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