Michael Kinsley wrote the Atlantic's latest cover story on how Boomers can start to fix our fiscal crisis -- with an expanded estate tax skimming off older generations' inheritance to pay back the debt. This idea concerns me. A tax on my parents' and grandparents' inheritance will mostly deprive me of money, and I am as interested as Michael in concentrating the wrath of debt reduction on older generations (kidding?).
So I emailed him four questions about his story, and he has graciously responded. Here is our e-chat.
You make the very strong case that Boomers have a unique responsibility to embrace sacrifice. Would you agree that this would also justify ideas you don't focus on in the piece, like means-testing Medicare, cutting Social Security, raising taxes, etc?
Sure. In fact I end the piece saying I'm not recommending any specific proposal, just making a general case that boomers ought to step up to the (collection) plate.
Besides widening the base of the estate tax, what other popular debt-reduction ideas strike you as the right balance of money-saving and fair?
Gross oversimplification: I favor federal programs that, on average, redistribute money from the rich to the poor, and am against federal programs that redistribute from the poor to the rich, which many do. You want two things from the economy: (1) efficiency/growth/productivity and (2) fairness. In other words, you want to produce as much stuff as possible, and you want that stuff to be spread around as evenly as possible. The government is very good at the second and lousy at the first. So I'm against anything that smacks of industrial policy: ie, anything that is based on the assumption that the government knows better how to run the economy. That would include everything from small business loans to agricultural price supports, to tax credits for automobiles, etc. It would not include money for schools, food stamps, etc. Although even here I always think handing out cash and letting people spend it as they choose would be wiser.
After you explain the broad estate tax idea, you (bravely) list the thorny incentives it creates. For example, old couples won't pass as much down to their kids after they die if they know it will be heavily taxed. They'll just spend it all, or buy their kids a bunch of stuff as they get older, shielding billions from taxes. What kind of laws could you pass to make sure that doesn't happen (I know you get into this in the piece, but I was wondering if you had thought of other ideas since.)
Derek, don't get your hopes up. If your parents give you "a bunch of stuff" that's worth enough to trigger the estate tax, it is also enough to trigger the gift tax for transfers while they're still alive. You can't stop them from spending the money on themselves, however.
A tax on inheritance punishes the people inheriting the money. It makes no different to the dead how much money they have or don't (you can't take it with you, etc). If we're trying to get Boomers to give up something for the sake of the country, shouldn't we tax what they have while they're still around? At the very least, this would let them savor the fruits of their sacrifice.
I guess I was a bit confusing in the piece. My notion was that the Boomer's PARENTS give the money away rather than pass it on to the Boomers, not that the Boomers should deny inheritances to THEIR kids. Anyone who wants to "savor the fruits of sacrifice" can do it now already.