A Stitch in Haste

...when it's happening somewhere else:

The Institute for Public Policy Research (IPPR) said the [U.K.] chancellor could raise £147m a year and cut death duty for up to 90% of people.
...
IPPR researcher Dominic Maxwell said the proposals would counter a "worrying" rise in inequality.
...
"As well as being fairer to those who inherit assets, this reform would also benefit those born with nothing, through a beefed-up Child Trust Fund," said Mr Maxwell.
...
The 50% rate would apply to inheritance over £763,000 so that only the 13% of estates over £808,000 would lose out.

Now if I were a super-rich person in the U.K. and such a confiscatory tax were enacted, I'd certainly consider repatriating (or at least repatriating my assets) to somewhere that had a more favorable estate tax system, like the U.S. (at least for now).

And having all the rich in Britain move here would certainly help that "worrying rise in inequality" over there...if not quite in the way the central planners envisioned.

This is exactly the kind of calculus that occurs in the U.S., as high-income and middle-income people flee oppressive local taxes (such as those in New York) for tax-advantaged states such as Nevada (exactly what my parents did a year ago).

If the numbers add up, such a move can even apply to nations.

The U.K. has come such a long way since the pre-Thatcher era. Too bad there are still some over there who think that other people's assets are nothing more than a "resource" to be plundered.

UPDATE: The good folks at Samizdata provide a local perspective on the outrageous proposal.

Matthew Yglesias is — as usual — 100% wrong when he tries to rationalize the death tax by re-labeling it as an “inheritance tax.”

I might be an earnest, hardworking dude who works in the store. And somebody might die and give the store to me. The store may be worth millions and millions of dollars. If so, I ought to pay tax on it. Why? Because I've just inherited millions and millions of dollars, that's why. That I'm earnest and hardworking, and that my riches came in the form of a valuable store rather than a heaping plate of gold matters not a whit.

This is, of course, utter nonsense.

Two logical fallacies. First is the blanking out of the fact that the income tax is, at its core, an accrual tax, not a transfer tax. For example, yes I pay income tax on my salary, but that taxation process is, conceptually, offset by the deductibility of my salary to my greedy Swiss bank employer. One must add “conceptually” because the offset is of course not dollar-for-dollar (due to the different tax rates I and my employer face, as well as by my personal exemption and other bells and whistles that are overlaid onto the core income tax structure). The offset (i.e., “my taxable income is my employer’s tax deduction”) is a procedural one, not a financial one. But procedure is what matters, because in taxation, as in all aspects of the law, fair procedures help to ensure fair outcomes.

By the same token, my greedy Swiss bank employer pays taxes not on its revenues but on its profits. I pay tax not on the proceeds of my stock sales but on the gains from them. I pay tax not on the money in my bank account, but on the interest it generates. And so on.

Which is why taxing a death transfer, whether one glibly renames it from an “estate tax” to an “inheritance tax,” is completely antithetical to the underlying income tax framework. As perverse as it may be to libertarians, taxation is based on creation of value. But the creation of value is not the same as the mere transfer of value, which should, in a sane world, be a tax-neutral event. We might tax the creation of a pizza pie, but we do not tax the shuffling around of slices among gramps, dad and the kids. Nor should we tax the pizzeria for no other reason than because gramps died. It simply defies all common sense.

The second logical fallacy of the death tax is what one might call the “double jeopardy” principle of taxation. The wealth in an estate has already been subjected to the taxation process. It is fundamentally unfair, Rawls or Yglesias notwithstanding, to subject it to a second taxation process.

“But Kip, you’re cheating! Often the value in an estate has not been taxed. For example, money in a 401(k) account is not taxed until it’s withdrawn at retirement, so if that account passes through an estate before the decedent could withdraw it, then it escapes income taxation. That’s not fair!”

Um, no. Notice that I said “subjected to the taxation process,” not “subjected to tax.” My income from my greedy Swiss bank employer is, in total, subjected to the income tax process the moment I receive it — every single dollar of it, even the dollars that are diverted into my 401(k) and therefore not immediately taxed. If I happen to use the various provisions of the income tax rules to shield income from taxation, then it has still been subjected to the taxation process. Stated differently, if I’m playing by the rules today, then why should I be punished for that tomorrow?

Just as the income that escapes taxation from the assorted exclusions, exemptions and deductions of the Internal Revenue Code are subjected to the income taxation process even if they are not actually taxed, so too with accumulated wealth in an estate: it may never have been taxed, but it was subject to the taxation process long before the decedent passed away. Therefore, it is unjust and unjustifiable to subject it to a second taxation process.

When enough people play that game called “The American Dream,” some of them are actually going to win. It takes a sick mind to think that’s somehow a bad thing that needs to be “corrected.”

More thoughts from, Truck and Barter, Outside the Beltway and Isaac Schrödinger.

*Oh, sorry, make that "Don't Call It a Death Tax" (the "lies" part is still wholly accurate):

[Estate tax] repeal would cost the U.S. Treasury $1 trillion in its first ten years. That's about equivalent to what's needed to save Social Security over the next 75 years.

I'm sure Reich is a big fan of Paul Krugman, so one would think he is familiar with the recurring phenomenon of "biased ultra-liberal economist + lies = fisking + humiliation" --

According to the Tax Policy Center, immediate repeal would cost about $300 billion from 2006 to 2015. That, however, appears to be an undiscounted number. The present value is probably around $250 billion.

What does it cost to fill the Social Security shortfall over 75 years? This report from the Social Security Administration shows the present value of the 75-year shortfall for OASDI of about $5 trillion.

Hmmm....Those two numbers don't seem "about equivalent" to me. In fact, the second one seems 20 times as big as the first.

How can you not love the gobbledygook that liberals spew about the estate tax — only the conservative gobbledygook about gay marriage compares on the scale of utter nonsense and pathetic hypocrisy.

On the one hand, liberals insist that the estate tax only affects a puny handful of households — a lie when you consider all those who structure their finances and estates to avoid the estate tax — they're "affected" by it too (if I move to Nevada to escape New York taxes, am I not "affected" by those oppressive New York taxes?).

On the other hand, they insist that the estate tax is a vital component of federal revenues. Another lie: the estate (and gift and transfer and generation-skipping) tax program only provides about 1-2% of federal revenues. And that number is inflated, since income tax revenues would increase if the estate tax were repealed. Some studies suggest that the federal government actually loses more income tax revenue than the estate tax revenue actually collects, because of the effect the estate tax has on people's behavior.

And let's not forget the huge costs of estate planning and compliance spawned by the estate tax. All that strategizing and paperwork is great if you're a lawyer, accountant, financial planner or IRS auditor, but not so great if you're an economist concerned with deadweight losses burdening the economy — which, clearly, Reich is not.

The estate tax has nothing whatsoever to do with sound, responsible or logical fiscal policy, and its apologists are not motivated by any legitimate economic reasoning. They are motivated by nothing more than rank Schadenfreude — "They're not us and we don't like them, so let's screw 'em just to make ourselves feel good." Just like the anti-gay bigots on the right, and just as deserving of contempt.