I’m fine with that bottom line… Unfortunately neither candidate for President supports anything like that, nor does anybody in Congress. They’ve already messed up the tax code royally, and are working feverishly to mess it up even worse for next year.

At what point does a rollback no longer suffice? At what point is a complete overhaul preferable?

Bottom line: we had a working tax system before George W. Bush took power. Go back to that, and then we can talk reform. And yes, rich people have to pay more. Why? Because they make a bigger margin for themselves across all of society’s activities. And because labor’s share of gross profits is lower than it has been since the late 1920′s.

So the rich are getting more than they ever have, and should pay a bigger share of the costs.

I’m with TFF on questioning that $200B revenue. With a 100% tax on the top 100, that implies an average $2B estate for each of the top deaths. There aren’t that many billionaires in the U.S. to allow for 100 to die each year. And that would put a bounty on their heads, as militant socialists would be seeing their deaths as a way to re-distribute wealth. I know the idea of violent revolution doesn’t seem to both you, but can’t we avoid that and just tax them while they are in parasite mode?

Moreover, the proposed 99% marginal tax rate (why not 100%?) will drive revenues to zero. People will do ANYTHING with their money before they give it all to the government. You are so far on the wrong side of the curve, it is Laffable!

I’m seriously skeptical. Do you have support for this number? What are current estate tax receipts? If your proposal relies on a 100% marginal tax rate, then I’m pretty sure the wealthy will find ways to game it — such as off-shoring their wealth.

There actually aren’t that many of these multi-million dollar family estates to cope with. The big money is in the top 100 deaths (in the future possibly – sales) each year – where billions can be claimed. It’s a small enough number that IRS can watch them closely while giving more routine scrutiny to estates under $10Mil.

This tax alone stands to generate over $200Bil per year for the Treasury. Even if IRS spent $1Bil a year on enforcement of this program alone, the payoff is still huge. We need the money – bad.

Yes, the $1M home would not create an estate tax liability, but I was making the point that the exemption needs to be indexed to living costs. The numbers we are talking about apply today, but maybe not in 5 years, or ten. We need an adaptive system that does not leave everyone at the mercy of politicians in need of financing from special interests (like the AMT has become).

No doubt, people will try to find ways to beat the system – they always make the effort no matter what you do. The IRS just has to keep up with them and close gaps as they are uncovered. That’s what they do now.

OBTW: If you inherit a $1Mil home you wouldn’t have any estate tax, absent some prior gifts or the like.

And I think I could guess where the government being the secured creditor would lead in this political climate – they would have to sell the mortgage to a company like BankofAmerica., or Citi, at a further discount.

TFF, If you inherit a $1M home and have to pay 55% tax, you will need a $550K mortgage. Not every heir will qualify for that mortgage.

During life Mom and Dad sell the business to the next generation, providing seller financing and taking a mortgage or other form of security. (Cap Gn tax will be payable for this transaction.) That, coupled with annual gifts below the limit can effectively pass the business on without the need of bank financing. At death, the government “inherits” the mortgage and becomes the secured creditor until it’s paid.

“exceptions are often turned into loopholes”

That’s a major problem with the current law. If you can think of a way of structuring it to reduce/eliminate the loopholes (I liked your earlier idea), then that would be a positive. I just don’t think much of a system with nominally high tax rates but large loopholes. And doesn’t that describe the present situation pretty well?

Homes are relatively easy to borrow against (to pay the tax). And if they come with an attached mortgage, then the inheritance is not the full value of the home. Businesses — and especially farms — are harder to mortgage.

“is it possible to make a distinction between transferring investment wealth and paying a relative’s living/education expenses?”

I try to pay relatives’ health/education expenses directly to avoid that question, but it’s not always feasible. You can try to carve out exceptions in laws to allow certain “good” causes, but exceptions are often turned into loopholes.

I’m in favor of a stiff estate tax (maybe not 99%, but over 50%), combined with an equivalent gift tax to prevent gaming the system, and an exemption that is indexed with inflation and maybe regional cost of living factors. You could inherit the family home in middle class neighborhoods around here that are worth more than $1M, and be forced to sell the home to pay the taxes on it. That will no doubt not go over well. But if homes and actively managed businesses are kept in the family, they should be exempt from taxes until they are sold, as we discussed earlier.

@KenG, that’s basically my point. The present system allows the sophisticated paper-pushers to pass along tens of millions of dollars, while the unsophisticated small business owners get shafted when he tries to pass along an auto body shop to his son.

MrRFox seems to believe that you can somehow improve the system by loosening the inheritance rules, as long as you place a punitive tax on top of that. I wonder if he is familiar with offshore tax havens? Almost certainly could set one up to convert an inheritance into an income stream if you have enough liquid wealth to bother. (Much harder to offshore Joe’s Body Shop, or Ma and Pa’s Farm and Produce stand.)

I would take the opposite approach. Instead of aiming for a punitive tax rate, *tighten* the inheritance rules. Tax the transfer as income to the heirs (at the parents’ rate if they are still dependents), and most of the dodges disappear.

“we’re seriously in danger of creating an hereditary, landed aristocracy that controls an ever larger share of the nation’s wealth.”

I think that has already happened.