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Death Tax

October 22, 2017

US president Trump called it a death tax.  He wants to reduce the estate tax for wealthy people.  He claims that the death tax kills the American dream.  Is this really true?

My brother also calls estate tax the death tax.  He sees it as the tax collector’s last kick at the can.  Why do we have an estate tax?

Reducing it seems reasonable.  Nobody likes to pay taxes.  We are allowed to avoid estate tax by any legal means.  Hiding your wealth is not a legal means.  Still, why do we have estate tax at all?

Fairness is one of the policies that people want from government.  Fairness means that your success in life depends only on your skill, your knowledge, and your initiative.  Nobody gets a head start in life.  That’s the american dream.  Anything else is not fair.  People want life to be fair to them.

Estate tax promotes fairness.  It prevents people from getting a head start in life simply because their ancestors accumulated wealth.  It also discourages formation of family dynasties.  People who believe in extreme fairness would like the estate tax rate set at 100%, meaning that the government takes everything when you die.  People who believe in extreme freedom, on the other hand, would like the tax rate set at zero, meaning that all of your wealth can be willed to your descentants.  Neither of these extremes are possible in practice.  Governments want to provide both fairness and freedom, which they can do in moderate amounts.  This principle means that estate taxes will be somewhere between 0% and 100%, so that we must give part of our wealth to the government when we die.  It’s not just a scheme to finance the role of government; it has a higher purpose than that.

 

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