On Death Tax

21 April 2010 @ 0:47 | Posted in » Politics

Try as I might, I just can’t find a rationale for the government to collect taxes when someone dies.

Inherited money is not income. Why can’t a family pass on its money at death without penalty?

Some contend that folks can inherit up to a million (or whatever the current threshold is) without penalty. That doesn’t address the issue. There should be no threshold whatsoever. What goes on with a family (or friends or associates or whomever) is not the government’s business in this regard.

Example
It’s also not sound business. Suppose a set of parents and a single child. The parents have $5 million in the bank just sitting there. They invest the money. Let’s say they earn 5% on that money. At the end of the year, they will earn $250,000. That $250,000 will be taxed as income. Assuming 33%, that will net the IRS $82,500.

The parents die in a car accident. The $5,000,000 is passed to the child. He inherits $1 million taxfree, but is now responsible for 33% on $4,000,000 (perhaps the inheritance tax isn’t that high). That’s a $1,320,000 tax bill. The child now only has $3,680,000 of his parents’ money. Yes, that is still a pile of cash, but what justification does the government have for seizing the money? The boy did not earn anything. As a matter of fact, his station in life has dwindled because of this.

Even if the $3,680,000 could sit unused, the child will earn $184,000, instead of $250,000 as his parents did on the same pot of money. All because the government claimed a share because the parents died. His tax bill on that interest is but $60,720 compared to his parents’ $82,500.

I don’t get it.

Sure, if the parents die this year, it passes taxfree. But not 1 January 2011.

Tax Day just passed. We all heard the reports that 47% of all Americans do not pay any federal income tax. That is because the government keeps taking from the rich. This is wealth redistribution. Where is the federal government charged with that task in the Constitution?