The Dreaded Death Tax

April 16th, 2009 by G.

Nuclear-powered aircraft carriers do not pay for themselves. So why not tax estates? The money has to come from somewhere, so why not from the dead?

The genteel section of the conservative part of the blogosphere is talking over the estate tax today: see the American Scene, Megan McArdle, and Stuart Buck. Most are for it, like I am.

But a gentleman named Ethan C. is against it, and he may have changed my mind. He argues that the estate tax doesn’t recognize the natural family as a unit. By taxing inheritances, the estate tax treats parents and children as autonomous individuals. Its like taxing allowances. I think that’s right, and further, I think its a strike against the estate tax (and against taxing gifts to adult children). Enduring republics need strong, enduring families and institutions (especially family farms and other forms of family business).

Ethan C.’s other argument makes less sense. He says that lowering the estate tax lowers the cost of having children. Now, I probably would agree that rich parents feel some psychic costs at the prospect of not being able to leave everything to their kids and that rich parents are probably willing to bear accounting and legal costs to get around the estate tax. But I doubt that these costs are more than very marginal considerations.

Tony Comstock counterpoints Ethan C. He argues that the law already does recognize household families as a natural unit and that there is simply no good reason to extend this recognition out to adult children who have their own households. He argues that adult children have no legal obligations to their parents so they shouldn’t get legal benefits either.

My argument is threefold: First, the law does recognize some legal ties between adult children and their parents. Adult children are much more likely to be made guardians of mentally-decayed parents, for instance, then is some friend, and very properly so. Second, as I’ve argued elsewhere, perhaps the law ought to recognize some legal obligations adult children owe to adult parents. Against an argument that the law ought to treat even adults as part of a family, its no argument to say that the law doesn’t.

The prophets and apostles of the Mormon Church have proclaimed that the governments and leaders s need to strengthen families as “a fundamental unit of society.” They do not explicitly say whether this family is Comstock’s household family or Ethan C.’s enduring family. But since they have taught from God that the family endures beyond death, I think its fair to say that it also endures beyond the kids’ moving out.

Tentatively, therefore, I favor Ethan C.’s proposal of not taxing gifts and inheritances to descendents. I’m not worried about dynasties. Rich families can worm their way out of taxes anyway, while America’s size and population and wealth and dynamism, and the old principle of reversion to the mean, make them not much of a worry in any case.

Comments (7)

Filed under: Birkenhead Drill,Deseret Review,PRIVATE | Tags: age, bequests, birth rates, demography, elderly, filial piety, social security, wills, Wooster family fortune

Tags: age, bequests, birth rates, demography, elderly, filial piety, social security, wills, Wooster family fortune

April 16th, 2009 10:21:35

7 comments

G.
April 16, 2009

I can’t post this at The American Scene, so I’m posting it here. Its a response to an argument that any kind of legal obligation between parents and adult children is a bad idea because, for instance, it would require the adult daughter of a rapist alcoholic father to go to court to legally sever her obligations to him:

Young children and their parents, and spouses to each other, have obligations and entanglements that require legal action to dissolve. The fact that a husband might turn out to be a violent alcoholic does not make marriage laws “a very bad idea.”

Legally recognizing the continuity of the family beyond the household, to some degree, is probably a good idea because it fits with how we work in practice. Adult children are entangled with their parents. Its also a good idea because I’d argue that strong and enduring private institutions are necessary to a republic, and the family is the foremost. The law should not act as if those natural ties completely dissolve at the age of 18. I would further argue that, with caveats (rapists and alcoholics, as you say) children are morally bound to care for their parents in return for the raising their parents gave them, and I see no reason why the law should not recognize this obligation in some way. Legally recognizing some kind of continued tie between parents and children would also incentive child-raising to some degree, which would be good for society as a whole.

Note that under our current system, your victim daughter not only has no choice but to help pay for her dad, she also has to pay for everyone else’s dad to boot, and there’s nothing she can do about it. I also have to pay for her dad and there’s nothing I can do about it either.

Now a lot depends on the details, but I don’t think we can say, in principle, that every single variation is going to be a “very bad idea.”

Ethan C.
April 16, 2009

Thanks for the compliment, Mr. G. This may be the first time I’ve been cited by name on the front of any blog. That means I’m famous now, right? 🙂

I think I would agree that the law ought to recognize obligations of adult children to their parents. I don’t necessarily think that this would require a great deal of compulsion; it could be something as simple as allowing a tax deduction for care of one’s elderly parents.

I have no opinions on the subject of Mormon theology in this domain (I’m a traditionalist Protestant), but I think that the historical norm for human civilization is that the family is defined by enduring transgenerational blood ties, not just by common residence in a household. Households arise from the family, not vice versa.

I remain my parents’ son for as long as I live, even after their death. If I wish to vacate my responsibility to them, I think I certainly ought to be made to show some compelling reason.

sister blah 2
April 16, 2009

Parents can already give children $15,000 a year tax-free. That is each parent to each child. So if married parents each give $15K/yr to their child and his/her spouse, that is $60K/yr tax-free gift. Also, estate tax usually exempts the first $1 or $2 mil, right? And after that they tax at, what, 60%? Seems like that is a pretty good amount of “recognition” from the law. Just sayin. The family unit can probably survive such strain as the billions that could slip through that system from a billionaire parent.

Also, if we recognize the family unit by abolishing estate tax, does that also mean that children should be on the hook for their parents’ debts? I bet now they would like to be autonomous individuals…

Mark Brown
April 16, 2009

sister blah 2,

Your analysis is good as far as it goes, but it does have a serious weakness. It assumes assets are in the form of cash. If the estate is in the form of liquid asssets, you are right, the estate tax isn’t so painful.

But consider the case of a family farm or business where the value of the estate is tied up in real estate. Sure, the heirs have become millionaires on paper, but they sometimes have to sell large parts of the farm or business just to satisfy the one-time tax bite, and at that point, Uncle Sam has effectively put them out of business.

G.
April 17, 2009

SB2,
knowing nothing about tax law (other than that you got to pay ’em–sorry, tax protesters), I had assumed that the gift exemption and the 1-2 million estate tax exemption applied to anybody, not just kids. I take it I’m wrong.

sister blah 2
April 17, 2009

I think you’re right, actually, M. G, at least in regards to the $15K. Not sure about estate tax. If the gift and estate exemptions were changed so that family had higher limits than others, or didn’t apply at all to others, would that make a difference on your outlook? I don’t really see a good reason to include non-family in those laws.

I think in CA you can transfer a home from parent to child without triggering the resetting of property tax levels that usual changes of ownership cause. So there’s one example.

G.
April 17, 2009

If the gift and estate exemptions were changed so that family had higher limits than others, or didn’t apply at all to others, would that make a difference on your outlook?

SB2,
yep, it would.

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