Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Fleischer's A New Look At Old Money

This week, David Elkins (Netanya, Google Scholar) reviews Miranda Perry Fleischer (San Diego; Google Scholar), A New Look at Old Money, 98 S. Cal. L. Rev. _ (2024).

Perhaps no tax generates as much visceral reaction as does the estate tax. To its proponents it promotes equality of opportunity, offsets to some extent the income tax advantages enjoyed by capital, and impedes dynastic wealth and power. To its detractors, who castigate it as the “death case,” it reeks of double taxation, discourages entrepreneurship and frugality, infringes on the rights of individuals to dispose of their property as they wish, is easily avoided by those who are its primary targets, and generates significant administrative and avoidance costs. 

In this week’s feature article, Prof. Miranda Perry Fleischer argues that in the field of tax policy in general, and estate taxation in particular, people often hold what appear to be inconsistent positions simultaneously. For example, around three-fifths of Americans believe that parents should be able to pass along whatever they wish to their children, even if that creates unequal opportunities at the societal level, while around two-thirds of Americans believe that the distribution of wealth is unfair and that it is unfair that children from wealthy families have access to better amenities such as schools.

The inconsistency may be a function of framing. Whether one favors or rejects an estate tax may depend upon whether one views the situation from the perspective of those who have earned the income and desire to transfer it to the objects of their affection or from the perspective of the heirs or devisees, who were simply fortunate enough to be born to wealthy parents. The role played by framing means that the public may reject one type of tax, but support another that is essentially similar.

In this vein, Prof. Fleischer suggests that the current estate tax be replaced by what she refers to as a “Rignano tax,” named after the social philosopher Eugenio Rignano who proposed such a tax a century ago. The idea of a Rignano tax is that the tax to which an estate is subject would depend upon when the wealth is created. Under Rignano’s scheme, transfers by those who created the wealth would be tax-exempt, the second transfer (likely from the wealth creator’s children to his children) would be subject to tax at the rate of 50%, and that the third transfer (from the wealth creator’s grandchildren to his great-grandchildren) would be subject to tax at the rate of 100%. This, he believed, would be the most efficient way to implement socialism. Fleischer agrees that first-generation transfers should be tax exempt, but with regard to subsequent transfers, she argues that the tax should set at about 40%. While this percentage is admittedly arbitrary, she claims that there is something about tax rates that exceed 50% that “seem to hit a nerve with people” and that raising rates above current levels would face more opposition than one that does not raise rates.

The second part of the article describes how a Rignono tax might be designed. In addition to the tax rate, she considers the base, the treatment of gifts, adjustments for age, generation-skipping transfers, transfers in rapid succession, valuation, tracing, transfers in trusts, and transition rules. With regard to the particularly thorny issue of transfers in trusts, Prof. Fleischer sees herself as guided by political practicality rather than principle. As she notes, “a Rignano tax is not designed to further any single normative goal such as equality of opportunity or welfarism in isolation. Instead, it is designed to find a compromise among competing intuitions about wealth transfer taxation – even when those intuitions may seem ‘wrong’ to tax theorists.”

The attempt to make the estate tax, or some variant thereof, politically viable is an ambitious endeavor; and reconciling in a politically acceptable manner deeply engrained beliefs about equality of opportunity on the one hand and desert, private property, and family on the other is not an easy matter. The article is a worthwhile read both for its analysis of estate taxation and for its more general insights on the confluence of theory and practice in the field of tax policy.

Here’s the rest of this week’s SSRN Tax Roundup:

• Susana N. Vittadini Andres (Tamkang), Moral and Cultural Perspectives of Tax Evasion in Latin America, in R.W. McGee & J. Shopovski (eds.), The Ethics of Tax Evasion, volume 2: New Perspectives in Theory and Practice (2024)
• Nicole Behm (IU Int’l U. of Applied Sciences), Tax Treatment of Donations and Sponsoring in Companies – Options and Limitations (2024) (Germ.)
• Bradley T. Borden (Brooklyn), The Section 1031 Exchange Requirement, _ Brook. J. Corp. Fin. & Com. L. _ (2024)
• Sharona Hoffman (Case Western), Employers and the Privatization of Public Health, 65 B.C. L. Rev. _ (2024)
• Blake Humphreys (Mississippi), Evading the Solution for Tax Evasion (2023)
• Narcis Eduard Mitu (Craiova), Can the Tax Gap be a Useful Tool in Terms of Tax Performance, 77 Revue des Sciences Poliltiques 20 (2023)
• Asekhamhe Oshiomah (Lagos), High Net Worth individuals in Nigeria: Issues of Fairness Surrounding The Imposition of a Specialized Taxing System (2024)
• Leopoldo Parada (Leeds), International Cooperation on Tax Matters at the United Nations: A Turning Point in History?, 1 Carib. Tax L.J. _ (2024)
• Matthew J. Rossman (Case Westen), Assessing the Performance of Place-Based Economic Development Incentives: What’s the Word on the Street?, _ Washburn L.J. _ (2024)
• Max Werthebach (IU Int’l U. of Applied Sciences), Transfer Pricing in Cross-Border Situations from the Perspective of a German Parent Company – Analysis, Tax System, Planning Opportunities (2024) (Germ.)