I have an even better estate tax solution

Repeal. That's correct - outright 100% repeal.

What's the catch? You ask.

My solution is that inheritance would now be treated as self-employment income for the people getting it. Social Security tax - the whole bit.

That's fair. Maybe I'd set up a 3 year time frame in which illiquid inheritances could be liquidated to pay the tax.

Disagree? Splendid! Explain to me why inheritance income should be treated differently than either dividend, capital gains or earned income.

Inheritance should be treated like income, and taxed like any other income. Treating it as self-employment income works very nicely.

First, dividends, capital gains and income are not treated the same.

Some "qualified dividends" as well as long term (assets held for a year) capital gains are taxed at 15%. Income - well, the top rate is 35% (I think).

And, of course, you do not pay SS on dividends and capital gain.

But your post does highlights the vast difference between people who work for a living and those who live off investments.

When you earn an income - self employed or employee - your wages are subjected to payroll taxes: social security and medicare. This is a regressive tax where every income (up to $90,000, I think) is taxed at the same rate. There are many workers who pay more in FICA taxes than in income taxes.

If, however you live off investments you do not have to pay social security and medicare taxes and investment income can be taxed at only 15%.

Had estate taxes been repealed, over the years we would have generated two classes of people: the ones who pay taxes and the one who get to increase their non-income wealth over the years.

if they had to pay taxes like working folk.

My basic, underlying point is that in this country income is taxed while wealth is largely not. Even high-income wage earners are still wage-earners. Their taxes feel too high, because compared to the taxes paid by capitalists, they are.

I prefer taxes to be progressive, all of them. I can't see selling a family farm to developers or throwing people in a family business out of work to liquidate an estate to pay income taxes. I find the notion counterproductive.

We need to ask ourselves what we expect taxation to accomplish, beyond funding the day to day operation of the government. Do we want a system that taxes everyone equally, or do we want a system that prevents the massive concentration of wealth and the passing of it intact to subsequent generations, creating a defacto aristocracy of money?

Personally, I think the second idea a more laudable one. We can live with small estates being passed on, or estates that are sizeable enough to allow an heir a decent retirement. We can't live with the kind of aristocracy the simple repeal of the estate tax on the wealthiest would provide. The proof of that is that it's what our ancestors fled in Europe.

Yes, an estate IS income to an heir. That's one of the ways we do justify the existence of the estate tax. However, it's both more and less than that, and should be treated accordingly.

Either we have an estate tax or we figure out how to tax billionaires out of existence some other way. The progressive estate tax works for me.

It was once income for the deceased, now it is part of the assets of the deceased that are being transferred to the heirs.

The bar for the amount in an estate to trigger the estate tax is so high that it likely includes income that never was taxed to begin with. That's why I have no problem with the estate tax. Money should only be taxed once for each entity that had the revenue stream. And I consider the heirs by virtue of being included in the will a part of the entity that is the deceased.

This is similar to the problem with the smoke and mirrors of doing away with taxes on dividends. The issue was confused in that they said money to pay dividends was already taxed when it was in the corporation and should not be taxed again. The problem with that logic is that the money was income to the corporation and then it paid out dividends that was new money to the shareholder and income to the shareholder. The RW's argument was no different than saying that the government can't tax the income of a company that I purchased something from because I already paid taxes on that money.

Gosh, that's what Blanche Lincoln was supporting yesterday and got crucified for. I think it would be better to compare it to a lottery or gift tax though, maybe we should reduce those taxes too. Unearned income has always been taxed higher than earned income, although inheritance should at least be taxed like a capital gain.

If I build a $1000 deck for someone, I get a 15% social security tax, plus income taxes - say $350 total.

If I get a $1000 capital gain, I pay only $150.

Work pays less.

So however we treat inheritance, it should be taxed. That's the point and I think we agree on that. Of course labor should be taxed at a lower rate than unearned income, but the rubes who are afraid their bosses won't be able to bless them with a job if they have to pay taxes on their capital investments are the ones to convince.

So however we treat inheritance, it should be taxed. That's the point and I think we agree on that. Of course labor should be taxed at a lower rate than unearned income, but the rubes who are afraid their bosses won't be able to bless them with a job if they have to pay taxes on their capital investments are the ones to convince.