WELFARE FOR THE WEALTHY

A recent Wall Street Journal had a major article titled The Estate Tax (Monday, September 20, 2010). In writing for "Get Rid Of It", Ed McCaffery in "It's Unfair, and There's a Better Way" curiously says "It is a simple moral case..." In a country that prides itself on the Judeo-Christian work ethic, it would seem to me that the moral case is that there should be no inheritance, that every generation should start from scratch. Even in this case, the children of the wealthy would have an advantage because of better education and health care. Besides, inheritance, at least a large inheritance, promotes sloth just as welfare for the poor is thought to promote sloth. Inheritance is just promoting sloth for the wealthy. In this regard, I agree with Michael J. Graetz who authored the "Keep It" article "It's Fair, and We Need The Revenue" and who wrote, "On the other hand, large tax-free inheritances do encourage their recipients not to work. People who receive large inheritances are about four times more likely to drop out of the labor force than those who inherit only small amounts."

Still, I realize that deep in people's hearts is a desire to leave something to their children and maybe other heirs, besides debts, even though most families cannot do so. Under the previous inheritance law, the first $3.5 million in inheritance was exempt from taxation (up from $1 million before that), and the tax on the balance was 45% (down from 55% before that). It seems to me that this is very generous. After all, an income of 5% from a $1 million inheritance, a percentage easy to attain, is $50,000/year, a sum actually somewhat above the median FAMILY income of 2009 ($49,777).* It seems to me that the previous law on inheritance tax was more than generous concerning inheritance, and would hardly encourage the wealthy to "spend it all" during their lifetimes and die broke as Ed McCaffrey suggests.


*http://en.wikipedia.org/wiki/Median_household_income