Estate tax as income tax

I just finished reading an article recommended by Richard about the estate tax, titled “Death and taxes“. It appears in New Statesman, a UK magazine “created in 1913 with the aim of permeating the educated and influential classes with socialist ideas.”

I’m glad I read the article in full before reading the magazine’s history, as it would’ve no doubt coloured my impression. The article refers to a John Rawls’ idea that would revolutionize estate taxes:

… hence inheritance tax could be made progressive, through orienting it towards receivers rather than donors. Large estates need not attract any taxation, as long as they were dispersed among a number of relatively disadvantaged recipients. At the same time, even small estates could be taxed heavily if they were all left to others who were themselves already wealthy.

I love this idea. Will it be implemented though? Most political discussion of the tax revolves around scrapping it or keeping it. It will take leadership to steer the discussion towards reorientation the likes of which Rawls suggests.

The article defends the estate tax on a number of points, but the free market one resonated with me most, which is no big surprise:

A free market in trade and employment gives us, let us suppose, a dynamic, innovative and thriving economy. It does this by incentivizing hard work, and letting economic rewards flow to those with the best ideas and the greatest capacity for hard graft.

But, if this is our vision of society, we surely must admit that the unearned windfall gains of inheritance tax distort this picture. Large inheritances distort the level playing field which would allow the dynamic and innovative to prosper.

Turning the estate tax into a income tax on the recipients would certainly shake things up, potentially improving the competitiveness of the economy while preserving the source of progressive government revenue. We should give it a shot, but the political will has to be there.