Paul L. Caron

Thursday, February 27, 2020

Batchelder: Leveling The Playing Field Between Inherited Income And Income From Work Through An Inheritance Tax

Lily Batchelder (NYU), Leveling the Playing Field between Inherited Income and Income from Work through an Inheritance Tax:

The Problem 
The core objectives of tax policymaking should be to raise revenue in an efficient and equitable manner. Current taxation of estates and gifts (and nontaxation of inheritances) fails to meet these goals, perpetuating high levels of economic inequality and impeding intergenerational mobility. The current system also provides an intense incentive to delay realization of capital gains until death. These shortcomings distort capital markets, encourage nonproductive estate tax planning, and limit the effectiveness of the overall tax code.

The Proposal 
Batchelder proposes to reform the way we tax inheritances by taxing inherited income through income and payroll taxes. She suggests three lifetime exemption levels—$2.5 million, $1 million, and $500,000—to ensure that the proposal only taxes individuals receiving the largest inheritances. Batchelder’s proposal would raise between $337 billion and $1.4 trillion over the next ten years. The proposal would limit tax avoidance through reforms to the rules governing the timing and valuation of transfers through trusts and other devices.


Bloomberg Tax, Americans to Inherit $764 Billion This Year, Mostly Tax-Free

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The playing field could be levelled even more by taxing income from wealth (capital gains) the same as income from work.

Posted by: Gerald Scorse | Feb 27, 2020 7:18:15 AM

The chart seems to compare the average rate of estate and gift tax to an income tax that would generally already have taken its bite out of the gifted amount. Like saying it's cheaper to do business in New York than the United States.

Posted by: Anand Desai | Feb 27, 2020 5:49:35 AM