Lily Batchelder: The “Silver Spoon” Tax: How to Strengthen Wealth Transfer Taxation: "30 percent of the correlation between parent and child incomes—and more than 50 percent of the correlation between the wealth of parents and the wealth of their children—is attributable to financial inheritances. This is more than the impact of IQ, personality, and schooling combined...
...Increasing the progressivity of income and payroll taxes would go a long way toward addressing both of these types of inequality. But it would leave significant holes if not accompanied by stronger taxes on wealth transfers. Under current law, for example, if a wealthy individual bequeaths assets with $100 million in unrealized gains, neither the donor nor the heir ever has to pay income or payroll tax on that $100 million gain. In addition, the recipients of large inheritances never have to pay income or payroll tax on the value of inheritances they receive, whether attributable to unrealized gains or not.10 Some argue that any income or payroll tax previously paid by a wealthy individual on gifts and bequests they make should count as tax paid by the heir. But they are two separate people. When a wealthy individual pays his assistant’s wages out of after-tax funds, we don’t think the assistant has thereby paid tax on their own wages. In short, today the income and payroll taxes effectively tax unearned income in the form of inheritances at a zero rate.
Wealth transfer taxes play an important role in partially addressing this inequity of excluding inherited income from the income and payroll tax bases.11 But inherited income is still taxed at less than one-quarter of the rate on income from work and savings...
#shouldread
#equitablegrowth
#inequality
#plutocracy
