the bloodsuckers who sell annuities.)
One person's "hoarding of wealth" is another person's "natural outcome of frugal living and appropriate planning".
As long as taxes are paid, it's nobody's business what I do with my money, as long as what I do is not illegal.
Obviously many poor people will decide that few rich people must pay more.
I fail to see the problem, if you have more money than you could possibly use in a lifetime, why shouldn't that be redistributed through programs that benefit all of society, instead of whatever pet projects the rich person favors.
That person/family has shown some evidence that they're capable of investing money to generate an outsized return on that investment. I would tend to think they might be able to repeat that effect with the way they choose to reinvest the money, be it for societal value or charitable endeavors. I don't see evidence in balance sheets that governments have that same track record.
Society has made murder, theft, and rape illegal largely because of a fairly broad-based agreement that those are immoral.
Where there isn’t broad agreement on morality, I would prefer to avoid passing laws to regulate behavior and allow choice. (Roe v Wade/abortion being just one crystal clear case of this tension which I believe is generally best resolved in favor of individual freedom. I am free to follow my own morals where they are stricter than the law; I do not force others to follow them.)
Who decides that? The great and scholarly politicians we elect?
Sound familiar?
FWIW, it's not "obvious" that many poor people would decide that rich much pay a lot. That's not the case in US, for example. Sure, there're people who want to "make rich pay", but in general US system is already fair enough [1] (page links to multiple bipartisan sources).
[1]: https://www.dailysignal.com/2019/10/15/the-new-york-times-is...
My understanding is that the point would be to not tax someone leaving a much less significant amount to their children, in the case of either an untimely or expected death, and rather using more targeted methods to prevent the accumulation of billions, like taxing those who accumulate billions.
(I agree with your point if they are upper middle class or even have 10-50 million dollars of wealth). But when you are part of the top 0.1% of the population, there is no way you are living beneat your means to be self sufficient in retirement.
Well it's hard to argue that anyone who has positive wealth is living beyond their means.
Suddenly 99% of the world is no longer discouraged from being fiscally responsible. Do I really care if a billionaire is fiscally irresponsible? Maybe for a single generation. After that, we're good.
"As a result, only about 2,000 estates per year in the US are currently liable for federal estate tax." [2]
The argument that it "discourages living frugally" is just complete nonsense.
[1]: https://www.irs.gov/businesses/small-businesses-self-employe...
[2]: https://en.m.wikipedia.org/wiki/Estate_tax_in_the_United_Sta...
What you linked is an Estate Tax (aka death/inheritance tax) which only applies when someone passes wealth on after death. If they decide to give all their money away to charity or otherwise spend it while they're alive it does not apply.
Also, there's nothing uniquely American about considering greed virtuous[0].
I like Milton Friedman too, he had a cool show on PBS, but history isn't going to be good for that guy.
If you are saying an excess supply of credit leads to financial crises, I agree with you. But the federal reserve that intentionally pumps money into the big banks to make credit easy is a far bigger contributor.
I agree that Milton Friedman had his flaws, one of which is this very topic, he never properly connected the federal reserve, money expansion and easy credit to economic instability.
They invest in companies and expect a return! If money was directly redistributed, then the people running and working for those companies might able to keep that value that they have created.
When government provides a service that people don't want, that service can continue indefinitely, especially if the few who benefit can contribute back to the politicians who keep it going. Lockheed Martin and Boeing can contribute to some politicians to make sure that wars continue and they reap back way more than they contributed from the taxpayer who's only option is to vote between two pro-war candidates. Those jobs making bombs for Saudi Arabia to drop on Yemen don't contribute to society, they are a determent to society, yet they continue without end because nobody loses on that investment as long as the taxpayer can be forced to pay for it.
People used to argue that saving (investing) is better for the economy than spending (consumption). That's an argument for a lower capital gains tax. But you could argue the US has gone too far in favor of investors, at the expense of consumption. Presumably more $ in the hands of the 1% = more investment, more $ in the hands of the lower 50% = more consumption.
Anything else is either an affront to democracy, or at best is is morally neutral. E.g. what this guy did is morally neutral, and only good relative to the Carnegie knockoffs trying to launder their reputation.
Someone who has a lot of stored up value has given lots to society without receipt of anything but some electronic digits (yet). Plus if the government's rules were working they'd also have paid at least some taxes on all that stored wealth, leading to additional societal value.
in rational free markets sone does not need to give twice because the contribution to society is in the provision of things people want.
IMO most of the debate is missing that America doesnt have free markets and keeps trying to duct tape around it without fixing the actual bug.
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.
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.
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.
Local roads, for example. You can have companies compete for contracts to perform the work, but ultimately the asset needs to be owned by the people, otherwise you inevitably get rent-seeking behaviour—which effectively replaces an elected Government with dozens of smaller unelected ones. Same goes for water, sewerage, and electricity distribution.
Public healthcare service delivery is another example. You can have companies compete for invention, manufacturing and certain boutique services, but for dealing with measles and broken arms, the profit motive does a hilariously poor job. Wealthy people get the absolute best service on this planet; poor people seem to get the most expensive service on this planet. (Yes, that's after factoring in the "cost" paid through taxes.)
Society works best when we all have healthy bodies, clean water and a decent education. Whether we all make good use of these resources is entirely up to the individual—Governments shouldn't mandate equality of outcome—but a functioning society is one where everyone has the opportunity to get a good education and not be a walking disease vector.
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.
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?
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.
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.
Moral or not it is a deterrent
I think you got cause and effect mixed up. Every dollar that the fed is printing is being hoarded because the fed decided to only give dollars to people that hoard money.
If a person lives on a million a year, but accumulates a billion, do they become more virtuous if they accumulate a second billion?
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.
If you have the means, there’s nothing moral about living frugally. Spending money creates jobs and strengthens the economy.
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.
This is an ad hominem argument.
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.
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%.
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%.
“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.
I found the problem.
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.
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?
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.
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.
> "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-employe...
[2]: https://en.m.wikipedia.org/wiki/Estate_tax_in_the_United_Sta...
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.
What about amassing as much stuff as possible selling controlled substances and brokering crime?
If you want society completely out of your business, you're going to have a hard time.
They are treated fundamentally different in law, economics, and philosophy.
And taxation is also not the only parallel one could draw. For example, limits on the usage of you property is also highly regulated in various ways. Usage and ownership are very closely related.
There are tons of people who want exactly what you find so abhorrent.
For all you know I am a libertarian making the argument for a libertarian paradise.
Plenty of countries don't have an inheritance tax and aren't libertarian in the least.
The same objective (or subjective, take your pick) morality that discourages robbery-murder can effortlessly extend to the distribution of wealth in society. An objective moralist once said: "Render unto Caesar...". A subjective moralist could say: "whatever minimizes human suffering and maximizes human opportunities" which leaves policy-makers with a broad canvas.
Personally I don't think this is a particularly moral issue, except near the extremes; but even if it were, the answer isn't what you're hoping for.
How do you go from "it's no ones business how much wealth I accumulate or give to my children" to "anarchy"?
That's not what the OP said at all.
If we live in a free society then we should be free to do what we want to do, because otherwise we wouldn't live in a free society.
Any argument that justifies itself merely with "because freedom" can be used to argue for complete anarchy. After all, "rule" of any sort inherently implies restrictions on freedom. And if restrictions on freedom are inherently bad, then "rule" of any sort must be bad by definition.
> That or we stop pretending we live in a free society.
This is exactly what we should do. There is no such thing as complete freedom. All freedoms come at the price of restricting some other freedom.
yes, let's do that. we don't - there has never been such thing as a free society, and we don't live in one now. all society has rules - without rules, it's not a society anymore. Let's once and for all take away this absurd escape-hatch where one can avoid defending an idea on it's merits by claiming it restricts their freedom.
If we truly lived in a free society, we wouldn't have estate law at all - wheover kills you should simply claim all your property.
The government is there, supposedly, for the benefit of a healthy society, not to enforce some capitalists' idea of what they think is fair. It is the same reason why the rules change for a company when it becomes a monopoly (there is that word again).
"I want society out of my business."
This sounds like the libertarian mindset that takes for granted all the benefits that come from being a business operating in a healthy society.
Although worker productivity has gone up tremendously over the past 40 years, nearly all of the incremental gains in wealth has accrued to a small fraction of the population. Yet that form of unfairness doesn't ruffle the people who think taxation is theft.
The problem for me is not even that people amass such large amounts of money (do I think we should have some higher tax brackets on capital gains, sure) but that generational wealth creates power and economic structures which hurt the rest of us and ultimately impinges many more peoples’ freedom
I don't know what the solution is, but it seems to me that the estate tax system is overly complex, too open to abuse, and needs to be simplified. It is unfortunately intertwined with Trust laws, Probate laws, Income tax laws, international tax treaties, etc. As far as I can tell, the estate tax exists only because of the "stepped up cost basis" feature in the US tax code, where all capital gains is zeroed out upon death by increasing the cost basis of the asset to the current market value. (Does any other country have this?)
I think it would be simpler to eliminate Stepped Up Cost Basis, and replace the estate tax with something like a "deemed disposition" tax, where the capital gains tax is paid upon death (above a certain exemption amount, say $5M/couple), or paid upon transfer to another non-pass-through legal entity (e.g. an irrevocable trust). Oh, we should also eliminate the long-term capital gains tax rate, and all capital gains should be taxed at the same rate as earned income. I think this would eliminate the "carried interest" loophole. Oh, and we should eliminate Dynasty Trusts, which can last as long as 365 years. It's hard to see how allowing a Trust to last 365 years is good public policy. Oh, and so many other loopholes need to be closed.
Unfortunately, I don't think there is much political will to tackle these issues. Estate tax law is a very obscure part of the tax code. Very few people care, except for the small number of ultra wealthy people and their lawyers who are taking full advantage of the current system.
This is the kind of concern that isn't a problem right now, but will be one day. And it will happen in the blink of an eye.
I'm curious what the statistics are for a family remaining wealth over a long period of time.
Even with wealth evenly split between each generations kids, given a growth of just 4% it might end up with each generation getting a greater amount of wealth still.
In the past large familes prevented this, but if the average extremely wealthy person only averages 2 kids. The dilution through children just doesn't occur.
I don't have statistics, but a fun factoid is that the Grosvenor family, who own many properties in the west end of London, were originally granted those properties because the grantee was the grand-nephew of William the Conqueror. So wealth can last a long time. For those families who are luckiest and canniest, the only major threat is social breakdown as a result of revolution or being conquered.
> Even with wealth evenly split between each generations kids
This is why primogeniture and entailments were invented. They were necessary to maintain dynastic wealth. In cultures where partible inheritance is more common, such as the US, dynastic wealth has a much shorter half-life.
The author shows numerous examples but one of the most striking for English-speakers is that the Norman conquerors of 1086 are still, 31 generations later, over-represented at places like Oxford and Cambridge admissions and upper class probate court records.
Really? You have no problem one person owning so much money? That's around 30$ for _every_ person on the planet, can you even wrap your head around that? There's no reason why a single person should ever own this sort of wealth, none at all.
They would have to give up their US citizenship. Financial implications aside, few are willing to go that far. The financial implications are also large. You have to pay an exit tax, which would be substantial. And giving up US citizenship to avoid taxes is illegal, so there's that too...
On the other hand, Bezos, a single person, has control of a $1.58T company and you are totally okay with it?
What I find sickening is people trying to meddle in other people's pockets.
But you can also flip that around: Let's say your dad opened a Facebook, but then dies, why should you get $98 billion? You didn't do anything. Why is that now yours in the first place?
Because we live in a system which rewards good genes, and that is a very good thing. By instituting a generational wealth tax you will be killing the human desire for wealth on a generational timescale.
Where does the money go? To other people i assume, you have now created a system where the evolutionary incentive is to leech from the system contributing as little as you can get away with. We live in such a system today but at-least there are some benefits to contributing more, those benefits are inherently that you can turn wealth into more children and transfer that wealth to them.
Also, is this really your main motivation if you're Jeff Bezos? To make even more money? Doesn't the money stop mattering after the first 100 million and you're simply staying at Amazon because that's what you actually like doing? (Including having influence, shaping the future of commerce, etc etc)
I'ts not that simple, we are talking about evolutionary timescales here. It's very easy to see that if we live in a universe where accumulating wealth will not benefit your descendants, then accumulating wealth is an energy and time sink which will be selected against.
As for the second point i have no idea what Bezoz's motivations are.
I agree we should strive for a system which incentivises empathy, compassion, generosity and contentment.
Billionares do not have more kids but wealthy people have the capacity to have more healthy offspring, irregardless if they actually do.
I have said nothing about poisoning the gene pool, i am not a eugenicist and far from it. But every system has free-riders (leeches) as game theory predicts, we should try to counteract this behaviour not reward it.