Income taxation and morality

[HVC]

He still has to keep the government from taking one of the beets his ancestors worked so hard to harvest

You really don't remember how we had at least two other threads in the past where Martinus was arguing for a near-100% inheritance tax on everything?

Marti like attention. Ride out his histrionics and enjoy the other people in the thread. Inheritance tax makes sense if you look at it from the perspective as income tax on the new person receiving the money. They didn't work for it, why should the get it tax free?

Ok, but with that argument, why don't you pay tax after the value of gifts received? You didn't work for them.

You do for gifts over a certain amount ( if you claim it like you should). Besides what gift do you get that equal in value to what people inherit? It's a weird comparison to make.

[grumbler]

Yeah but it's just so frustrating dealing with this type from this part of Europe. They make Tea Party look positively statist.

That's a pretty good ad hom argument right there.

[Monoriu]

I wanted to start a discussion on this, as this has been bugging me for a few years now but it does not seem anyone (even socialists/leftists) tend to use this argument - and this is about taxation of different sources of income and ethics involved in judging such sources of income.

What I mean by that is this.

Let's assume in 2016, I earn $300,000.

$100,000 comes from my work/paycheck.
$100,000 comes from the rate of return on my capital (say, I am letting my properties, buying and selling shares etc.).
$100,000 comes from inheritance.

Now, I am willing to bet that in most legal systems I will pay the highest tax on the work/paycheck income, moderate tax on the capital income and the lowest (or no tax) on the inheritance.

Shouldn't this be exactly the opposite though? Surely, work of our own hands should be treated more preferentially than income that comes to me only by virtue of birth, which involves no actual effort on my part (with income from capital falling somewhere in the middle).

Thing is, you are only thinking in terms of morality.  I work in the government, and what I need to worry about is public finance. 

See, government expenditure is inflexible.  Even in bad times, it is difficult to fire civil servants and cut services.  You want revenue to match expenditure and be somewhat stable and predictable as well.  The great thing about income tax is that most people pay them, and hence tend to be more stable than taxes on capital and inheritance.  Taxes on capital tend to be very unstable as they are heavily associated with volatile movements in financial markets.  The majority of people don't leave inheritances that are worth taxing.  It may or may not be a moral thing to tax inheritances, but for civil servants in charge of public finances, inheritance taxes aren't *useful* enough. 

[grumbler]

Anyways to the OP:

Anytime that one treats a source of income differently for income tax purposes, one opens up a window for distortions, complexity and gaming the system.  So ideally the presumption should be all sources of income are treated the same for taxation purposes, absent some very strong justification otherwise.

I agree with this, and note that an estate tax is not tax on income, so doesn't fall within the ambit of your argument.

If a person receives a distribution from an estate, I agree that it should be treated as  ordinary income.  I'd prefer that the estate be taxed at 100% so as to allow the relaxation of other, more distorting (as you note) taxes, but that's a mere preference.  50% above some low floor value works for me, with the balance treated as ordinary income for the recipient.

[Tamas]

... a lot of parents work and keep bettering their lot in the hopes of offering an easier life for their descendants. Forcefully removing that option is one of the least moral ways to coerce income for the state.

This is a shitty argument.  Taxation is always "forcefully removing" the option of spending money as one wishes.  lack of taxation (and hence of law enforcement) also results
in someone "forcefully removing" the option of spending money as one wishes, only, in that case, it is a private actor robbing the parents.

The "taxation = theft" argument is so tired and morally bankrupt that I am surprised that you would even try to trot it out.

If you tax/burden certain activities you are giving incentives for avoiding doing it. If you do a 100% or near-100% tax on inheritance, a LOT of incentive would be lost to try and gain wealth.

Not to mention that taxing things like inheritance are only helping the rich: the more assets you have the more options there are to get around specific taxes like this one. A poor or middle class family can have real trouble trying to get their only property (their only real wealth) on the name of the future heir to avoid losing it upon death. The rich would have much more options to hand over most of their assets.

[Gups]

... a lot of parents work and keep bettering their lot in the hopes of offering an easier life for their descendants. Forcefully removing that option is one of the least moral ways to coerce income for the state.

This is a shitty argument.  Taxation is always "forcefully removing" the option of spending money as one wishes.  lack of taxation (and hence of law enforcement) also results
in someone "forcefully removing" the option of spending money as one wishes, only, in that case, it is a private actor robbing the parents.

The "taxation = theft" argument is so tired and morally bankrupt that I am surprised that you would even try to trot it out.

Tamas appears to believe that there are only two possible approaches to inheritance tax. Either there is 100% inheritance tax (which he appears to be railing against) or there is 0% (which he said in his first post is the only moral approach but has so far failed to support in any subsequent post).

[Berkut]

<snip much ranting and raving that does little to establish your credibility>

then you would know that a lot of parents work and keep bettering their lot in the hopes of offering an easier life for their descendants.

Taxing them at step 14 in that process is no more or less "moral" than taxing them at steps 1-13 of that process.

Taking 25% of my income so I have 25% less to leave to my kids is no more morally rational than taxing it at the point of my death.

There is no "moral" calculus here, just a practical one.

Forcefully removing that option is one of the least moral ways to coerce income for the state.

I like how everyone sprinkles in "force" and "coerce" into the discussion, even though it adds zero informational content to the debate. Seems so ominous!

[Tamas]

... a lot of parents work and keep bettering their lot in the hopes of offering an easier life for their descendants. Forcefully removing that option is one of the least moral ways to coerce income for the state.

This is a shitty argument.  Taxation is always "forcefully removing" the option of spending money as one wishes.  lack of taxation (and hence of law enforcement) also results
in someone "forcefully removing" the option of spending money as one wishes, only, in that case, it is a private actor robbing the parents.

The "taxation = theft" argument is so tired and morally bankrupt that I am surprised that you would even try to trot it out.

Tamas appears to believe that there are only two possible approaches to inheritance tax. Either there is 100% inheritance tax (which he appears to be railing against) or there is 0% (which he said in his first post is the only moral approach but has so far failed to support in any subsequent post).

I am rallying against the 100% one because that was the point behind the original post.

And I explained my reasoning behind my preference for a 0% inheritance tax in my first reply.

And even if you discard moral arguments as quickly as Martinus discards his political affiliations, there are very practical concerns for inheritance tax, 100% or not: it is more of a burden the lower you income class is.

Let's say you have 20% income tax. A rich guy inherits a shitload of funds, properties, etc. Yeah that 20% is a cut but so what?
Let's say a poor or middle class person dies and his/her children/grandchildren are the heirs of what for sure would not amount to much bigger than a single property. 20% of that is a HUGE hit to the heirs, and a drastic cut either if they find the cash to pay it, or if they are forced to sell the property just to pay the tax.

Arguing for things like the inheritance tax, seems to me, is just one of these totally misplaced ideas that more complication and more rules are helping the common citizen and hurting the privileged. It is almost always the other way around.

[grumbler]

If you tax/burden certain activities you are giving incentives for avoiding doing it. If you do a 100% or near-100% tax on inheritance, a LOT of incentive would be lost to try and gain wealth.

This is mere assertion, and not even believable mere assertion.

Not to mention that taxing things like inheritance are only helping the rich: the more assets you have the more options there are to get around specific taxes like this one. A poor or middle class family can have real trouble trying to get their only property (their only real wealth) on the name of the future heir to avoid losing it upon death. The rich would have much more options to hand over most of their assets.

Mere assertion, again.  While confiscatory estate taxes will, indeed, induce the wealthy to distribute their fortune before death, this is all to the good; the wealth transfers are taxed, and the money returns to circulation, where it can do some good (sure, it might just be re-invested, but at least society gets some benefits from the wealth transfer, and the remaining money is available to help finance economic expansion).  There isn't any place for an estate to "hide" assets so as to pass them intact to the beneficiaries.

The middle class will benefit because there will be lower general taxes if more of the burden is placed on estates (and wealth transfers).  Sure, the overall average benefit is small, but the average harm is even smaller.

[Tamas]

<snip much ranting and raving that does little to establish your credibility>

then you would know that a lot of parents work and keep bettering their lot in the hopes of offering an easier life for their descendants.

Taxing them at step 14 in that process is no more or less "moral" than taxing them at steps 1-13 of that process.

Taking 25% of my income so I have 25% less to leave to my kids is no more morally rational than taxing it at the point of my death.

There is no "moral" calculus here, just a practical one.

Forcefully removing that option is one of the least moral ways to coerce income for the state.

I like how everyone sprinkles in "force" and "coerce" into the discussion, even though it adds zero informational content to the debate. Seems so ominous!

But in your example they tax it at the point of your death in addition to taxing it when you earned it.

And I am fully aware such double taxation is hard to avoid with the levels of spending a modern state needs, but that does not mean we should embrace the idea and push it.

[Tamas]

Sure, the overall average benefit is small, but the average harm is even smaller.

I think the overall average benefit is next to nil unless you do very punitive rates, and I strongly disagree about the average harm.

[viper37]

My money, which I use to pay my cleaning lady, my barber and my shopkeeper, has already been taxed though and I cannot deduct my expenses from the base of my taxation.

Of course, at some point, you have to pay some taxes.  It ain't a zero sum where the taxes equal zero at the end of the day.
But if you were using these people to create a taxable income, they would be deducted from your income.

[The Minsky Moment]

I agree with this, and note that an estate tax is not tax on income, so doesn't fall within the ambit of your argument.

That's correct.
Estate taxation does tend to give rise to complexities - effective enforcement means adding on additional systems of gift taxation for example.  But no matter how structured there is always going to be aggressive tax planning -  trust structures and the like.  In an ideal world it might make sense to eschew it in favor of wealth taxation but that presents its own difficulties.

There are good and sensible practical reasons to tax estates, and so despite the difficulties associated with that form of tax, I'm personally basically OK with it.

[The Minsky Moment]

I am rallying against the 100% one because that was the point behind the original post.

The point of the OP was to bait the bear and you walked right into the trap.
When you open your argument with the position that estate taxation leads to an Orwellian dystopia you are starting from a bad place.

[Tamas]

I am rallying against the 100% one because that was the point behind the original post.

The point of the OP was to bait the bear and you walked right into the trap.
When you open your argument with the position that estate taxation leads to an Orwellian dystopia you are starting from a bad place.

Well a 100% one would