A Fair and Simple Tax Proposal

By Philip Tymon

Recently Donald Trump and the Republicans called for eliminating the "Death Tax", meaning the estate tax that is levied on the very, very rich after they die. Republicans have railed against the estate tax for years, yet I don't understand their logic at all. When better to tax someone than when they're dead?

In fact, I would like to propose an entirely new tax concept that is fair and simple and based on that very idea. I would propose that we move towards eliminating ALL taxes in the United States EXCEPT for estate taxes on the wealthy, both living and dead, but primarily dead.

This may seem radical at first, but let's think about it a bit. It really makes an enormous amount of sense.

First of all, if there are NO OTHER TAXES than estate taxes on the wealthy, then many, many people will be able to build up large estates and become wealthy fairly quickly.

Now imagine there are NO OTHER TAXES--- no sales tax, no property tax, no payroll tax, no income tax, no corporate tax, nothing else, nada, zilch, zero. How much money would you save each year? How much time would you save each year? How much money and time would businesses save not having to collect sales taxes or calculate and pay payroll taxes?

So how do we fund everything? We have one tax, an estate tax. A tax on the total net worth of the estate of each individual or married couple. And it only applies to those whose total net worth is over a certain amount, say, just for argument's sake, $5 million dollars. So most people would pay no tax at all. But because of that, there would be a lot more people who have a total estate of over $5 million.

This estate tax would be broken down into two parts: a tax on the living and a tax on the deceased.

Those who are living and have an estate worth over $5 million would pay a certain annual tax, based on the value of their estate. (Perhaps this should also apply to corporations and other business entities). It would be a graduated rate. Say, again just for illustration, any value between $5 and $10 million is taxed at 1 percent. Any value between $10 and $15 million dollars is taxed at 2%, any value between $15 and $20 million dollars is taxed at 3%. (Keep in mind, any value in the estate under $5 million is NOT taxed at all.)

So, someone whose estate is worth $10 million dollars would pay $50,000. An estate worth $15 million would pay $150,000. And so on. Again, these numbers just illustrate how this might work.

Once a wealthy person dies, their estate would then be taxed at a fairly high rate. But, of course, this plan allows people to build up much, much larger estates during their lifetime. So, for example, any amount over $20 million and up to $50 million in the estate of a decedent gets taxed 25%. Any amount between $50 and $100 million gets taxed 30%, and so on up to some limit. Perhaps all amounts over $1 billion get taxed at 60 or 70%.

So, for example, a decedent's estate of $50 million gets taxed $7.5 million. That still leaves $42.5 million for the heirs. A decedent's estate of $100 million gets taxed $22.5 million, leaving $76.5 million for the heirs. And so on.

In fact, perhaps we can even get rid of the estate tax on the living and only have a "Death Tax" if the rates are high enough. (By "the living" I mean individuals, not business entities.)

This would be the ONLY tax that anyone would pay.

Now, here are some answers to some of the primary questions I can anticipate.

What about a family business or farm or similar situation? Would they have to sell the business in order to pay the taxes?

No --- of course not. We need to find a way to prevent that from happening. And there are a number of methods to allow them to do so. One would be to allow them to pay the taxes in installments over a period of time. There might be other creative solutions, such as a system of low-interest loans using the value of the business as collateral.

In addition, if the heir(s) to the family business or farm should die within a fairly short period of time, say five years, the estate would NOT be taxed a second time, to avoid the seeming inequity of double taxation. Or, perhaps, it would be taxed at a much lower rate.

Couldn't a wealthy person avoid the estate tax by giving lots of money to their children or a foundation?

No. There are currently rules that prevent anyone from giving more than a small amount annually to another person without triggering taxation. Similar rules should be put in place that trigger taxation if more than a certain amount is transferred to a foundation. So, if a wealthy multi-billionaire wants to transfer $20 billion to a private foundation, the estate tax gets triggered on that $20 billion at that time in the same manner as it would upon their death and at the same rate relative to their overall estate.

Why do you tax only the wealthy? And why have a progressive tax rate that goes up as the estate value goes up? Isn't a flat tax fairer?

No, quite the opposite. For two reasons.

First, while we certainly admire and encourage the industry and efforts of those who become wealthy, they do not do so in isolation. Our entire physical, social and cultural infrastructure supports and allows them to succeed. Roads, railroads, ports, airports. Police departments, fire departments, hospitals. schools, universities, libraries. The military, the courts, the diplomatic corps. The post office, the internet and other communications systems. The many federal and state agencies that allow commerce to occur in a fair, safe and coordinated manner. Scientific, agricultural, medical and technological research. Without all of these, often wholly or substantially supported by the government, it is very difficult for large numbers of people to succeed and get rich. Just try going to a country that has bad roads or bad schools or bad hospitals or an unfair commercial system, etc. Exactly how many rich people do you see, how many highly successful people do you see? Not many, as those of us who have done so know very well.

It is only fair that the wealthy contribute more, give back more, to support the very infrastructure that supported and allowed them to become wealthy and will support others to do so.

And, let's face it. The wealthy can afford to pay more. Let's say there is a flat tax of 1%. If someone who only has $100,000 total, including the value of their home and car, has to pay $1,000 that really impacts their ability to get by--- that could be the cost of a car repair or medicine for their parent or food or clothing for their children that they really need. But if someone who has $10 million total has to pay 1%, or $100,000, they still have $9.9 million dollars left--- they can still go into any store in the US and buy the most expensive cheese and wine they might want and it will not really impact their financial decisions or personal stress in any significant way.

I am not an economist or tax expert. I put this proposal out simply to stimulate debate and discussion of this idea. I am sure that there are many flaws with this proposal, but I think they are likely all fixable. After all, isn't this better than our current tax code, which runs many thousands of pages, has thousands of special interest loopholes and is understood by only a small priesthood?

It's a fair and simple tax. What's not to like?