Rich Kids
Audio Recording by George Hahn
Last week, the fiscal lunatics proved they are still running the asylum. The last fit of congressional sanity broke out during the Clinton administration. This week, House Republicans sent the Senate a budget that adds $3.8 trillion to the deficit. Trump’s “Big Beautiful Bill” pairs unfunded tax cuts for the wealthy with a combined $1.1 trillion reduction in spending on programs including Medicaid and SNAP. The math isn’t mathing: Older/wealthier Americans are running up younger/poorer Americans’ credit cards to maintain their lifestyle. One especially offensive provision: a permanent increase in the estate tax exemption to an inflation-indexed $15 million, per person — letting couples pass $30 million to their heirs tax-free while slashing food stamps.
Fiscal Redline
The budget’s fastest-growing line item isn’t defense, or healthcare, but the interest on our debt. Even if this $3.7 trillion middle finger to future generations doesn’t pass, net interest payments on the debt will total $13.8 trillion over the next decade. We’re basically cosigning a subprime mortgage for our grandchildren while giving the wealthy a trust fund top-off.
As interest payments increase, they crowd out any discretionary spending critical for growth (e.g., the internet, medical research, education), and curb our ability to respond to future crises. Nations typically aren’t conquered but go broke. According to historian Niall Ferguson, there’s a redline where debt service exceeds defense spending. In fiscal year 2024, we hit it. The federal budget earmarked $877 billion for defense and $878 billion to pay the interest on our debt. As Ferguson wrote, “America’s fiscal position is far more constrained today than ever before,” adding that the U.S. faces a debt crisis similar to the ones that contributed to the downfalls of the Spanish, French, and British empires. We’re now spending more to service rich people’s tax cuts than to defend the country. So, raise taxes or cut spending? The answer is yes. Note: Both parties engage in this consensual hallucination — taxes went down during the Biden administration and spending (YTD) has gone up under Trump.
The Great Wealth Transfer
The oldest Baby Boomers turn 79 this year. Despite medical advances, exercise, better nutrition, and an industry devoted to anti-aging, biology remains undefeated. Delusions aside, nobody is getting out of here alive or taking anything with them. History’s greatest generational wealth transfer is underway. One research firm projects that the wealth transferred through 2048 will total $124 trillion. That inheritance tsunami won’t be evenly distributed. The 2% of American households that are considered high-net-worth and ultra-high-net-worth are expected to pass half of that ($62 trillion) to their heirs. The majority of Americans won’t see any wealth transfer, however, as only 1 in 5 American households inherits anything at all.
Dynasty Tax
Thirty years ago, pollster Frank Luntz argued that Republicans should rebrand the estate tax as the “death tax,” advising GOP lawmakers to hold press conferences at local mortuaries. It worked. Here’s the con: Americans fear a tax that affects fewer than 1 in 1,000 estates while cheering cuts to programs they actually use.
Smart taxation policy raises revenue with the least collateral damage. This is the foundation of a progressive tax policy: Levying the highest rates on the poor would create massive anxiety and unrest among the most vulnerable. With an estate tax, the collateral damage is small, but the rhetorical damage is significant. Americans understandably recoil at the idea of a “death tax,” even though the vast majority of them are not subject to it. Americans’ optimism can be a policy weakness, as we idolize the wealthy, believing one day we may enjoy their asymmetrical advantage. What we’re taxing, however, isn’t an estate but dynastic wealth. For too long, the death tax misdirect has obscured an elegant (see above: little collateral damage) solution.
Make Estate Taxes Great Again
Critics argue that the estate tax amounts to double taxation. I’m sympathetic, but only to a point, as unrealized capital gains account for 55% of the value of the wealthiest estates, meaning the wealthy are essentially avoiding nearly all taxes. In addition, the cartoon of the family store or farm being put out of business falls flat: Fewer than 100 family businesses per year owe any estate tax. In 2023 the estate tax generated $24 billion in revenue. Speaking to Bloomberg, former Treasury Secretary Lawrence Summers observed that an estimated “$2.5 trillion passing, and the vast majority of that being among 5% or 1% of the people who die, and only collecting 1% of it in taxes? I do think we can do better.” The current plan, however, is to do worse. It’s estimated that the Big Beautiful Bill’s estate tax provision will cost the government more than $200 billion in lost revenue over the next decade, or nearly two-thirds of the projected cuts to SNAP. We’re literally taking food from poor kids to give rich kids bigger trust funds.
My proposal: The U.S. should drop its exemption to $1 million and tax inheritances above that threshold at 40%, without loopholes. According to Brookings, that would raise an estimated $118 billion in annual revenue, or more than $1 trillion over a decade — enough to cover proposed cuts to Medicaid and SNAP. The cost to the families that pay the estate tax? Wealthy kids would no longer be as wealthy, but they’d still be wealthy.
Third-Generation Curse?
I believe wealthy people have the right to transfer economic security to their descendants. But there’s no free lunch, and an inheritance can become an albatross. As William K. Vanderbilt, a descendant of Cornelius Vanderbilt, explained, inheritance is “as certain a death to ambition as cocaine is to morality.”
Still, the third-generation curse makes for good drama. (See: HBO’s Succession.) And anecdotally, the fear of the curse is real. Case in point: Paramount. Just before a deal to sell the company was announced, my Markets co-host Ed Elson asked, “Is there anything more American than the children of three billionaires — Shari Redstone, David Ellison, and Edgar Bronfman Jr. — vying for control of a failed Hollywood studio?”
The Life
In 2010, Daniel Kahneman and another Nobel winner, Angus Deaton, published a study which appeared to show that income was strongly correlated with happiness at low income levels, but that earning more than $75,000 had no impact on happiness. Later, another academic at Wharton, Matt Killingsworth, challenged that finding. Working together, along with a third academic neutral to the dispute, Kahneman and Killingsworth found that the original study had measured the decrease in unhappiness but hadn’t captured the upside high-income people enjoyed. When more carefully measured, happiness continued rising with income. However, there were dramatically diminishing returns. There were real gains to happiness in moving from $100,000 in income to $200,000, but to see that same gain again required another doubling of income, to $400,000. Extend the curve, and it flattens further.
I believe this finding should influence tax policy. A more progressive tax code that levies inherited wealth is a net positive: It raises revenue; holds happiness steady; and motivates the most privileged to strive. As I’ve said many times, greatness is in the agency of others. Most people work their entire life to achieve economic security for their family. Those who receive that security as a birthright owe it to themselves, their families, and society to transform unearned privilege into earned purpose. There is no tax that’s not taxing. But estate taxes come close.
Growing up, I was the kid being raised by a single mom who didn’t have money. I was reminded of this when my friends bolted from our newly integrated public school (Emerson) for a private school (Windward). I was left behind, wearing fake top-siders (real Sperrys cost $32) and being devastated when I lost the Vuarnets my mom had given me for Christmas. But this isn’t a sob story. We were never hungry or afraid, and being the kid who was always late on his fraternity bill ignited embers of desire and grit that have served me well. Also, now that I have some money, I just plain enjoy it more than people born with it.
Fits of Sobriety
As I get older, I drink more but am also more sober. In fits of sobriety I recognize a lot of my success is not my fault. (Note: I am not humble, but among my many skills is basic pattern recognition.) No one thing, but an amalgam of blessings: being born in America a white, heterosexual male in the sixties; having a mother irrationally passionate about my well-being; benefiting from government-funded technologies (e.g., the internet, GPS); beginning my career in a risk-aggressive, entrepreneurial culture; having access to deep pools of capital; and getting admitted to the University of California. That affordable and accessible higher education, funded by California taxpayers, illuminated a path of upward prosperity. Key to my ability to access this path was affirmative action, specifically Pell Grants.
Small-Minded, but Ugly
The GOP’s small-minded, ugly bill would cut Pell Grants by $67 billion through 2034, reducing grants to low-income students by more than one-fifth from 2027 through 2034. More than half of Pell students would have their aid reduced in some way. The math is simple: My kids inheriting a few million less so we can offer millions wider paths to education, jobs, wealth, and more tax revenue is a no-brainer trade-off. The whole point of, and reward from, prosperity is to protect. As the Greek proverb says, “A society grows great when old men plant trees whose shade they know they shall never sit in.” My generation is full of old men who are in the business of clear-cutting. It needs to stop.
Life is so rich,
P.S. The Prof G Markets Pod now has a newsletter edition. Sign up here to receive it every Monday. You can thank me later.
68 Comments
Need more Scott in your life?
The Prof G Markets Pod now has a newsletter edition. Sign up here to receive it every Monday. What a thrill.
check out peter turchin‘s work on structural-demographic theory (SDT), especially the concept of elite overproduction. would love if you’d invite him to your podcast 🙏
Propuesta para Profgalloway.
Hola, es un placer saludarte.
Te escribo porque sería interesante comentar contigo la opción de que Profgalloway posicione en los primeros lugares de internet y que aparezca cada mes como noticia en cientos de periódicos digitales, con artículos reales dentro del periódico que no se marcan como publicidad y que no se borran.
Estas noticias se publicarán en más de cuarenta periódicos de gran autoridad para mejorar el posicionamiento de tu web y la reputación.
¿Podrías facilitarme un teléfono para aplicarte un mes gratuito?
Muchas gracias.
Another hidden transfer of wealth, that I just experienced is the resetting of the cost basis of securities on transfer. My mom had a significant sum of her savings in stocks and index funds, basically untouched since when my dad bought them more than 25 years ago. I was expecting a large capital gains tax if I decided to sell the shares that came to me through inheritance. Not so! When my portion of her shares transferred, the cost basis was reset to the value on the day of her death. I get to realize the full value of those securities without any capital gains taxes. This isn’t even close to the “double taxation” argument. It’s straight up transfer wealth without capturing any revenues to fund our government programs. Thoughts?
Always enlightening to read your column. Thank you!
In the 76 day period between Trump winning and Biden leaving office $93 billion was sent from the DOE, who GAVE IT AWAY WITH NO OVERSIGHT, TO ENTITIES WITH NO FINANCIALS.
****The $93B was well over twice as much as in the previous 15 years***
This is on top of the other massive, massive, massive Biden era scams:
$42 Billion for high speed internet. Not a single house set up for high speed internet (SCAM)
$85+ billion dollars in state of the art brand new military equipment abandoned to our enemies in Afghanistan.(KICKBACK)
200+ billion to Ukraine (KICKBACK)
Galloway: Let me bitch about how you’re not paying enough in taxes.
My basic pattern recognition skills are awesome!
This is why the Democrats are a failed party of losers
Regarding the estate tax the whole “but we already paid the taxes” is such a canard. If a plumber makes $100k a year, everyone who pays him has already paid the they give him, yet he also has to pay taxes on the money he receives. A person lucky enough to inhereit millions of dollars should pay the same rate on that money that the plumber does on his. I mean gosh darnnit youre lucky enough to have someone give you millions you also get a tax break? And, like you Scott, I’m relatively well off.
Hit the nail on the head. To drive your point even further, when Commodore Vanderbilt had a family reunion in 1905, he was wealthier than the US government. We were a creditor nation and had real wealth. Two generations later, there was one millionaire, Gloria, who made her fortune in “fashion.” The party of Trump (there is no GOP anymore) makes drunken sailors look like WCTU members.
Why should death be a taxable event? Maybe birth should be. You bring a life into the world and it costs (schools for starters) society a great deal of money. Death causes society $0.
well, the reason Prof G gives is because the wealthy are dodging taxes normally, so it’s catch up.
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US allies realise the US is not longer their security partners and these means several things:\
1) no point in buying US military weapons if better cheaper ones can be found elsewhere.
2) US businesses are now going to lose out on deals because they are not the cheapest and best supplier and there is now no reason to give US companies preferential treatment.
3) the rest of the world outside of America is doing trade deals with each other.
4) countries are dumping US debt, and it’s not just China.
5) confidence in the US is at an all time low. The writing is on the wall that the US empire is likely to come crashing down very soon. Everyone is getting ready for when America collapses.
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$1M is a small home in Ca. I’d change your proposal to maybe $3M + 45%. Or maybe, $1M + 40% “per recipient”.
I have to disagree. An estate tax of 40% over 1 million dollars would force the descendants to liquidate. Perhaps forcing them out of a family home held for generations. Also, I built my wealth by saving and investing hard-earned after-tax money with the sole purpose of building a nest-egg for my family. There’s no way I would agree to giving 40% of it to the government. Love the pod, I usually agree with your views, just not this time.
Trickle down economics and the George W Bush tax cuts started us on the road to ruin from which way will not recover!
A cautionary observation on generational wealth:
The prime minister of UAE, Sheikh Rashid, once said:
“My grandfather rode a camel, my father rode a camel, I ride a Mercedes, my son rides a Land Rover, and my grandson is going to ride a Land Rover…but my great-grandson is going to have to ride a camel again.”
It has often been condensed and misquoted to say:
“My father rode a camel, I drive a car, my son flies a plane, his son will ride a camel”
Point being, as the sheikh put it:
“Hard times create strong men,
strong men create easy times.
Easy times create weak men,
weak men create difficult times.
Many will not understand it, but you have to raise warriors, not parasites.”
Love your pods and posts even when I disagree as I do with this one. Tax policy has nothing to do with fairness or happiness. It has to do with collecting the most cheese – in the long run. Take a look at the tax receipts in the unfair and unhappy nation of the US since 1980 and compare them to happy and fair places like France or Denmark. We squandered our balanced budget in foreign wars, bailing out bankers, and making health care executives rich. The estate tax is for lawyers and accountants to get rich off the upper middle class while real rich people circumvent by hiding wealth and assets. I worked at a job, paid upwards of 50% in income taxes, saved enough to buy a house. I pay property taxes on that house. And now, because the government made egregious mistakes and inflated the economy, my kids who cant afford a house wouldn’t be able to hold on to my house when I die because you want 45% of NOT its relizable value but the value some nerd has assigned to it. Talk about unfair. Also, you won’t collect what you think you will from future Elon Musks who will be residing in a tax friendly jurisdiction.
Hi Scott! Longtime fan. You’re one of my favourite people who says the market, wielded responsibly, is always the answer to life’s problems. I’ve been on your email list for years now, and I read weekly.
I read this article in my email and it was followed by an ad for Upwork. I’m wondering if you see any irony in that considering the subject matter of the post, and if so, to what extent? I’m asking in good faith here, I’m honestly a fan, but I also get a sense of cognitive dissonance at times.
Hi Scott, as a Brit it is difficult for me to rationally comment on US politics but I agree absolutely with what you propose for both US and U.K. It is important that we maintain the social fabric which allows people and the economy to from and that costs money. Insurance tax is certainly a fairly sane way to achieve the required results.
Good article. The debt is a significant problem w few elected officials taking seriously. It feels in the current culture more taxes would simply result in more spending
I have money that I earned in my life… I neither graduated from college nor had any particular grants, and I didn’t work in an industry that was sponsored by the government… And yet when I sold my business, even though I had access to highways and the Internet and other things along those lines I paid, personally well over $100 million in capital gains tax. We created a separate billion in collateral value along the way.
I think I have contributed and I think that my heirs should enjoy sitting in my shade if they choose to.
Blaming is easy, taking responsibility is hard, the US should take responsibility for its Triffin Dilemma situation. It’s the inheritance of it’s extraordinary privilege. You can read about it elsewhere. Maybe you already know about it, but are ignoring it. The future will be different than the past, it always has been. The only thing that matters is what people then will do then. In any case… The $15 million car out that was created was there to protect family farmers in particular who were being crushed by estate taxes when dad farmer passed away and the children had to sell the farm to corporate farming organizations just to settle their tax obligations. It was a compassionate concept.
So we don’t have a spending problem Scott? Just a revenue problem? Since 2000, federal spending has risen from 17.5% of GDP to 23.1% (down from COVID era >30%). This is not a problem we can tax our way out of.
Bingo. The elephant in the room the people don’t see.
Thank you, Scott, for this article and all you do for young men and boys. I am the father of three young men that I raised as a single parent.
F%$&’in A Scott, F%$&’in A
The truth about how our national debt got so high:
discretionary spending has fallen more than 40% in the past 50 years as a percentage of gross domestic product, from 11% to 6.3%. What has driven rising deficits are the George W. Bush and Donald Trump era tax cuts, which had added $8 trillion and $1.7 trillion, respectively, to the debt by the end of the 2023 fiscal year. Plus the endless war in Iraq and Afghanistan.
As far as the inheritance tax goes, many of the so-called robber barons were in favor of it, like Andrew Carnegie:
“Of all forms of taxation, this seems the wisest. Men who continue hoarding great sums all their lives, the proper use of which for public ends would work good to the community, should be made to feel that the community, in the form of the state, cannot thus be deprived of its proper share. By taxing estates heavily at death the state marks its condemnation of the selfish millionaire’s unworthy life.”
Fact: Reagan exploded the deficit. Growth did not pay for the spend.
Fact: Bush I kept it going
Fact: Clinton brought deficit back into surplus
Fact: Bush II exploded the deficit (again)
Fact: Obama brought back down. Obamacare was fully funded
Fact: Trump exploded it (again). Tax cut fully unfunded.
Fact: Biden was at best neutral tho he did pass tax increases/closed loopholes to start bringing it down. Climate bill fully funded.
Fact: Big beautiful budget will explode the deficit (again)
Google it.
See a pattern?
Bingo!
discretionary spending has fallen more than 40% in the past 50 years as a percentage of gross domestic product, from 11% to 6.3%. What has driven rising deficits are the George W. Bush and Donald Trump era tax cuts, which had added $8 trillion and $1.7 trillion, respectively, to the debt by the end of the 2023 fiscal year. Plus the endless war in Iraq and Afghanistan.
Fact – during the Reagan and Bush era, it was a Democratic Congress controlling the purse.
Fact – during last 6 years of the Clinton era, it was a Republican Congress controlling the purse.
Fact – since then, both parties have buried their head in the sand with respect to the budget problem and federal spending as a percentage of GDP has climbed more than 5% (17.5% to 23.1%)
Devil in the details. TY! Both parties contribute to this mess. Non partisan. It’s how votes are bought.
As usual right on the money. As a boomer (unfortunately not wealthy, but privileged enough to live among wealth) I see the incredible greed that drives our country. Keep fighting the good fight and help a brother out.
The big elephant in the room you forgot to mention is the charitable foundations created by centi-millionaires and billionaires which enable them to transfer most, if not all, of their wealth tax-free during their lifetimes to these foundations and still maintain control over how and to whom it’s disbursed. Just think Bill Gates.They exercise enormous power over all aspects of American life via these entities. The solution is to create a lifetime maximum tax free contribution to a foundation of, say, $50 million. Also, tax estates over $100 million at graduated rates beginning at 50%. The current $30 million estate max that is tax free should remain since in today’s NYC, SF, Boston etc. that amount divided among two or three children is peanuts.
It doesn’t matter how much we take in if we can’t stop the spending. Our government could be the beneficiary of a galaxy inheritance of one million trillion dollars ($1,000,000,000,000,000,000 – a quintrillion dollars) and the left and right combined would find a way to spend all of it. Hell, all of it and more. The answer isn’t finding more ways to tax people or to tax them more, the answer is to spend less and cut the waste. You know, live within our means as a country. Until we figure that out, we’re screwed.
discretionary spending has fallen more than 40% in the past 50 years as a percentage of gross domestic product, from 11% to 6.3%. What has driven rising deficits are the George W. Bush and Donald Trump era tax cuts, which had added $8 trillion and $1.7 trillion, respectively, to the debt by the end of the 2023 fiscal year. Plus the endless war in Iraq and Afghanistan.
As you probably already figured out, tax revenue as a share of GDP has not kept pace.
And spending as a percentage of GDP has exploded from 17.5% to 23.1% since 2000. That’s the problem you can’t tax your way out of.
It’s ridiculous to talk about double taxing estates, when the real problem is social security and medicare. They need to cut those down by at least 20% to have any hope. Taxing inheritances at 40% is pretty ridiculous will just result into even faster capital flight out of the US. These are terrible losing policies. I can’t believe we are still talking about them.
Social Security and Medicare are the only problems? You’re going to ignore the Defense budget?
Scott, to add to my post below- I agree that untaxed wealth (the 55%) shouldn’t pass through to heirs tax free. Regarding the other 45% taxed wealth- it shouldn’t be taxed again. At some point, over taxation becomes theft. Arbitrarily deciding to confiscate someone’s wealth because it is too great is a slippery slope to justify theft. Where does it end?
Money flows where it’s treated best. Aggressive tax policies chase capital away.
The ultra wealthy will aways in the aggregate be better stewards of their fortunes and ultimately benefit society more than any government- just look to the Buffets, Gates amongst many others.
Corruption, inefficiency and waste are hallmarks of Government- the largest & worst monopoly with no competition and no market mechanism to measure success or failure. And it grows using threats of coercion and violence to enforce its will reducing liberty with ever expanding rules and regulations.
There has never been a real attempt to rein in spending nor a real attempt to materially reduce fraud and inefficiency. Why? There is no incentive and the system grows via buying votes with ever more giveaways. Legal corruption justifying more theft through excessive taxes.
The best government will always be the smallest one as envisioned by our founding fathers. Decentralized power over centralized while as limited as possible.
I think Tyler nailed it. We (the voting public) will elect those who promise to enrich our lives (or face stomp those we don’t like). Small wonder that no elected official wants to reduce spending, it’s just not popular.
“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world’s greatest civilizations has been 200 years. These nations have progressed through this sequence: From bondage to spiritual faith; From spiritual faith to great courage; From courage to liberty; From liberty to abundance; From abundance to selfishness; From selfishness to apathy; From apathy to dependence; From dependence back into bondage.”
Well said.
I think the rebrand around the estate tax needs to take the opposite approach to the death tax. The wealth gained in America is due to the free (ish) markets (maintained via a relatively pro-business regulatory environment), property rights (protected via government), infrastructure (mainly funded by government), and other aspects of the American system. The estate tax should be viewed as: “I got wealthy through hard work, smarts, and tenacity – but was able to achieve massive wealth because of the American experiment and upon my death, some of my wealth will go back into that system to help the next generation”. Reminder to all entrepreneurs in America (of which I am one), you were born on third base by being in the American market.
I view redistribution as Robin Hood economics and at its extreme it is theft.
Robin Hood economics can be an affront to liberty and in the long run does more harm than good to those that you are trying to help because it misallocates resources- reducing abundance and therefore lowering aggregate standards of living.
Why do those in favor of redistribution praise the Democratic billionaires that are creating charitable enterprises and avoiding taxes on tens of billions of dollars that cannot be redistributed? In some cases, large sums of these money are being used to help foreigners in need instead of helping our poor and downtrodden.
I’m grateful to billionaires like Gates, Buffet, and Zuckerberg, amongst others- many of which are Democrats. They are carving out a large percentage of their fortune (billions and billions) to philanthropy. Certainly they are better stewards of capital than our government when it comes to using the money for the greater good.
Interestingly, all are avoiding massive inheritance taxes with their charitable enterprises. Obviously they believe they can do a better job with their money than our government.
MY POINT: In other words, these democratic billionaires trust their money to the private sector over the public sector. Why don’t you?
I’m all for it- and the irony is thick.
I’m all for philanthropy, but not for tax deductions for contributions. After all, every dollar not paid in taxes by one person (disproportionately one very rich person) means someone else has to pick up the tab. That means I am forced to support causes I find ludicrous, or even repulsive. So give your money to anyone you like, just don’t ask the rest of us to pick up a third of the bill.
Solving the debt crisis really is not hard. What is needed is the following:
1. Eliminate ALL deductions (that means mortgage, charity, child, state and local tax, business loopholes, etc.) If Congress really thinks something is worth supporting, they will have to appropriate funds for it openly and defend the decision. After all, every deduction someone gets means everyone else pays more, since government must still be funded.
2. Institute a single, progressive income tax that covers ALL income–there is no reason to tax income one does not work for (i.e., capital gains) at a lower rate than income one puts in time and effort to earn. Set these rates to actually cover our obligations. Now that the Supreme Court has recognized corporations as persons with equal free speech rights, tax them at the same rates as persons.
3. Disallow any political contributions from non-constituents–representative government can only function if those in office actually represent those who elected them rather than those with deep pockets. Set representative pay and privileges at the mean for their constituents. The current system breeds distrust and contempt, as our purported representatives ignore their constituents in favor of their corporate paymasters, obscuring their bought-and-paid-for favors with endless, incomprehensible layers of taxes and deductions.
Conversely, those that pay no personal federal income taxes have no skin in the game regarding paying for excessive government giveaways. That too seems just as wrong as those with excess capital having greater influence. Do they offset?
I would probably add a VAT to capture the ultra-rich who structure their portfolios to have no income. What is really needed is a simple, transparent tax system that includes everyone, cannot be gamed (i.e. corrupted), and covers the nation’s expenses.
Basing public policy on Happiness studies seems highly dubious. Self reported studies (happiness, sex lives, voting) are unreliable.
I think estate taxes should be near 100% for estates over a few tens of millions, and even pretty aggressive above $1 million. (exceptions for farms and family run businesses).
America should not be in the business of fostering multigenerational dynasties – we are a nation of Cowboys not Kings. Isn’t it ironic (hypocritical actually) that the it’s the monied crying the loudest that we are meritocracy while at the same time insisting on maximum un-meritocratic wealth transfers to their offspring?
Conceptually, everybody should get the same $200 at the start of the monopoly game. That’s not entirely possible because the offspring of the wealthy are already raised with more advantage and a big head-start (education, networks, etc.). That advantage does not need to be compounded with a big unearned balance transfer.
The fact that somebody is worth more than a few tens of millions is owing mostly to ‘right place right time*’ while taking advantage of all the infrastructure society has put in place. While their good fortune is their’s, their good fortune certainly should not guarantee their offspring an unearned life of luxury.
* – of course combined with hard work, but most people work hard
Another great article! I would recommend another change and eliminate the “step up” valuation on log term capital gains. Heirs should not be allowed to avoid taxation.
I missed the part about the almighty Prof G plans to reduce spending. Please highlight that section for me………..
Two weeks ago I posted this comment to your column:
“Just here to remind all that after World War II under President Eisenhour the maximum marginal income tax rate was 91%. Probably nobody paid that due to deductions, but income taxes were substantially higher to pay for the cost of the war. The lies from the Republican Party over decades about how cutting taxes will trickle down to benefit everyone has created much of the debt, accompanied by President George W. Bush’s wars in Iraq and Afghanistan, while he cut taxes further thus incurring more debt. Unfortunately income taxes must increase, and also taxes on estates larger than a specified amount. Should also tax capital gains as income. It will take a long time to correct the problem, but the problem didn’t happen overnight.”
Glad you followed up on my suggestion of an estate tax with bite. But may I suggest that the estate tax, like an income tax, be designed to take a larger bite from larger estates instead of the flat 40% you have written here?
An informative and thoughtful article, as always.
Thank you.
Spot-on about the injustice of dynastic wealth—but the ‘debt crisis’ is a myth. The U.S. can’t go broke in its own currency. This isn’t about math; it’s about power. We don’t tax the rich to ‘fund’ programs (US Govt can create money), but to stop them from rigging the game. The GOP’s cuts aren’t ‘fiscal irresponsibility’—they’re class warfare. Deficits don’t ‘crowd out’ spending—oligarchs do.*
*Time for a Kelton Pivot, Scott. Or better yet, bring in Prof Steve Keen to nuke the deficit myths for good.
To bring a bit of history to bear, death taxes have been temporary taxes to fund wars.
1797 Stamp Act — $0.50 – 2.00 stamps on real estate/probate docs — fund Revolutionary War, in particular the navy, repealed 1802
1862 Revenue Act — progressive rates 0.75% to 5% — fund Union Civil War, repealed 1870
1898 War Revenue Act — 0.75% to 15% on $1MM estates — fund Spanish – American War, repealed 1902
1916 Revenue Act — 1% on estates over $50K up to 10% on estates over $5MM — fund World War I, repealed
1941 Revenue Act enhancements — 2% on estates over $40K up to 77% on estates $10MM — fund WWII
The post-WWII estate taxes funded the Korean War and Vietnam.
1981 Economic Recovery Tax Act — reduced the top rate from 70% to 50% and increased exemptions (e.g., $600,000 by 1987).
2001 Economic Growth and Tax Relief Reconciliation Act — phased out the estate tax, lowered rates (top rate fell from 55% to 45% by 2007) and raised exemptions ($1 million in 2002, $3.5 million by 2009). Repealed 2010 but reinstated in 2011.
2011–Present — top rate is 40%, with an exemption of ~$13.6 million per individual (2025, inflation-adjusted). Rates apply progressively: 18%–40% on taxable estates, with the top 40% rate on amounts above ~$1 million after exemptions.
Currently the death tax generates $17B per year and only 0.2% of US estates are liable for death taxes.
JLM
Weird… he claims there is a war on illegal entry and economic….. yet no taxing the ones that cause it. However, lets remind ourselves that giving money to rich kids is ok, give money to poor kids makes them dependent on the government. Gotta love it.
It’s a great post. I don’t disagree with the big conclusions. I do have a couple of nits with respect to some of the side comments. First, the fiscal sanity that you correctly note during the Clinton administration was not as sane as you claim. Yes, Clinton did not flood the zone with new spending. But Clinton and Congress had one thing that does not exist today: massive Social Security surpluses. These SS surpluses negated the need to issue new public debt for the deficits that, though small, existed during most of the Clinton years. Federal Trust Fund accounting is straight forward but remains poorly understood. It comes down to the difference between public debt issuance and inter-government debt. The former is backed by real Treasury Securities. The later is backed by a ledger entry. Social Security surpluses in both the Clinton and Bush eras reduced the amount of public debt issuance to cover budget deficits.
Second, could someone point to what Federal Taxes went down during the Biden era? My federal tax rates did not go down. The amount of income subject to Social Security taxes went up, due to inflation adjustments. The Trump era tariffs were maintained. So I am confused by the comment that taxes went down during the Biden era. What am I missing?
Newt Gingrich reduced the rate of growth — not total spending, just the rate of growth — of US gov’t spending during the Clinton years. Clinton’s contribution to the effort was signing the appropriations bills.
JLM
Much ado aoout nothing, Prof.
1. Current estate taxes have an inflation adjusted exemption of $13.6MM per individual. This is since 2011.
2. After the exemption, currently, estates are taxed at 40%.
3. In the BBB, the $13.6MM exemption per individual is increased to $15MM. No big deal.
4. Per IRS data, estate taxes generate $17B in revenue on the 0.2% of estates that actually pay death taxes.
Anybody with substantial assets is using the law to exclude their assets from their estate. It is some very simple stuff.
This is a yawn and not remotely significant to the future economic health of the United States. Since Liberation Day, the US has already received more than this in newly imposed tariffs.
Cheers.
JLM
Exactly right.
Instead of (or in addition to) the estate tax, why can’t we just remove the step up in cost basis of all of the assets being passed down?
Why?
JLM
Unrealized capital gains are essentially erased for tax purposes when the cost basis is stepped up.
First, many of your hero socialist countries have no inheritance tax. Reconcile that. Second, you can’t multiply 40% times a number that would be completely different if you changed people’s behavior and incentives. You know damn well you would not collect a trillion over a decade, maybe half of that if you are lucky after people change their plans based on the new tax. Third, the real 500 million (maybe) over a decade is peanuts. It would make no difference against the mess we have. And lastly, the painful “cuts” to the social programs are window dressing and you also know damn well are not the draconian cuts you and every liberal are trying to paint them to be.
You can tax the rich all you want , but the real money is in taxing everyone else. Unless you dramatically reform Medicaid, Medicare and Social Security all that remains is taxing the shit out of EVERYONE. You know it but you won’t write it. Keep up the class warfare—it’s better clickbait.
Correct! I would only add that the cuts to Medicaid are for those who live in this country and do not have citizenship, as well as the able bodied who sit on their ass instead of getting a job in an economy that needs every able bodied person! That is why socialist Elizabeth Warren goes on TV talking about Medicaid and referring to those who will lose benefits as “people” rather than “citizens”. Scott, you may have your act together as a marketeer, but your one-sided approach to your readership is bringing me to the point of hitting the “unsubscribe” button. Go back to what you know and leave the politics out of it!
Kudos! Some 2nd level critical thinking instead of the populist 1st level nonsense.
In the phony wellness business when the debt gets too great they just restructure with chapter 11 that’s what Weight Watchers is doing. Sorry WW. Peloton soon will And Xponential the boutique exercise franchise company will need to. Maddogg Athletics which includes PeakPilates. and SPINNING already did it too. Not taxing the very rich won’t fix our debt that much. Cutting 15% of the MILITARY and the same for Social Security and Health care is necessary but so sad.
Test
Not only are the estate tax rules generous to the wealthy, but the heirs to assets are “stepped up” to fair market value at the date of death. Stepped up BASIS means that when the inheritors sell the assets, they generally have a less income taxes (capital gains) on appreciated assets since the deceased lower basis disappears when the tax basis is stepped up. It’s a double win for the wealthy and the beneficiaries of their estates. It’s great to be a child of wealthy parents who take advantage of all the loopholes and gimmicks. It’s not so good to be a child of working families who struggle to have a home and a decent life.
The entire line “it’s main street’s turn” won’t have credibility until the tax code places less of a tax burden on earned income than it does on passive investment income. The whole tax code is designed to support the premise that getting rich should be hard, but staying rich should be a lot easier. I’m thinking primarily about reduced taxes on dividend income, pass-through entities, and other gimmicks that result in significantly lower income tax rates for the wealthy.