Imagine Twin Earth, with one very clear difference from our Earth: every so often—it happens to fewer than 1% of the people in any given year (and usually only once to anyone it happens to)—people wake up to find themselves with a fortune they did nothing to earn.  Some of the fortunate ones report walking into their living room and finding it filled with a huge pile of cash.  Some say they received a check in the mail.  Others find it outside their homes.  This has been going on for as long as anyone remembers and so, naturally, most governments on Twin Earth have sought to take advantage of it.  The most common way they have done this is by instituting what Twin U.S.A. calls a “fortune receipt tax.”  Everyone recognizes that these fortunes are not merely worth a lot of money, but also a matter of fortune (i.e., luck) so that the lucky ones never think to say “look, its mine, I deserve to keep it!”  Some do try to hide it, but apparently most do not, sharing the sentiment that it does them no harm to contribute a large portion of the fortune to helping others.  (In some countries on Twin Earth, this is precisely what happens—the fortunate ones give some large percentage of the fortune to charity.  In most countries, though, the government takes a large percentage as a tax.)  In one country, let’s call it Freedom-aria, the government has realized it can provide all of its protective services—the only services it provides—by setting its fortune receipt tax at 60%.  It has done so and everyone has been thrilled.  The fortunate ones–those who were so lucky as to find  the fortunes–are especially happy, being able to keep 40% of the fortune they find though they did nothing to deserve it, it being a matter of fortune only.

Query: Shouldn’t we emulate the Freedom-aria?  If so, shouldn’t we have hefty taxes on inheritance?

In the standard case, the recipient of an inheritance didn’t do anything to deserve it; they merely had the fortune to be born to parents that would have money to bequeath.  If there is a difference between inheritance and the fortune receipts on Twin Earth, it’s that we know where the fortune comes from–i.e., we know who the donor is.  Many will, of course, think the donor should be able to decide what happens with their accumulated wealth.  But why should we think that?  They did get to decide what to do with their money while they were alive, but why think that ability should extend after death?  (In what sense is the money theirs after they die?)  Imagine that Dale leaves Hank $1,000,000 because he thinks Hank is great and should have an easy life. Imagine that Dale would be unhappy if, looking down from Heaven (assuming both that there is a heaven and that one can be unhappy there), he sees Hank giving away the money.  Does that mean Hank can not give away the money–because after all, Dale should get to determine how his accumulated wealth is used forever, even after his death?  I doubt many think that.  Dale is dead and Hank can give away the money if he likes.  Dale does not ordinarily get to decide, after he dies, how the money is used.  Why should he get to decide who does decide?

Now, I realize, of course, that we have a system such that people can decide, to some degree, what happens to the money they leave behind when they die.  (By use of trusts and such.)  The question remains: should they be able to?  On my own view, if they should, it can’t be because of anything about them (the donors).  They are dead and so, I would suggest, matter far less than the living (if they matter at all).  For reasons John made clear in his post Monday and reasons I discussed in this earlier post, and still more reasons (one having to do with a proper sense of gratitude), I suspect the weight of the arguments push toward answering the questions in the negative.  That is, those who have managed to accumulate great wealth while alive should not be able to decide what happens it after they die.  (With standard exceptions for sentimental goods, I suppose.)

 

Addition: I do think that however the arguments end, we likely should treat pre-death and post-death gifts the same.  The part beginning “In the standard case” is meant only to be a reply to an objection.

Addition 2: I fear I was not very clear in the above.  I really only meant to argue that (a) recipients of inheritance have no claim to the bounty they receive, and then (b) to respond to the obvious objection that (a) is not important since people should be able to decide who they leave their money to when they die.  See John’s Monday post and my earlier post for other arguments for inheritance taxes.  To be perfectly clear: I like the basic proposal of a fortune receipt tax (on gifts both pre- and post- death), but I like it as a replacement for our current system and I am not completely sold on it myself.  For what its worth, in my view at the moment, the 3 best sorts of taxes would, in no specific order, be the fortune receipt tax, a national sales tax, or regressive income taxes coupled with a demogrant (UBI, BIG; this would be a perhaps modified version of the recommendation from people in the “optimal tax” literature).  And again, I’d prefer to use one of these to replace ALL current taxes.  But I know that is a dream.  Its important to dream, even if its also important to bring the dreams down to reality.

I should also note that today was an odd day for me for several reasons; I won’t be able to respond to comments nearly as much again for the foreseeable future.