After observing the presidential debates surrounding taxation, I have been intrigued by the estate tax. As the laws currently stand, one can pass on up to $2,000,000 upon death tax free to their heirs. I have heard a variety of stances regarding the issue. Some wish to raise the ceiling for tax exemption, others wish to lower it, and there are those who are in favor of abolishing the tax all together. In a class at Bowdoin, a professor suggested we tax any inheritance at 100 percent. It was this last suggestion that led me to view the estate tax in a new light.
At first, I loved the idea of taxing estates at 100 percent. It seemed ideal. Regardless of social status, one had to work hard if he or she wished to be successful. There would be no Paris Hiltons, who, if I have read the tabloids in the supermarket aisle correctly, will sadly only receive $5,000,000. It seemed like a great way to quickly redistribute wealth to those born less fortunate, and we could make strides to narrow the increasingly broad wealth distribution gap.
When I asked a middle-aged gentleman what he thought about increasing the estate tax, I was surprised to see how angry it made him. He stated that he had worked hard for the past twenty years to provide and save for his kids. When he dies, he wishes to pass on his estate to his children as a gift. I had never really thought about an inheritance as a gift before. In order for a 100 percent estate tax to work, the government would have to prevent large gifts of money to one's heirs before he or she dies. If someone had $1,000,000, and gave $950,000 of it away before he or she died, the estate tax would not do much good. Consequently, the government would have to implement some sort of deterrent to prevent large monetary gifts.
Herein lies my admonition with extreme estate taxes: They allow the government to control gifts. I believe such restrictions are not the sort of precedent the government should be allowed to set. Currently, in the United States, a gift tax exists. Once someone receives over $12,000 from a particular individual, a tax is incurred. As a senior in college, I have a hard time wrapping my mind around $2,000,000 inheritances and $12,000 gifts. I suppose a tax does not seem unreasonable for such large sums of money. However, I would probably feel differently if I were a parent wanting to help furnish my child's first house.
Once an individual has earned an income and paid the appropriate taxes, it should be his money with which he may do as he pleases. The government should not be able to influence who he gives it to and how much the recipient can accept.
However, one could argue that a gift is part of one's income. A $12,000 gift adds substantially to a $100,000 salary and should be considered income. Won in the lottery, $12,000 would certainly be subject to taxation. I understand the argument; however, I am ultimately apprehensive of the precedent. Why $12,000? Perhaps this amount is too high. What about $1,000 gifts? It is certainly added income. For that matter, any gift is an added income.
As a high schooler, I had to pay income tax on the measly amount of money I made working at a tennis camp. If gifts are income, I should have been forced to pay taxes on the bike and dress shirts I received for my birthday. Why not include the socks, polar bear boxers, and Lindt truffles from my stocking at Christmas time?
As we face an increasing national debt and baby boomer retirees, taxes will be raised. However, this one should be left alone. If it ends up that we're being taxed 80 percent, then so be it. But once we have earned our money, it should be our money to spend or give. We should be cautious of the precedent set by raising estate and gift taxes as they could ultimately allow the government to mandate too much of our lives.