Democrats should focus on raising the estate tax, including ending the step-up basis and avoidance methods. About 10% of all US income each year is in the form of inheritances, and this is only going to grow as people who benefitted from the massive asset price booms of the last 50 years start to die and pass down their wealth, leading to a sort of patrimonial economy where inheritance becomes required if you ever want to say buy a house in a decent area: https://www.economist.com/finance-and-economics/2025/06/12/how-to-invest-your-enormous-inheritance. They are untaxed (actually, negatively taxed due to step-up basis) and overwhelmingly accrue to the very richest people. The exemption right now is $14 million, which is only a fraction of the top 1%. It’s one thing for people to see themselves as temporarily embarrassed millionaires but who is really going to bat for decamillionaire heirs? Ideally inheritances should be taxed the same as ordinary income and the exemption should be maybe $2 million (enough to passively provide a median income for life under the 4% rule) not $14.
No, because like most of these debates, it has nothing to do with what Bezos does with his money, it's about whether Matt can gift Jose a $500k vacation home in Maine and there's just a lot more of those people in America than billionaires. Americans like the idea that you can keep the family cabin in the family.
The tax code could provide for a reasonably generous exemption for family homes (say, several million, and indexed for inflation) and still cast a wider net than today's ludicrously millionaire-friendly standard.
Right. There's a sizable capital gains tax exemption already for primary residences. The concept is simply enough. Mind you if it were up to me we'd go hard on code neutrality (ie, no exemptions). I was just pointing out that "people want to keep family homes" isn't an insurmountable barrier to increasing estate taxes. If the votes could be found, we could leave the vast majority of primary/secondary residences untouched and still hit HNW legacies harder than we do now. Plus, life insurance exists.
Many people in the professional middle class, that now makes up a key base of support for Democrats, are millionaires that think they aren't rich. A lot of America's wealth is held by the PMC, and you're not going to be able to really tap into it without going after your own voters.
I'm a millionaire, I guess, but most of my assets are locked for retirement, because that's how I'm going to stay alive once I retire.
If I die, by definition I don't need it for retirement any more.
I really want to resist a threshold for the estate tax that is "whatever, as long as I'm fully exempted" but in theory taxing the retirement that I've saved up and not used isn't going to distort my behavior that much.
Yes, but how much revenue are you going to really collect if you exempt most estates? And the ultra-wealthy are always going to have avenues available to them to help avoid these things that are going to limit how much you actually collect from them.
“Close the loopholes” ah yes, I would simply only arrest the people who are guilty, only admit the students who are smart, only invest in the businesses that will make money, etc.
Some? We're apparently collecting 34B a year right now. Right now we collect on 1% of estates, suppose we collected on 4-5%. You have to collect somewhere, from someone, and people who are passing on money to their usually well-off 50 year old adult children seem like a group that won't be hurt majorly by it.
This is a problem with taxes in general. Billionaires will always have all sorts of resources that normal people don't have to get out of paying taxes, so like it or not, it's going to be the ordinary people that finance the government.
As a millennial, it’s bad enough that my parents had more accumulated wealth by my age (42) than I have now. But at least one day it will come to me! I don’t want to be penalized for it.
LOL penalized. Yeah, I'm sure you're a great kid and all, but you didn't earn that money, your parents did. The entire *point* of the estate tax is we are not a country built on hereditary wealth. It matters not a whit what you think you personally deserve.
If your parents leave an estate of five million, and you "only" get four million of it because the government takes a cut, it doesn't sound like the world's most draconian penalty. Four million is still pretty good!
How do you combine the idea that the politics of raising estate taxes are good, with the fact that Republicans keep loudly talking about their plans to lower estate taxes?
To me it seems like the Republicans are happy to be seen as the party that is always fighting to lower estate taxes. I think it's a political disadvantage to fight for this tax, and it doesn't really gain that much revenue because it's so easy to restructure inheritances to avoid estate tax.
I think people realize that in many cases taxes are a slippery slope. If you support some new sort of tax because it only hits people richer than you, the threshold may change little by little, and eventually you have to pay more taxes.
If you think that you pay too much taxes, and you want to be principled about it rather than selfish, it makes sense to support lowering all taxes rather than just the ones that affect you personally.
Of course, if you think it would be better to have more public services and would be willing to pay more taxes to get them, that is also a coherent position.
In my experience, people hate the idea of estate taxes. One story about a family farm that's sold off because their kids can't pay the taxes and people get livid.
Republicans always sell estate tax elimination as benefitting the middle class, which is a flat-out lie. They propose its elimination, get called out on benefits for billionaires, and then a "compromise" is reached that multiplies the exemptio by a much higher rate than inflation, incrementally benefitting the wealthy. They get away with this time and time again because of their ability to control the narrative.
That was a bit before my time. But I remember my conservative uncles complaining about this. And then my mom rolling my eyes because they don’t have nearly enough money to qualify.
The politics, though, is exactly where it fails? People are overwhelmingly anti tax. Of all kinds. Estate taxes are no exception here. With everyone having some sort of idea that this will directly impact them and theirs.
Wasn't the original Super PAC behind the cuts to estate taxes just the "Club for Growth"? [1] Establish in 1999, this was one of the original sins of the George W Bush theory of growth and their evolving theory of "compassion conservatism". Ie, your kids can keep what you earn and we'll hold off on reforming social security, let alone health care while, we establish peace and democracy in the middle east.
Note that Jeff Yass was chief funder for both this and our routes to the CCP to ensure TikTok remains appropriately aligned w/ Trump, regardless of earlier generations of censorship around elections and freedom of information acts.
The growing importance of inheritances relative to GDP is a really good argument for prioritizing taxing large estates. As inheritances become a larger portion of the economy, any taxes we pass now will produce more and more revenues. It'll have the same positive budgetary impact as "bracket creep" did before the US started automatically increrasing the tax bucket cutoffs to match inflation in the 80s.
While there's been weird discourse around the estate tax ("big government is coming for the ($14,000,000) family farm"), it also seems like a political winner relative to the other options we have to raise revenue. Most people won't be affected by it at all. People generally know whether or not they'll inherit money. While fantasizing about some long lost aunt leaving you a giant Swiss bank account probably happens, my prior is that it's less prevalent than thinking that you're going to become a millionaire in the future.
Inheritances also seem to play a smaller role in the US than many other places I've spent a lot of time in and I think we should keep it that way. From my experience inherited wealth brings aristocratic behaviors and culture and I think it's anathemic to US culture.
There's also a moral element to inheritence taxes -- you did nothing to receive that money other than winning the genetic lottery.
It doesn't bother me that Jeff Bezos is a centibillionaire -- he created Amazon which has provided a lot of value for countless people. It bothers me that Jeff Bezos' kids are millionaires.
Also, if the kids of a billionaire haven't made it in life by the time their parents dies, more money is not going to help. They are raised with every advantage possible, if the can't turn that into riches, maybe they just weren't meant to be ultra-rich.
yeah given how long billionaires live most of their kids probably would have a net worth in the millions on average by the time they die just from working at a big bank or law firm or whatever, if that's what they choose to do. Billionaire's kids will be in their 40s or 50s by the time their parents kick it. Inheriting a billion probably won't even meaningfully influence their lives at that point given how set in their lives people are by middle age, though they will have a bunch of money to donate to the Republican party or charity or whatever.
It won't bother me that his kids will be millionaires tho, but I don't think they will be substantially bothered if they are less so.
It does bother me that Jeff is a billionaire to the extent that if he decides to, he could wreck a lot of things due to his wealth and power, mad king like.
Basically Bezos should be free to give his money to anyone. But if you happen to receive an inheritence from Bezos, then you should be taxed like crazy.
The flip side of that is that billionaires can and have also decided to do good with their money (maybe purely for PR reasons, who knows). Leftist critiques of this are that this is undemocratic, and while that is definitely true, philanthropic spending being determined by the populace is almost certainly going to involve fewer bed nets going to Africa (or whatever).
It's only the revenue from the progressive tax on Bezos's consumption that I covet. If the reinvests his Amazon income to do something else a good as Amazon, go for it. Yes there should also be an estate tax especially if the heirs will be taxed only on their consumption
this does not make operational sense - and is trivially gamed.
Falous Hiers get Mr Falous Estate - largely in assets not liquid - they don't take income mostly, they take loans on the assets servided by the asset income. Voila, consumption spend is disappeared.
??? Income is reported, saving/reinvestment subtracted the remainder is taxed consumption. Loans taken would net out against saving/reinvestment made so the consumption would appear.
Plus the Bezos couple were smart enough to divorce and begin dividing their estates and their influence well before old age sets in. Given their ever evolving network of interests, we can ensure that "Billionaire" becomes just another label for villain. [1] Eg, given our realtime index, we should be focused on Musk, Ellison, Zuck, before facing Jeff Bezos, let alone Ballmer, Page, ...
Like I think I even Trump could read this spreadsheet to evolve his tariff policy while we all bitch about our least favorite Billionaire to get us through to 2026 election cycles. We may even rediscover our fear of Elon and his agentic robots, cars, and financial gimmicks like $BTC and gambling with $DOGE on Twitter.
The Weird Discourse of course is political judo - and has to be anticipted rather than blindly naively bungled.
Family Farm and Small Business - these will be judo throws. So be ready for that rather than be naively surprised yet again
(and ready with some carve out and populist counter-judo, not egg-head wall-of-text explainers that no one but those already in agreement [or counter-eggheads irretrievably against] will follow)
(I write as someone who in fact would likely be impact 'negatively' in this area, but I am 100% fine, I do deeply believe on one hand enterpeneurial effort should be rewarded, but intra-generational trasnfer is not rewarding entrepeneurship)
Simple solution would be to just let people pay their taxes off at a very low interest rate over a period of 15 or 30 years. If they can't manage that, then it's probably not a viable business anyways.
...the last phrase is the great one the Lefties who have never had any practical exposure to small business love to trot out - combining professional class arrogance with economic innumeracy.
The first part is... bizarre nonsense - although one can call it a reverse bond but it's just innumerate bizarre nonsense.
It's funny because I don't see it as a particularly left wing sentiment. If you don't earn enough revenue to cover your expenses, then you're not a viable business whether those expenses are payroll or taxes.
And I've worked for a 30 person company, so, small. It was a startup, so certainly a different dynamic than a family owned business (and a lot less emotional investment) but a good chunk of my compensation was tied directly to whether or not we remained a viable business. We focused much more on earning increasing revenue than complaining about our tax environment (high cost, west coast city)
Tech start-ups are utterly not in any fashion relevant to understanding the wider economy - not by their legal structure, nor their economics nor their trajectories. I’ve founded five companies, three growth, etc etc. Being a tech employee you learned nothing particularly applicable to wider economy.
The most persuasive argument I've seen (not so much to me personally, but I've seen regular non-rich people buy) is that it would hit family businesses the most, and essentially destroy quite a lot of them. I have no idea how valid that is, but it would be interesting to know the truth about it
Allow all estate taxes on equity in privately held firms to be payable in kind via special shares that have full economic but no voting rights. There, problem solved.
(And if you want, also require the government to promptly sell these shares to Vanguard or whoever to avoid Socialism)
"About 10% of all US income each year is in the form of inheritances"
For reference, about half of this is not what you'd normally think of as an inheritance. Half are transfers and support that occur while the person is alive. I think those are supposed to be recorded and in some way noted in a way that could impact an actual end-of-life inheritance, but it is still a different thing when thinking about what estate taxes mean
Under certain circumstances, gifts given within three years of death (meaning up to three years before) may be included as a part of the estate. If the goal is to give a dollar amount, the real workaround is life insurance.
No disagreement there. I work in financial advising and the number of people who inherit huge sums of money during their highest earning years is crazy. Nothing against those people, good for them! But if we're looking to levy taxes that won't hurt the least well off, the estate tax is a good place to start.
That's interesting. Given that most people die in their 80s or 90s, especially if they are wealthy, I would have thought inheritances would be most common as people are nearing retirement themselves.
I agree in principle, but some preliminary research on Chat GPT suggested it wouldn't raise much revenue.
I only had time to spot check some of the citations, but the basic parameters were:
1. Eliminate the step-up-basis
2. Reduce the exemption by 50%
3. Try to estimate the amount lost to evasion.
The headline number there was $19-22 billion per year*. [edit: that is, these changes would add $19-22 billion per year.]
That's about 0.5% of projected receipts (Federal tax receipts have recently circled around $4.5 trillion (that is, 4,500 billion). Not nothing, but it's good to set expectations, right? (Chat GPT also explored taxing unrealized gains at death, which it estimated could quintuple the revenue, at only 20x the political headache.)
Do those numbers seem reasonable to you?
* "Accounting for behavioral responses and interactions, a Fermi estimate suggests the two policies together could raise around $190–220 billion over a decade, or roughly $19–22 billion per year. This is small relative to total federal revenue (less than 0.5 % of projected receipts) but large enough to finance significant public investments."
** Full transcript here, in case anyone's interested: [https://chatgpt.com/share/6882495b-53d8-8003-a00f-15f764138cb2]. It's not that long, but certainly too long for a comment. I used it in Agent mode, so you may have to explicitly skip part of the "thinking" stage - it looks like OpenAI hasn't worked all the kinks out of the agentic-output-sharing process.
That's excellent. (Though the drop-downs could use a little more padding, imo.)
If I'm reading that right, those numbers are close to what Chat GPT predicted: 200 billion revenue loss over 10 years for halving the exemption ("let expire to prior law ($7m)", though I can't find a an option to eliminate the step-up-basis.
I also leaned on ChatGPT to do similar calculations for all sources of federal revenue I could find. You can look at it here and feel free to edit or add to it:
If you haven’t read the classic book on this, read *Death by a Thousand Cuts*. The estate tax repeal coalition is rich, strategic, and highly motivated. The opposition is, to quote Graetz and Shapiro, “an open door.”
While yes, inheritance tax should be something, the Democrats need to have a non-naive eye on the politics which have consistently tripped them up - inheritance tax impact on the "family farm" and on small business inheritance.
While obviously pretextual, consistently over the years these have been exploited aggressively, and the Democrats seem surprised and fumble every time.
I think post-ACA and post (failed) ACA-repeal both parties have realized that you don’t let legislation linger in the wind, you execute the reconciliation process as quickly as you can and cobble together whatever it takes to get over the finish line. Dems should definitely not let the estate tax opposition froth up, but you just gotta get the votes and take the votes. The shape of the OBBB Medicaid cuts was changing day by day before passage. Avoid disclosure, avoid debate, get something on paper and pass it before too many of your senate candidates say things like “we’re all going to die”
It's definitely hard, but I've heard of some fun cheeky ideas that give people the ability to value it themselves, but they have to announce that publicly and if someone wants to buy it out from under them at that price, they have that right.
This is an idea I liked a lot when I first heard it and think it worked okay in...Ancient Athens? But in the modern context of VC rollups, seems like it very rapidly leads to absurd levels of concentrated ownership?
For anyone curious and who might find this comment buried under the heaps of others, I was curious how much of those inheritances came from estates of various sizes, and the upshot is that only 40% comes from inheritances over $1M. So the majority is coming from more "middle class"-ish wealth brackets. I think that may be in part because things like helping young adults with college or rent are included in the figure. It's just much harder to tax that kind of stuff in the same way as large million dollar estates.
Yep. I hope we can eventually find the appropriate balance between: A) Inheritance B) Taxes and C) Welfare. Moreover, we always need to balance Federal, State, International, and Parochial considerations to win elections, while minimizing the gambles of leadership.
Eg, I hope the solution to Trump 1.0 / Biden / Trump 2.0 isn't literal JD Vance, or a worse form of Warrenites + Sanderistas
The point of the stepped-up basis is to **NOT** tax the unrealized capital gains. The money has certainly **NOT** already been taxed. I'd personally tax intergenerational wealth transfers to near zero but I'd be happy with a 50% hair cut.
Then I think you very much misunderstand American values. Americans are all about getting ahead through hard work and providing a better life to their kids.
All money has already been taxed. Does that mean taxes should be done? It makes sense to tax every transaction, regardless of where the money for that transaction comes from.
No, no it does not. Democrats seem to want nothing more than to tax just about everything, while consistently ignoring the efficacy and size of the government they are funding. SF is a great example of money pouring in, government bloating, and quality crashing.
Not a surprise that increasingly childless people are interested in taxing wealth parents want to pass to their children or heirs. Because somehow passing money to your kids is a European aristocratic thing and unAmerican.
That rant over, I can understand (although I do not like) the idea of dropping the stepped-up basis upon inheritance. But I really wonder how well that would work considering the difficulty of tracking original prices. Maybe for a home, but for stocks...oy. Vastly easier to start with the price you inherit.
The step-up basis got removed once before (within the lifetimes of some Slow Boring readers) and the political blow-back was so severe that it was almost immediately repealed. Hard to imagine any politician not knowing that (or, well, not being told about by some lobbyist/staffer if the idea comes up) and not wanting to touch the idea.
10% of all income is inheritance? That feels off. Is this only in taxable income?
That said, no real disagreement here. I do not understand why people are so supportive of absurd levels on the inheritance taxes. Most people do not benefit from it. Arguably, we all are hurt by it.
Instead of eliminating step up, we should index capital gains. Once indexed, they should be taxed like ordinary income. [Of course "income" should not be taxed, but consumption out of income, but that's a separate reform.]
Rather than focus on estate taxes, couldn't we just limit the combination of money spent on healthcare for old people relative to young people? Ie, Medicaid vs Medicare. We could then use Social Security alone to determine the appropriate degree of taxes vs. spending when thinking about inequalities over generations. Ie, cut Medicare to fund Child Tax credits and other abundance oriented progressive goals.
Alternatively, we could just fund the IRS of ICE (or Death Panels) to ensure the appropriate shape of each generation as to mitigate the worst ways to feel betrayed of the government for the young vs old cohorts of voters, distributed by likely impact on Democrats vs Republicans. Particularly for MAGA/Trump/Compassionate Conservatism and Sanderistas/Warrenites on our flanks.
There’d be too many stories of grieving children needing to work out the tax implications and trying to sell off assets to pay the estate taxes. You’d need to have quite a long payment period for this to avoid those optics.
Matt’s thinking about sin taxes—like many applications of Econ 101 without coefficients—is dilettantish. The revenue potential is too modest to curb inflation is a $28 trillion economy.
Start with alcohol. The full U.S. market is worth about $400 billion, including what restaurants pay wholesale. A 25% federal tax—about five times the current rate—might raise $100 billion a year. That’s 1.4% of the federal budget, and it would ignite a political backlash across class and culture lines.
Cannabis? Even with full federal legalization and a steep 25% tax, you'd maybe get $20 billion. That’s a rounding error in federal terms—half the cost of Pell Grants, or a single week of Medicare.
Unless you count burning carbon as a sin, sin taxes don’t scale. They can’t anchor a serious revenue strategy.
I think Matt means these as a part of all of the above strategy not on their own. Even on it own though, $100bn a year from a single tax would be a massive win
The reason we don’t have higher alcohol taxes isn’t because of consumers - a huge percentage of Americans don’t drink at all - but because of the very powerful beer/wine/liquor wholesalers lobbies and to a lesser extent bar and liquor store owners
Mostly false. Even if 40% of Americans abstain and only 15% of Americans drink enough to be pisses off by booze taxes, upsetting 15% of potential voters is bad politics, especially when they are distributed across the political spectrum
Are they distributed across the political spectrum? I went looking for data on this but couldn't find any, so it's possible we just don't know, but anecdotally I would be very surprised if alcoholics were evenly split as opposed to being predominantly Republicans, given the class dimensions. Higher-income people are both less sensitive to alcohol taxes as it's a lower share of their income, and while they are more likely to drink at all, they are much less likely to be alcoholics than poor people. Poor, less-educated people are of course Republicans (assuming they are white), and most alcoholics fall into this category.
EXternalities should be taxed regardless of the revenue they generate. [The tax on net emissions of CO2 should be combined with a rebate so as NOT to generate revenue.]
I did not make this point clearly but “sin” taxes, those designed to lessen self-harm are not the same as Pigou taxes which aim at optimizing the “harm” to others from the activity. Gambling may be a sin; emitting CO2 is just a case of a misaligned incentive.
For carbon tax, like ~40-60% goes back as a dividend that can be reduced by income level (with the idea there is a correlation with higher incomes and carbon emissions).
*Does* everyone understand that, or agree with it? A lot--perhaps most--people see their electricity and their car as providing highly useful tasks, and don't see much beyond that. And to the extent that they do, they may come to a different conclusion on the tradeoff.
Carbon emissions help plants.... significantly. So they also help other people, as in the greening in the Sahel.
The "harm" angle is a path to failure as an argument.
CO2 is not like industrial pollutants - it is a life foundation - but it is also a problem for climate for human civilisations and notably on agriculture, and rapid change.
But Lefties continuing to focalise on using the actually inappropriate old 70s industrial pollutant conceptual framing is a massive misframing.
I agree that “pollution” is the wrong framing. Unfortunately, it’s what the laws we have talk about. Similarly, focusing on endangered species is a bad framing, but it’s the proxy we have in law for protecting ecosystems, which always should have been the main goal.
Look, I hate greedy property owners (some landlords, NIMBYs) as much as the next guy, but as long as we live in a world where housing is scarce, then landlords will have more power than tenants. That means that a tax on landlords will just be passed on to renters. I don’t think that’s the outcome you want.
It is insane to me that we still don’t have a carbon tax.
And those amounts would almost certainly be less than that, as some people would cut consumption back. Those who want to social engineer people away from things they deem bad would like that, but it completely cuts against the grain of raising revenue.
Sure, but also isn't that what a carbon tax would do? It seems okay to both want to raise money and mildly disincentivize behaviors that have mildly negative consequences.
That's the point! Taxes disincentivize behavior. So taxing labor, investing, etc. has negative consequences which we don't like. With Pigouvian taxes, we like the disincentive! So we win on both the tax and the disincentive.
And I hold that it's a dangerous game to be picking on things we don't like to punish with the tax code, or vice versa. And Trump has made things worse here, as Matt has demonstrated with some examples.
Isn’t the idea that you use Pigouvian taxes to tax behaviors that impose costs on the rest of society? i.e, you tax pollution because the social cost is greater than the private cost to the polluter.
I agree that it’s a dangerous game - who determines these ‘social costs’ ? - but I do think pollution, drug use, and traffic are clearly things where primary users are imposing costs on the rest of society. We wouldn’t solve deficit crisis with that amount of revenue, but we would be transferring cost burden from non-users to primary users of those goods.
It’s not a question of punishing or not punishing — it’s a question of what we want to disincentivize. By default, income tax disincentivizes working harder and being more productive. Trump made it worse, sure, but I think our tax incidence can be better. The alternative is unilaterally disarming, not going back to 2014.
If carbon is taxed, more Americans will be forced to buy their carbon on the black market. That carbon can be mixed with baking soda, baby powder or even fentanyl! It's much safer to keep carbon taxes at $0 so that we can continue buying carbon from reputable companies.
The point of this sort of tax is to make people pay for the negative impacts of what they’re doing. It’s not to raise revenue. The revenue is just a side bonus.
With alcohol, some people might respond to a tax by drinking cheaper brands. If the tax is per cc of alcohol, demand would be relatively inelastic.
The edge case is the degenerate alcoholic who already drinks cheap liquor and pays the 21 cent per shot ad valorem tax that is priced into distilled spirits. Raise this to a buck a shot and he would drink less.
I wonder what the macro effect of this round be. If his liver failed more slowly, it might actually increase government spending on his health care.
Indeed, “deaths of despair” are often good from a strictly fiscal standpoint. Abstemious 90 year olds might collect $750k in social security. People who die at 56 collect $0.
Yeah an alcohol tax obviously should be based on quantity of alcohol, not price of the purchase (though general sales taxes should apply to the price of the purchase). The point is to create extra incentives to decrease consumption, which includes incentives to switch from cheap hard stuff to slightly more expensive slightly less hard stuff.
just interested in the fiscal effects and i hate lazy arguments which assume “vice must cost money.”. Exposing unhealthy infants would also save alot of money. Virtue might be expensive and serious people who want to defend virtue need to defend the expense.
I don't think the claim is that they should be the anchor of federal revenues. I feel you are reading this article incredibly uncharitably and writing your comment with a maximum level of abrasiveness. The U.S. tax code has lots of small bespoke taxes and also small bespoke tax exemptions, and the point is that this alters incentives, and if you are rebuilding the U.S. tax code you are going to want to include a variety of consumption taxes that can help replace lost tariff revenue (the tariffs themselves are hardly making a massive dent in medicare costs!) I do not think anyone who has read this blog for very long can seriously believe Matt thinks the US can pivot to a revenue system solely based on sin taxes. Do you think Matt believes cigarette or tanning bed taxes contribute a large chunk of federal revenue? If you stop and think about this for a minute it should be obvious that is not his meaning.
My core objection is that Matt is talking about economics without coefficients. To me, this is his worst habit.
Matt is smart and has access to AI and support staff and I doubt he thinks that sin taxes can anchor federal revenues. I never said he did!
Still, the fact that sin taxes cannot anchor federal revenues is significan, especially if such taxes would piss off a substantial number of voters.
Re the distribution of drinking. I have lived in an East Atlanta precinct that went 90-95% for Obama and a Fayette County precinct that went 60% for Trump. I have observed similar levels of drinking in both places. Other than Utah, I’ve never gone anywhere in America and seen a hugely different alcohol culture. I’m not saying there is parity between how much Rs, Ds and Is drink, but there are enough of each to make alcohol taxes schoolmarmish and politically toxic. I worry Democrats learned nothing from the recent swing of young men towards Trump.
You should visit Wisconsin, or Michigan's Upper Peninsula. I had a work trip in Calumet (check out Shute's saloon and their 100+ year old stained glass bar) and asked the bartender what I could do while I was in town. He told me most tourists visit the local nature preserve at Copper Harbor; but most locals get a six pack of beer, get in their truck and keep driving until the beer runs out.
Hmm, all life forms require carbon cycles. Ie, even the most basic carbon taxes could help us abundantly plan for scalability and reorientation our economy towards progressive and efficient growth, preservation, and decay of all life; chiefly US voters. I'd suggest a more humble and humanitarian approach to our economic policy, but I rather doubt voters can think beyond their hatred of taxes relative to their pain of loss for assumed benefits, regardless of how even Trump 2.0 handles this.
Part of me thinks we could do this by framing the tax as a way to help us help ourselves. MAHA-lite because we know sugar is addictive and terrible and Americans are grossly fat and its killing individuals and society. Even a small tax might encourage producers to pull it out of food. Or tax canned veggies that have sugar added. Amazing how almost everytihng has sugar in it.
basically the only people who like getting into the weeds about tax policies are liberals making income in that range (e.g. 80% of this comment section)
I was going to object to finding a quarter being considered income. But according to ChatGPT, CPA, JD, it’s apparently treated the same way as if you, like, came across a hoard of pirate’s gold (“treasure trove”), and is therefore is in fact income to the IRS.
the opportunity becoming IMO to look at rationalisations - become the Smart Fiscal Party.
Get deficit down, look at effective ways of improving government performance (not destructive madness like DOGE) - show results to rebuild rep rather than tyring to add more programs in the face of zero street cred outside the people who will always be for more
Imagine if the Democrats actually cared how Government worked!? If you could convince people there was value for money. Hence the rise of Abundance, which is really in many ways repackaging Republican common sense to be palatable to Dems who know better but can't bring themselves to vote R.
Part of the unacknowledged reality that dems confront is that a lot of us don't feel like we want or need 'more services.' I'm all for balancing the budget (we should), but the other option is to accept the current tax base and accept a government that is structurally smaller and does less. R's are winning hands down on this argument - anyone who's been to the DMV comes away thinking, I'm fine with less of that.
I don’t want more services. The government sucks at providing services. What folks need to be comfortable with is that just funding Medicare and Social Security is going to require some serious tax increases - and the people making $150k-$300k might simply decide they don’t want to fund someone else’s retirement.
The deduction for car interest is one of the dumbest policies I've ever heard. It's like that reddit post "they should make horseshoes out of uranium... so the horses get radiation poisoning." What possible public good could this serve. "We should make car loan interest deductible... so people are encouraged to take on more car debt!"
and it's regressive as hell because it's a deduction, so you have to itemize to get it... and it's worth more the higher the bracket you are in. I think if people understood how deductions work all itemized deductions would be a lot less popular. Only 10% of people are itemizers!
Oh my God, mentioning the tanning bed tax brought back a memory of how stupid the arguments around ACA were. I recall some dumb Congresspeople going molon labe on tanning beds. Ridiculous.
Notably e.g. the comments on how dumb it is to be scapegoating the retail grocery store biz where the margins are razor thin - at cost - and not going full throtle not at attacking "Big Corps" for illusionary price goaging but at the actual source Stupid Trump Taxation on your Goods (aka Tariffs) and making it more expensive for farm labor too driving up your prices
Unfortunately, the British Labour Party are a very cautionary tale here: Their pre-election promise to not raise any of the three largest and broadest taxes (income tax, VAT, and national insurance) is causing lots of problems as debt payments increase and public services aren't improving. Currently there's a lot of appetite for various gimmicks that might raise a few billion here and there, but the government are (understandably) trying very hard to avoid breaking that core pledge. My guess is their hand will eventually be forced though.
It is a policy that guarantees that state pension payments will increase every year by the highest of inflation, national average wage increases, or 2.5% (so, a minimum of 2.5% every year). I believe, because of this policy, that British state pensions are projected to cost more than the entire UK GDP within this century.
Question: do campaign promises by a UK party persist only until the next election, or indefinitely until the end of the current party’s majority? (Or maybe it’s always the latter in practice even if not theory.)
Well they're not magic, or a legal commitment, so they 'persist' for as long as the party in government persists with them. They will be accused of breaking their 'manifesto promise' at any point if they change, but the effectiveness of that criticism depends on many things like when in the Parliament you are (the criticism gets less effective the further away you get from the election), if any circumstances have changed that can justify breaking your promise, etc.
Then yeah, the other answer you got is right. It will be considered out of date (barring any obvious major change in circumstances) when a new manifesto is being drawn up.
You can't fund a strong social safety net off the rich. The idea that 250,000 a year is somehow middle class is ridiculous. You can't have your cake and eat it too.
"The idea that 250,000 a year is somehow middle class is ridiculous."
To take Chicago as an example that's the HHI of a police lieutenant and an ICU nurse. Are you saying a cop and a nurse aren't middle class? I have a feeling you're a bit out of touch with how much people make.
I'm aware of the separate meanings, I'm just complaining that words that can mean such wildly disparate things are deeply unhelpful for fruitful conversations.
And you can seek to 'retire' other inconvenient phrases....
Or work with reality.
Lefty eggheads professional class engaging in campus armchair hairsplitting will achieve nothing more than looking stupid to the wider population. This kind of reflex is 50% of Lefty problem right now.
I didn't mean it as tone-policing. Rather, I mean that if you want to communicate an objective or policy (like "we want to tax people income >$X" or "we won't tax people below income $Y"), and you use words like "middle class" that no-one can agree about the meaning of, then you will mislead or confuse your audience. Therefore, you should not use those words - out of self-interest.
Middle class is a highly relational concept and normal logic or math is politicaly irrelevant. Do you live in the neighborhood where all the doctors and business execs live (you're rich), can you afford to join the country club, even if you don't want to (rich), both kids in private schools (rich). Do you shop at Costco (middle class), eat out infrequently, even if it's just because you have a frugal streak (mc), get up every morning and brave god-awful traffic to get to a job you don't love but can't quit because you need the income and don't have enough saved to live on passive returns (hoo boy are you middle class). Basically 90% of the public self-identifies as middle class and they're not wrong - by the amorphous definition we all intuitively accept, anybody who's not scraping by or a Mr. Burns idle, too-good-for-you asshole is middle class.
OK but when it comes to tax policy, you can't have a generous welfare state and refuse to raise taxes on 90% of the population. Regardless of people's sensibilities, that math doesn't work.
I think this is an absurd definition. You are basically saying that anyone who has to work for a living at all and isn't a bottom-rung underemployed retail or service worker is middle class. I do not accept this amorphous definition. Upper class clearly includes like, doctors, well-off lawyers, highly-compensated engineers, etc. It has been that way for my entire life. I do not believe for a second that everyone in the country has magically revised this definition to say that only the absolute wealthiest people in the country are upper class.
In a 2024 Gallup survey, 54% of Americans self-identified as middle class, 31% said working class, which I'd argue is another version of middle class in the American idiom - only 2% said upper class. Like it or not, it's an uncontroversial truism that people vastly over-identify with the middle class and vote on that basis. Tax them at your peril.
Working class is not another version of middle class, it's definitely a euphemism for lower class.
I don't disagree that people who are rich want to claim they are middle class, I do disagree that actual middle class people *agree* with them. And being middle class is certainly not equivalent to opposing higher taxes, given wealthy white collar professionals are overwhelmingly liberal
If we're going to talk about class outside of a particular context, "has to work for a living" is the opposite of an amorphous definition, and seems like the only stable way to draw a border between upper-middle-class and upper-class. (Emphasis on *compulsory*!)
On the other end, "can't afford shelter or food" seems like a reasonable boundary line between LMC and lower-class, and I'd say "working class" doesn't really exist in the US, unless we're using it to differentiate PCM from non-PMC workers.
On the other hand, we really have to ask, what even is the point of the term "middle-class" here? If it's to build political support for something, you're best off accepting voters' self-id, or you're going to be in for a long fight.
Like others are writing, I'm not at all sure the concept of class rings true in that way to the majority of people hearing it.
Even just in raw income terms, half of households make less than 100k currently, but quite a few have or will make more than that in their lives (students, retirees), and so broadly align themselves with the concept of someone making 250k.
Right, those are both jobs with significantly higher-than-average incomes. Only a small percentage of police are lieutenants, after all. Most cops aren't making lieutenant pay.
This is sort of like pointing to one of those absurdly overcompensated longshoremen on the east coast and saying that's an example of what normal middle class people make. Police officers obviously only make so much because they are a unionized cartel of rent-seekers extracting more money than they are due from the public purse. A much more normal 'middle class' type job would be a plumber, who in Chicago is not making more than $80k unless they own their own firm.
I remember a lazy guy in college who insisted he was middle class when his parents made over $500k a year. I told him a Jaguar is not a middle class car. Now he lives in an apartment in the upper east side his dad bought, working for the mayor’s office, and his brother is still living at home despite being in his mid 30s.
Can someone explain the best argument against taxing investment income differently than other forms of income? I feel like I’m missing something and would appreciate the steelman.
Sure, at its simplest, the belief is that long term investment creates a multiplier effect in the economy and should therefore be encouraged. Hence, taxing long term capital gains at a lower rate encourages economic growth.
One flaw I see in that scenario is that companies, especially in the last decade, will use their profits to buy back stock instead of investing in growth, new equipment, manufacturing, etc. That aspect could be potentially quite glaring if the stock market has an extended setback---not only is there no growth or new assets but all that profit vanishes into thin air.
The argument is that once money is returned to shareholders, they re-invest the funds into companies experiencing higher growth- which is a net positive for the economy. If we forced unproductive companies to keep capital trapped, we know from hundreds of years of corporate history/looking at other countries that managers will build empires for themselves- wasting funds on unnecessary operations to make themselves look more important. Shareholder discipline is 'your company isn't really growing that fast at this point, return cash you don't need so that we can invest for a higher return elsewhere'
Boeing may be the exception but they haven't produced a new passenger jet for some time and their spacecraft division is having problems. But they've bought back plenty of stock.
As someone who has worked quite a bit with Boeing over the past 18 months on the military side -- they really need to get their act together. Surprising some of the people they have representing them.
The reason they do stock buy backs is because it's the most tax efficient way to distribute returns to shareholders. Dividends are taxed at a much higher rate than capital gains.
A buyback is just a bet that your stock is undervalued. The downside in which there’s no growth already happened; the stock buyback doesn’t cause that.
Capital gains doesn't just apply to stocks. So maybe Bob needs to raise money for a plant expansion a bunch of Bob's rich friends buy into his private company at $100k a pop.
5 years later one of the friends wants to sell to someone else. That's also capital gains.
is the thinking that, on the margin, people are investing more and consuming less because it's taxed less? Or is the thinking that the marginal dollar going to capital markets in the form of stocks and bonds instead of it going to the treasury is better for growth?
Investing more and creating stickier pools of capital (hence it applies to long term gains). I am sure all proponents would agree with your second sentence, but that is simply because intentional investment should lead to growth directly, where as mere government liquidity would not. It’s not a theoretical basis, however.
One good argument for having an inclusion rate of 50% on capital gains (so only half your gains are exposed to taxation) that I didn’t really understand until later in life is that it exempts the gains that were just due to inflation. How well a particular exclusion rate corresponds to this amount depends on the how long the asset is held but any discrepancy on the short side can be justified by the productive nature of the use.
This is really important the higher inflation is. If you hold an investment 2 years and make 20% return, but inflation was 7% both years, your taxing people like they made 20% when they actually made less than 5% in real dollars.
If we want to raise the capital gains tax, we should definitely make the basis inflation adjusted.
But a lot of that is made up by the compounding effects of deferral of taxing the gains until they are realized as well as indexing of tax brackets (I pay tax on the same nominal income that I make this year than the same income received in the future). If you had to mark to market every year and pay tax on any increase, that would be different.
Capital gains tax brackets are much larger than income brackets though, and VERY few *people* go past 15% so indexing the brackets means much less.
I'm not sure how compounding matters here. Its the source of much of the growth over the long term, but as such would be the source of most of the gain that is taxed...
>One good argument for having an inclusion rate of 50% on capital gains (so only half your gains are exposed to taxation) that I didn’t really understand until later in life is that it exempts the gains that were just due to inflation.<
I don't understand this approach. Why don't we just apply a deflator tied to each investment's age? Why the crude approach of a flat, 50% exemption? Can't be that difficult to do the former with modern software. I do think it's only fair (and economically efficient) to tax real rather than illusory gains. But we ought to do so with more precision.
The inflation argument is probably the strongest one.
But the other thing people should realize about this debate is that the majority of middle-and-upper-middle-class people’s capital gains are already tax-exempt because they’re located in tax-exempt accounts—401ks and HSAs and IRAs and 529s. A married couple with a kids could contribute over $100,000 a year to these accounts and none of the gains are taxed (for the Roth version) or the gains are only taxed when you withdraw from the account and not each time you sell an investment. Capital gains on primary housing is also tax-exempt up to $500k. And you can also avoid capital gains by just not selling and when you die the basis steps-up so no one ever has to pay taxes on those gains.
So when we’re talking about capital gains tax rate, the real rate of capital gains tax that middle-class people are actually paying is very low—I’d be surprised if the average person paid even 5% of their lifetime capital gains in tax. The capital gains tax primarily hits rich people and professional traders.
The idea is (leaving side the taxation of dividend from already taxes corporate income that ought not to be taxes at all) that you tax both the saving now and then also the income of the saving. Exempting all "capital" income is (with the right assumptions) the same as a consumption tax. So special rates for capital income plus IRA type set ups sort of approximate taxation of consumption.
Part of it is double taxation since the corporate tax exists.
My view is the we should get rid of most business taxes, treat realized capital gains as regular income, and raise individual rates to generate the income we need.
>Can someone explain the best argument against taxing investment income differently than other forms of income?<
To me the best argument in favor of taxing investment income differently is that even the Danes do it. There seems to be unanimity among rich country governments that the tax code should provide at least some boost to savings and investment.
Taxing investments encourages consumption. Do you want people to invest their resources into growing businesses or consume their resources?
Also fairness--you're already taxed on your wages. You then invest those wages into companies, which are taxed (when a company pays corporate tax, you as the shareholder are paying that tax, even if you hold this investment in a nontaxable account). And when you take your money back, you get taxed yet another time.
Matt--brilliant. BUT. Isn't there a strong case for tax simplification rather than creating a multitude of new, untried taxation strategies? Seems the law of unintended consequences thwarts many well intentioned progressive tax policies. Less is more ??
Plus....the economic and social externalities.....probably several times more than the $200B you indicate. How to quantify the social cost of taxpayers' beliefs that the entire system is rigged in favor of the 1,5, or 10%.....
It seems to me that the deficit is sort of like climate change, politically speaking:
-a genuinely huge problem
-the worst effects will hit in the future, but something needs to be done *now*
-the average voter doesn't give a flying fuq about it and *will* get super mad at you for taking any painful/inconvenient actions to address it, such as raising taxes/implementing a carbon tax
-therefore, the problem is pretty much unsolvable beyond saying, "Godspeed, future generations! Thoughts and prayers!"
The difference is that climate change could potentially be solved with scientific breakthroughs (geoengineering) but there's no way to make budgetary math work with innovation.
I think the equivalent of "innovation" is "being wrong." Many (most?) economists thought Japan would be in much more serious trouble with 250% debt:GDP ratio than they are actually in.
Economists know a lot but there are also a lot of unknown.
The technological solution to the debt is to find a way to increase productivity such that US GDP grows by ~6% annually. At that rate, the debt to GDP ratio starts falling on its own
At times, I've imagined the idea of a special kind of carbon tax that is narrowly tailored to consumption activities that only the super-rich can afford. For example, from a moral standpoint, billionaires really should be paying tax on their carbon emissions when they travel around in their luxury yachts or private jets.
However, even this isn't the political slam dunk it appears to be. The amount of money it would actually raise would probably be negligible relative to the federal budget deficit, rendering it little more than a gimmick. And, of course, if the tax were to be high enough to actually reduce carbon emissions (e.g. get the super-wealthy to consume less of this stuff), then some middle-class people who get paid to help build or operate these yachts and jets might lose their jobs (granted, the number of such people would be very tiny, relative to the U.S. economy, but it would not be zero, and even one such person would generate sob stories that would be eaten up by Fox News).
The regressive nature of tariffs is clearly one reason Trump likes them.
"
Oh come on. You don't have to think these are good policy to realize that trump likes tariffs because he thinks they'll be good for the industrial capacity of the united states and gives more working people good manufacturing jobs.
I'd also use this chance to think about the marriage penalty/boost. Today households are taxed at different levels in part because we recognize they are likely to have children and need a leg up, only people aren't having children as much any more!
I'd like to see the tax code restructured so that people are taxed as individuals regardless of marriage status, and you'd get a standard deduction increase per each child you have that still depends on you.
This would make the relationship more explicitly and act as an incentive to have more children by making each more affordable. There are some details that would need to be figured out, like how to handle shared expenses, but other countries have managed to so I don't see why the US can't.
Why should the tax system reward childless marriages by giving them a marriage discount?
If the only reason to tax marriages at a favorable rate is children then it'd be better to give a discount on a child basis rather than on a marriage basis.
Because numerous studies have shown that there is something special about marriage. That kids raised in a married household (not just a two parent one) do much better.
There is a stability and certainty that marriage provides (thought cultural changes are IMHO needed to strengthen it further).
The low-hanging fruit for tax reform has been there for years - run on a platform of generally keeping taxes the same, but making it much simpler. "By the end of my first term the IRS will send you a check or a bill for your taxes, and you'll have the option to make changes before it's final". Then you can strip out the exemptions and carve-outs, tweak the brackets, change medicare vs. SS vs. general income tax ratios, without having to stick to specific proposals during the campaign. And basically everyone is getting something - 90% of Americans take the standard deduction, and 2/3rds get a refund, so you're giving the benefit of reduced paperwork to 60%+ of Americans.
Taxes in America are like tipping in America - there's no good reason for them to be so terrible other than that Americans apparently can't be bothered to do better.
(And as in the tipping subthread, a surprising number of people will argue that no, taxes and tipping are fine, as long as there's a carve-out for their preferred people).
The tipping thing I don't spend much mental energy thinking about because there's no good way to get to a no-tipping society; what are we going to do, ban tipping?
Changing the tax experience you just have to get Congress and the president to agree that it should be simplified. There's a pretty clear path IMO. Yes, some people with carveouts today will be mad, but the benefits to the vast majority of people should give you plenty of air cover.
As an aside, as a liberal there's something to be said for simplifying the primary way that people interact with the federal government. I'm not surprised that trust in the government is low when people's experience with it is having to fill out a mind-numbing form (or paying an expert to do it for them). If a future president wants an Abundance-type government that delivers services, a great place to start is making yourself the person that turned filing taxes into an afterthought.
I struggle to imagine what would the actual law look like. Certainly you couldn't punish people for tipping. You could say businesses are prohibited from soliciting any money past the amount of the check? Businesses would hate that because they'd need to renegotiate salary with all their staff.
I almost think it would be easier regulating from a technology perspective; ban Stripe/Square/whoever from showing the tip screen or ban payment processors from changing the charged amount to include tips. But that would probably be at the federal level due to payments traveling cross states.
In general, I like the tradeoff of lower rates in exchange for fewer deductions. But, the devil is in the details, and to meaningfully lower rates, you'd have to sharply curtail popular deductions, including home mortgage interest and charitable contributions. In practice, the tax code is like software code. It only gets more complicated over time, as one more rule is written to cover one more case, never simpler.
Democrats should focus on raising the estate tax, including ending the step-up basis and avoidance methods. About 10% of all US income each year is in the form of inheritances, and this is only going to grow as people who benefitted from the massive asset price booms of the last 50 years start to die and pass down their wealth, leading to a sort of patrimonial economy where inheritance becomes required if you ever want to say buy a house in a decent area: https://www.economist.com/finance-and-economics/2025/06/12/how-to-invest-your-enormous-inheritance. They are untaxed (actually, negatively taxed due to step-up basis) and overwhelmingly accrue to the very richest people. The exemption right now is $14 million, which is only a fraction of the top 1%. It’s one thing for people to see themselves as temporarily embarrassed millionaires but who is really going to bat for decamillionaire heirs? Ideally inheritances should be taxed the same as ordinary income and the exemption should be maybe $2 million (enough to passively provide a median income for life under the 4% rule) not $14.
I think the politics of raising estate taxes work well too. This is america, people like the idea of working for what you get.
No, because like most of these debates, it has nothing to do with what Bezos does with his money, it's about whether Matt can gift Jose a $500k vacation home in Maine and there's just a lot more of those people in America than billionaires. Americans like the idea that you can keep the family cabin in the family.
$500k is both far below the value of a vacation home, and far far far below any prior or proposed exemptions.
The tax code could provide for a reasonably generous exemption for family homes (say, several million, and indexed for inflation) and still cast a wider net than today's ludicrously millionaire-friendly standard.
> The tax code could provide for a reasonably generous exemption for family homes
Let's call it Proposition 13.
good one...
“…a generous exemption….”
What would be exempted? Farms? Trusts? Homes below a certain value?
Governments have stayed well away because the politics of exemptions are unworkable and the super rich will always find a way around it.
The tax code is already quite fluent in defining and specifying the tax treatment of a primary residence. This would not really be difficult.
Right. There's a sizable capital gains tax exemption already for primary residences. The concept is simply enough. Mind you if it were up to me we'd go hard on code neutrality (ie, no exemptions). I was just pointing out that "people want to keep family homes" isn't an insurmountable barrier to increasing estate taxes. If the votes could be found, we could leave the vast majority of primary/secondary residences untouched and still hit HNW legacies harder than we do now. Plus, life insurance exists.
Many people in the professional middle class, that now makes up a key base of support for Democrats, are millionaires that think they aren't rich. A lot of America's wealth is held by the PMC, and you're not going to be able to really tap into it without going after your own voters.
I'm a millionaire, I guess, but most of my assets are locked for retirement, because that's how I'm going to stay alive once I retire.
If I die, by definition I don't need it for retirement any more.
I really want to resist a threshold for the estate tax that is "whatever, as long as I'm fully exempted" but in theory taxing the retirement that I've saved up and not used isn't going to distort my behavior that much.
But my understanding is the limits are set far above a $500k limit, so how many people is that really?
Yes, but how much revenue are you going to really collect if you exempt most estates? And the ultra-wealthy are always going to have avenues available to them to help avoid these things that are going to limit how much you actually collect from them.
More than zero so it’s worth it and if they find loopholes, close the loopholes. If they try to evade paying the tax they owe, put them in jail.
“Close the loopholes” ah yes, I would simply only arrest the people who are guilty, only admit the students who are smart, only invest in the businesses that will make money, etc.
Some? We're apparently collecting 34B a year right now. Right now we collect on 1% of estates, suppose we collected on 4-5%. You have to collect somewhere, from someone, and people who are passing on money to their usually well-off 50 year old adult children seem like a group that won't be hurt majorly by it.
This is a problem with taxes in general. Billionaires will always have all sorts of resources that normal people don't have to get out of paying taxes, so like it or not, it's going to be the ordinary people that finance the government.
"Yes, but how much revenue are you going to really collect if you exempt most estates?"
...more, the fewer you exempt? What am I missing?
I do worry that all taxing estates does is create an industry for avoiding the estate tax, distorting things much like not taxing tips does.
And "the problem isn't my tax policy, the problem is with the kulaks who are resisting my tax policy" is just going down a bad path.
Hear hear.
As a millennial, it’s bad enough that my parents had more accumulated wealth by my age (42) than I have now. But at least one day it will come to me! I don’t want to be penalized for it.
LOL penalized. Yeah, I'm sure you're a great kid and all, but you didn't earn that money, your parents did. The entire *point* of the estate tax is we are not a country built on hereditary wealth. It matters not a whit what you think you personally deserve.
It does, actually, because he gets to vote, as does every American who stands to inherit something.
Surely the parents can decide who that money goes to given they earned it?
Yeah, and it would be considered taxable income up until the moment they die and then it magically becomes something else.
This is a good message to voters
Did you remember to ask the voters what you should eat for lunch today?
Yes, but you fogot millennials have been treated by history with unconscionable harshness. They're special.
>I don’t want to be penalized for it.<
If your parents leave an estate of five million, and you "only" get four million of it because the government takes a cut, it doesn't sound like the world's most draconian penalty. Four million is still pretty good!
...what?
From Nikurgara's post...
"the exemption should be maybe $2 million"
Let me just check something real quick
2000000/500000 = 4
4>1
I dunno man seems to work okay to me.
How do you combine the idea that the politics of raising estate taxes are good, with the fact that Republicans keep loudly talking about their plans to lower estate taxes?
To me it seems like the Republicans are happy to be seen as the party that is always fighting to lower estate taxes. I think it's a political disadvantage to fight for this tax, and it doesn't really gain that much revenue because it's so easy to restructure inheritances to avoid estate tax.
This is odd to me, too, because complaining about Billionaires is very popular, so how is complaining about 10 dollar estates not more popular?
I think people realize that in many cases taxes are a slippery slope. If you support some new sort of tax because it only hits people richer than you, the threshold may change little by little, and eventually you have to pay more taxes.
If you think that you pay too much taxes, and you want to be principled about it rather than selfish, it makes sense to support lowering all taxes rather than just the ones that affect you personally.
Of course, if you think it would be better to have more public services and would be willing to pay more taxes to get them, that is also a coherent position.
In my experience, people hate the idea of estate taxes. One story about a family farm that's sold off because their kids can't pay the taxes and people get livid.
Republicans always sell estate tax elimination as benefitting the middle class, which is a flat-out lie. They propose its elimination, get called out on benefits for billionaires, and then a "compromise" is reached that multiplies the exemptio by a much higher rate than inflation, incrementally benefitting the wealthy. They get away with this time and time again because of their ability to control the narrative.
Until Frank Luntz dysphemizes it as the death tax.
That was a bit before my time. But I remember my conservative uncles complaining about this. And then my mom rolling my eyes because they don’t have nearly enough money to qualify.
You get less of what you tax.
Tax death.
The politics, though, is exactly where it fails? People are overwhelmingly anti tax. Of all kinds. Estate taxes are no exception here. With everyone having some sort of idea that this will directly impact them and theirs.
Wasn't the original Super PAC behind the cuts to estate taxes just the "Club for Growth"? [1] Establish in 1999, this was one of the original sins of the George W Bush theory of growth and their evolving theory of "compassion conservatism". Ie, your kids can keep what you earn and we'll hold off on reforming social security, let alone health care while, we establish peace and democracy in the middle east.
Note that Jeff Yass was chief funder for both this and our routes to the CCP to ensure TikTok remains appropriately aligned w/ Trump, regardless of earlier generations of censorship around elections and freedom of information acts.
For more entertaining presentations, I'd consult
* "Scott Seiss Retail TikTok Compilation FULL" theory of Marxism w.r.t. to Liberalism, https://youtu.be/P7KBcsdPhxA?si=FRf3b9cWBPBDpIgW
* "Corporate - The Void on Comedy Central", https://www.imdb.com/title/tt5832756/
[1] https://en.wikipedia.org/wiki/Club_for_Growth
The growing importance of inheritances relative to GDP is a really good argument for prioritizing taxing large estates. As inheritances become a larger portion of the economy, any taxes we pass now will produce more and more revenues. It'll have the same positive budgetary impact as "bracket creep" did before the US started automatically increrasing the tax bucket cutoffs to match inflation in the 80s.
While there's been weird discourse around the estate tax ("big government is coming for the ($14,000,000) family farm"), it also seems like a political winner relative to the other options we have to raise revenue. Most people won't be affected by it at all. People generally know whether or not they'll inherit money. While fantasizing about some long lost aunt leaving you a giant Swiss bank account probably happens, my prior is that it's less prevalent than thinking that you're going to become a millionaire in the future.
Inheritances also seem to play a smaller role in the US than many other places I've spent a lot of time in and I think we should keep it that way. From my experience inherited wealth brings aristocratic behaviors and culture and I think it's anathemic to US culture.
There's also a moral element to inheritence taxes -- you did nothing to receive that money other than winning the genetic lottery.
It doesn't bother me that Jeff Bezos is a centibillionaire -- he created Amazon which has provided a lot of value for countless people. It bothers me that Jeff Bezos' kids are millionaires.
Also, if the kids of a billionaire haven't made it in life by the time their parents dies, more money is not going to help. They are raised with every advantage possible, if the can't turn that into riches, maybe they just weren't meant to be ultra-rich.
yeah given how long billionaires live most of their kids probably would have a net worth in the millions on average by the time they die just from working at a big bank or law firm or whatever, if that's what they choose to do. Billionaire's kids will be in their 40s or 50s by the time their parents kick it. Inheriting a billion probably won't even meaningfully influence their lives at that point given how set in their lives people are by middle age, though they will have a bunch of money to donate to the Republican party or charity or whatever.
It won't bother me that his kids will be millionaires tho, but I don't think they will be substantially bothered if they are less so.
It does bother me that Jeff is a billionaire to the extent that if he decides to, he could wreck a lot of things due to his wealth and power, mad king like.
Right, it's incoherent to say that Jeff Bezos can do whatever he likes with his money except give it to his children.
He should be able to give it to his children and they should pay taxes on it like any other income.
yeah that's my opinion
Basically Bezos should be free to give his money to anyone. But if you happen to receive an inheritence from Bezos, then you should be taxed like crazy.
He can do whatever he likes with the money but *every* non-philanthropic use should be taxed.
"I bequeath this money to a charitable trust, of which my children shall serve as executive directors", has long been a run around for this.
Who's saying Bezos shouldn't be able to give his money to his children?
The flip side of that is that billionaires can and have also decided to do good with their money (maybe purely for PR reasons, who knows). Leftist critiques of this are that this is undemocratic, and while that is definitely true, philanthropic spending being determined by the populace is almost certainly going to involve fewer bed nets going to Africa (or whatever).
Charitable giving would not be "consumption" for purposes of the consumption tax.
It's only the revenue from the progressive tax on Bezos's consumption that I covet. If the reinvests his Amazon income to do something else a good as Amazon, go for it. Yes there should also be an estate tax especially if the heirs will be taxed only on their consumption
this does not make operational sense - and is trivially gamed.
Falous Hiers get Mr Falous Estate - largely in assets not liquid - they don't take income mostly, they take loans on the assets servided by the asset income. Voila, consumption spend is disappeared.
??? Income is reported, saving/reinvestment subtracted the remainder is taxed consumption. Loans taken would net out against saving/reinvestment made so the consumption would appear.
Meh, at some point that stops working though. You can only take out loans for so long without any incoming money to pay them off.
Jeff Bezos’s kids being just millionaires rather than billionaires would be the result of an incredibly high tax rate on his estate
You could assume Bezos does something particular, limit their inheritance to under 1 billion, idk how realistic that is though.
Do you have kids?
...because only people with kids can have an opinion on whether $14M in untaxed inheritance is bad?
I do, yes. Two little guys 3 and under.
Why would that impact what Allan wrote?
Plus the Bezos couple were smart enough to divorce and begin dividing their estates and their influence well before old age sets in. Given their ever evolving network of interests, we can ensure that "Billionaire" becomes just another label for villain. [1] Eg, given our realtime index, we should be focused on Musk, Ellison, Zuck, before facing Jeff Bezos, let alone Ballmer, Page, ...
Like I think I even Trump could read this spreadsheet to evolve his tariff policy while we all bitch about our least favorite Billionaire to get us through to 2026 election cycles. We may even rediscover our fear of Elon and his agentic robots, cars, and financial gimmicks like $BTC and gambling with $DOGE on Twitter.
[1] https://www.imdb.com/title/tt4270492/?ref_=ext_shr_lnk
[2] https://www.bloomberg.com/billionaires/
The Weird Discourse of course is political judo - and has to be anticipted rather than blindly naively bungled.
Family Farm and Small Business - these will be judo throws. So be ready for that rather than be naively surprised yet again
(and ready with some carve out and populist counter-judo, not egg-head wall-of-text explainers that no one but those already in agreement [or counter-eggheads irretrievably against] will follow)
(I write as someone who in fact would likely be impact 'negatively' in this area, but I am 100% fine, I do deeply believe on one hand enterpeneurial effort should be rewarded, but intra-generational trasnfer is not rewarding entrepeneurship)
Simple solution would be to just let people pay their taxes off at a very low interest rate over a period of 15 or 30 years. If they can't manage that, then it's probably not a viable business anyways.
...the last phrase is the great one the Lefties who have never had any practical exposure to small business love to trot out - combining professional class arrogance with economic innumeracy.
The first part is... bizarre nonsense - although one can call it a reverse bond but it's just innumerate bizarre nonsense.
It's funny because I don't see it as a particularly left wing sentiment. If you don't earn enough revenue to cover your expenses, then you're not a viable business whether those expenses are payroll or taxes.
And I've worked for a 30 person company, so, small. It was a startup, so certainly a different dynamic than a family owned business (and a lot less emotional investment) but a good chunk of my compensation was tied directly to whether or not we remained a viable business. We focused much more on earning increasing revenue than complaining about our tax environment (high cost, west coast city)
Tech start-ups are utterly not in any fashion relevant to understanding the wider economy - not by their legal structure, nor their economics nor their trajectories. I’ve founded five companies, three growth, etc etc. Being a tech employee you learned nothing particularly applicable to wider economy.
The most persuasive argument I've seen (not so much to me personally, but I've seen regular non-rich people buy) is that it would hit family businesses the most, and essentially destroy quite a lot of them. I have no idea how valid that is, but it would be interesting to know the truth about it
Which is not true. Most family businesses of any size end up in trusts.
Allow all estate taxes on equity in privately held firms to be payable in kind via special shares that have full economic but no voting rights. There, problem solved.
(And if you want, also require the government to promptly sell these shares to Vanguard or whoever to avoid Socialism)
Where to start....
A. Most small businesses are not corporations with shares, they are LLCs or Sole proprietorships etc - no shares
B. Unenforceable equity in small illiquid businesses is utterly worthless.
This is the kind of easy idea from people who have zero understanding of business.
Lefty version of MAGA in the end. Magical thinking, "easy just solved, shoot our garbage into the sun"
"About 10% of all US income each year is in the form of inheritances"
For reference, about half of this is not what you'd normally think of as an inheritance. Half are transfers and support that occur while the person is alive. I think those are supposed to be recorded and in some way noted in a way that could impact an actual end-of-life inheritance, but it is still a different thing when thinking about what estate taxes mean
Under certain circumstances, gifts given within three years of death (meaning up to three years before) may be included as a part of the estate. If the goal is to give a dollar amount, the real workaround is life insurance.
No disagreement there. I work in financial advising and the number of people who inherit huge sums of money during their highest earning years is crazy. Nothing against those people, good for them! But if we're looking to levy taxes that won't hurt the least well off, the estate tax is a good place to start.
That's interesting. Given that most people die in their 80s or 90s, especially if they are wealthy, I would have thought inheritances would be most common as people are nearing retirement themselves.
That's what I'm saying. Your 50s are your peak earning years. That's when people are getting these inheritances in many cases.
Oh ok. I just thought the inheritances would be coming a bit older, and a lot of people I know are on an earnings decline by late 50s / early 60s.
But yeah if it were coming much earlier it would be "better" in some ways
I agree in principle, but some preliminary research on Chat GPT suggested it wouldn't raise much revenue.
I only had time to spot check some of the citations, but the basic parameters were:
1. Eliminate the step-up-basis
2. Reduce the exemption by 50%
3. Try to estimate the amount lost to evasion.
The headline number there was $19-22 billion per year*. [edit: that is, these changes would add $19-22 billion per year.]
That's about 0.5% of projected receipts (Federal tax receipts have recently circled around $4.5 trillion (that is, 4,500 billion). Not nothing, but it's good to set expectations, right? (Chat GPT also explored taxing unrealized gains at death, which it estimated could quintuple the revenue, at only 20x the political headache.)
Do those numbers seem reasonable to you?
* "Accounting for behavioral responses and interactions, a Fermi estimate suggests the two policies together could raise around $190–220 billion over a decade, or roughly $19–22 billion per year. This is small relative to total federal revenue (less than 0.5 % of projected receipts) but large enough to finance significant public investments."
** Full transcript here, in case anyone's interested: [https://chatgpt.com/share/6882495b-53d8-8003-a00f-15f764138cb2]. It's not that long, but certainly too long for a comment. I used it in Agent mode, so you may have to explicitly skip part of the "thinking" stage - it looks like OpenAI hasn't worked all the kinks out of the agentic-output-sharing process.
I had to write a paper about this last fall, and found this calculator handy:
https://www.crfb.org/build-your-own-tax-extensions
That's excellent. (Though the drop-downs could use a little more padding, imo.)
If I'm reading that right, those numbers are close to what Chat GPT predicted: 200 billion revenue loss over 10 years for halving the exemption ("let expire to prior law ($7m)", though I can't find a an option to eliminate the step-up-basis.
I also leaned on ChatGPT to do similar calculations for all sources of federal revenue I could find. You can look at it here and feel free to edit or add to it:
https://docs.google.com/spreadsheets/d/1_Nw3tB3G33CY3cd38O39CNAJTffBWmcIhCX50XDhA2I/edit?usp=sharing
I'm seeing estate taxes as a littler higher, maybe 1% of federal revenue
Ah, I think my original post might have been confusing: the projected numbers I mentioned would *add* revenue equal to roughly 0.5% current receipts.
Makes sense
That's less than I expected, but plausible.
Just simplify things by treating income from estates like any other.
This is, "not even wrong" - income is not the issue at all, it is wealth.
How would you distinguish the two for tax purposes?
If you haven’t read the classic book on this, read *Death by a Thousand Cuts*. The estate tax repeal coalition is rich, strategic, and highly motivated. The opposition is, to quote Graetz and Shapiro, “an open door.”
While yes, inheritance tax should be something, the Democrats need to have a non-naive eye on the politics which have consistently tripped them up - inheritance tax impact on the "family farm" and on small business inheritance.
While obviously pretextual, consistently over the years these have been exploited aggressively, and the Democrats seem surprised and fumble every time.
I think post-ACA and post (failed) ACA-repeal both parties have realized that you don’t let legislation linger in the wind, you execute the reconciliation process as quickly as you can and cobble together whatever it takes to get over the finish line. Dems should definitely not let the estate tax opposition froth up, but you just gotta get the votes and take the votes. The shape of the OBBB Medicaid cuts was changing day by day before passage. Avoid disclosure, avoid debate, get something on paper and pass it before too many of your senate candidates say things like “we’re all going to die”
how difficult is it to value privately held businesses though
It's definitely hard, but I've heard of some fun cheeky ideas that give people the ability to value it themselves, but they have to announce that publicly and if someone wants to buy it out from under them at that price, they have that right.
This is an idea I liked a lot when I first heard it and think it worked okay in...Ancient Athens? But in the modern context of VC rollups, seems like it very rapidly leads to absurd levels of concentrated ownership?
Yeah, having a system where you always have to sell your property to someone who has accumulated more property than you seems pretty bad.
would further increase PE buying everything
Is it a coincidence that the Estate of Bob Saget perks up when we start discussing estate taxes? I think not!
Not hard at all to establish some fair market minimum. 5x free cash flows would easily establish a new floor.
Very difficult.
For anyone curious and who might find this comment buried under the heaps of others, I was curious how much of those inheritances came from estates of various sizes, and the upshot is that only 40% comes from inheritances over $1M. So the majority is coming from more "middle class"-ish wealth brackets. I think that may be in part because things like helping young adults with college or rent are included in the figure. It's just much harder to tax that kind of stuff in the same way as large million dollar estates.
Inheritance is a human tradition dating back thousands of years. That is a steep, uphill battle you are fighting.
Taxes are also a human tradition dating back thousands of years.
Yep. I hope we can eventually find the appropriate balance between: A) Inheritance B) Taxes and C) Welfare. Moreover, we always need to balance Federal, State, International, and Parochial considerations to win elections, while minimizing the gambles of leadership.
Eg, I hope the solution to Trump 1.0 / Biden / Trump 2.0 isn't literal JD Vance, or a worse form of Warrenites + Sanderistas
Strong disagree.We don't need a stronger death tax.
That money's already been taxed
The point of the stepped-up basis is to **NOT** tax the unrealized capital gains. The money has certainly **NOT** already been taxed. I'd personally tax intergenerational wealth transfers to near zero but I'd be happy with a 50% hair cut.
One of the main reasons I work hard is to give my kids a better life. When I earned that money it was already taxed.
Now you want to tax it again because I give it to my kids. That's a hard no for me.
That's fine but it's a very European aristocratic-style perspective and doesn't jibe well with American values in my opinion
Then I think you very much misunderstand American values. Americans are all about getting ahead through hard work and providing a better life to their kids.
I thought we were about trying to have an even playing field but I guess that's the difference between American liberals and American conservatives
Your kids will hopefully be in their 70s when you die. The better life you’ve given them will have been long since past.
All money has already been taxed. Does that mean taxes should be done? It makes sense to tax every transaction, regardless of where the money for that transaction comes from.
And furthermore, it's much rarer to find any money that has only been taxed once. Double, triple, quadruple, etc. taxation is much more the rule.
I disagree that me giving money to my children (through a gift or death) is income and should be taxed.
No, no it does not. Democrats seem to want nothing more than to tax just about everything, while consistently ignoring the efficacy and size of the government they are funding. SF is a great example of money pouring in, government bloating, and quality crashing.
Not a surprise that increasingly childless people are interested in taxing wealth parents want to pass to their children or heirs. Because somehow passing money to your kids is a European aristocratic thing and unAmerican.
That rant over, I can understand (although I do not like) the idea of dropping the stepped-up basis upon inheritance. But I really wonder how well that would work considering the difficulty of tracking original prices. Maybe for a home, but for stocks...oy. Vastly easier to start with the price you inherit.
The step-up basis got removed once before (within the lifetimes of some Slow Boring readers) and the political blow-back was so severe that it was almost immediately repealed. Hard to imagine any politician not knowing that (or, well, not being told about by some lobbyist/staffer if the idea comes up) and not wanting to touch the idea.
10% of all income is inheritance? That feels off. Is this only in taxable income?
That said, no real disagreement here. I do not understand why people are so supportive of absurd levels on the inheritance taxes. Most people do not benefit from it. Arguably, we all are hurt by it.
Instead of eliminating step up, we should index capital gains. Once indexed, they should be taxed like ordinary income. [Of course "income" should not be taxed, but consumption out of income, but that's a separate reform.]
Rather than focus on estate taxes, couldn't we just limit the combination of money spent on healthcare for old people relative to young people? Ie, Medicaid vs Medicare. We could then use Social Security alone to determine the appropriate degree of taxes vs. spending when thinking about inequalities over generations. Ie, cut Medicare to fund Child Tax credits and other abundance oriented progressive goals.
Alternatively, we could just fund the IRS of ICE (or Death Panels) to ensure the appropriate shape of each generation as to mitigate the worst ways to feel betrayed of the government for the young vs old cohorts of voters, distributed by likely impact on Democrats vs Republicans. Particularly for MAGA/Trump/Compassionate Conservatism and Sanderistas/Warrenites on our flanks.
There’d be too many stories of grieving children needing to work out the tax implications and trying to sell off assets to pay the estate taxes. You’d need to have quite a long payment period for this to avoid those optics.
Matt’s thinking about sin taxes—like many applications of Econ 101 without coefficients—is dilettantish. The revenue potential is too modest to curb inflation is a $28 trillion economy.
Start with alcohol. The full U.S. market is worth about $400 billion, including what restaurants pay wholesale. A 25% federal tax—about five times the current rate—might raise $100 billion a year. That’s 1.4% of the federal budget, and it would ignite a political backlash across class and culture lines.
Cannabis? Even with full federal legalization and a steep 25% tax, you'd maybe get $20 billion. That’s a rounding error in federal terms—half the cost of Pell Grants, or a single week of Medicare.
Unless you count burning carbon as a sin, sin taxes don’t scale. They can’t anchor a serious revenue strategy.
I think Matt means these as a part of all of the above strategy not on their own. Even on it own though, $100bn a year from a single tax would be a massive win
But there are the politics. Would a working stiff rather have his beer taxed or tax the incomes/weakth/profits of his betters?
The reason we don’t have higher alcohol taxes isn’t because of consumers - a huge percentage of Americans don’t drink at all - but because of the very powerful beer/wine/liquor wholesalers lobbies and to a lesser extent bar and liquor store owners
Mostly false. Even if 40% of Americans abstain and only 15% of Americans drink enough to be pisses off by booze taxes, upsetting 15% of potential voters is bad politics, especially when they are distributed across the political spectrum
Are they distributed across the political spectrum? I went looking for data on this but couldn't find any, so it's possible we just don't know, but anecdotally I would be very surprised if alcoholics were evenly split as opposed to being predominantly Republicans, given the class dimensions. Higher-income people are both less sensitive to alcohol taxes as it's a lower share of their income, and while they are more likely to drink at all, they are much less likely to be alcoholics than poor people. Poor, less-educated people are of course Republicans (assuming they are white), and most alcoholics fall into this category.
However, Evangelicals drink relatively little and lean R, while many poor minorities drink quite a bit and lean D.
EXternalities should be taxed regardless of the revenue they generate. [The tax on net emissions of CO2 should be combined with a rebate so as NOT to generate revenue.]
I actually appreciate you stating this, as most that propose Pigouvian taxes are just looking for a quick revenue grab.
Not if they use the term “Pigouvian”!
See: Congestion Pricing (which I called my state reps to support; doesn’t change what it is, which is primarily a revenue grab)
I did not make this point clearly but “sin” taxes, those designed to lessen self-harm are not the same as Pigou taxes which aim at optimizing the “harm” to others from the activity. Gambling may be a sin; emitting CO2 is just a case of a misaligned incentive.
My predisposition is to do this but not 100% back as a dividend.
For carbon tax, like ~40-60% goes back as a dividend that can be reduced by income level (with the idea there is a correlation with higher incomes and carbon emissions).
Two sins that scale enough to raise serious revenue: burning carbon and being a landlord.
I have to ask. What is so prima facie wicked about being a landlord?
taxing real estate is efficient -- it's hard to hide and less to relatively low deadweight loss
But both owner occupied and rental uses contain real estate, the question here is taxing rental uses in particular.
a homeowner is a landlord who pays rent to themself
What about land?
even more so
Being a Kulak. Liquidate the Kulaks...
of course idea of carbon as sinful is bizarre and ridiculous - and absolutely will provoke backlashes as already seen in Europe
It shouldn’t be a tax on “sin”. It should be a tax on harming other people. And everyone understands that carbon emissions harm other people.
*Does* everyone understand that, or agree with it? A lot--perhaps most--people see their electricity and their car as providing highly useful tasks, and don't see much beyond that. And to the extent that they do, they may come to a different conclusion on the tradeoff.
Not may - will.
It's not theoretical - the anti green backlash in Europe is aleady showing.
Ergo one has to have different modes.
Carbon emissions help plants.... significantly. So they also help other people, as in the greening in the Sahel.
The "harm" angle is a path to failure as an argument.
CO2 is not like industrial pollutants - it is a life foundation - but it is also a problem for climate for human civilisations and notably on agriculture, and rapid change.
But Lefties continuing to focalise on using the actually inappropriate old 70s industrial pollutant conceptual framing is a massive misframing.
Bruh, tons of compounds are essential in small doses and poisonous in excessive doses. This isn't as deep of a remark as you seem to think it is.
I agree that “pollution” is the wrong framing. Unfortunately, it’s what the laws we have talk about. Similarly, focusing on endangered species is a bad framing, but it’s the proxy we have in law for protecting ecosystems, which always should have been the main goal.
Look, I hate greedy property owners (some landlords, NIMBYs) as much as the next guy, but as long as we live in a world where housing is scarce, then landlords will have more power than tenants. That means that a tax on landlords will just be passed on to renters. I don’t think that’s the outcome you want.
It is insane to me that we still don’t have a carbon tax.
This is the Left YIMBY square of the compass: https://external-preview.redd.it/oiUGJA2jKw1JYpsf_ThgHpX9tUAt12rWAJzjRPdbd1U.jpg?width=766&auto=webp&s=a9658e01128f7a2c5eb9638b5909482a3747e82e
"Build more housing, yes, even the private companies, this is how we gain leverage over the landlords. A surplus is power for the people."
I didn’t have anti-housing taxes on my Slow Boring bingo card, but hey, there’s a first time for everything.
And those amounts would almost certainly be less than that, as some people would cut consumption back. Those who want to social engineer people away from things they deem bad would like that, but it completely cuts against the grain of raising revenue.
Sure, but also isn't that what a carbon tax would do? It seems okay to both want to raise money and mildly disincentivize behaviors that have mildly negative consequences.
Just be aware that that's the inherent double edged sword in all Pigouvian taxes.
That's the point! Taxes disincentivize behavior. So taxing labor, investing, etc. has negative consequences which we don't like. With Pigouvian taxes, we like the disincentive! So we win on both the tax and the disincentive.
And I hold that it's a dangerous game to be picking on things we don't like to punish with the tax code, or vice versa. And Trump has made things worse here, as Matt has demonstrated with some examples.
Isn’t the idea that you use Pigouvian taxes to tax behaviors that impose costs on the rest of society? i.e, you tax pollution because the social cost is greater than the private cost to the polluter.
I agree that it’s a dangerous game - who determines these ‘social costs’ ? - but I do think pollution, drug use, and traffic are clearly things where primary users are imposing costs on the rest of society. We wouldn’t solve deficit crisis with that amount of revenue, but we would be transferring cost burden from non-users to primary users of those goods.
It’s not a question of punishing or not punishing — it’s a question of what we want to disincentivize. By default, income tax disincentivizes working harder and being more productive. Trump made it worse, sure, but I think our tax incidence can be better. The alternative is unilaterally disarming, not going back to 2014.
Not as dangerous as NOT taxing net CO2 emissions.
If carbon is taxed, more Americans will be forced to buy their carbon on the black market. That carbon can be mixed with baking soda, baby powder or even fentanyl! It's much safer to keep carbon taxes at $0 so that we can continue buying carbon from reputable companies.
The point of this sort of tax is to make people pay for the negative impacts of what they’re doing. It’s not to raise revenue. The revenue is just a side bonus.
Most politicians and lawmakers aren't looking for revenue as a mere side bonus, though.
They should be, with these things. If you want revenue, fix the income tax code.
With alcohol, some people might respond to a tax by drinking cheaper brands. If the tax is per cc of alcohol, demand would be relatively inelastic.
The edge case is the degenerate alcoholic who already drinks cheap liquor and pays the 21 cent per shot ad valorem tax that is priced into distilled spirits. Raise this to a buck a shot and he would drink less.
I wonder what the macro effect of this round be. If his liver failed more slowly, it might actually increase government spending on his health care.
Indeed, “deaths of despair” are often good from a strictly fiscal standpoint. Abstemious 90 year olds might collect $750k in social security. People who die at 56 collect $0.
Yeah an alcohol tax obviously should be based on quantity of alcohol, not price of the purchase (though general sales taxes should apply to the price of the purchase). The point is to create extra incentives to decrease consumption, which includes incentives to switch from cheap hard stuff to slightly more expensive slightly less hard stuff.
You’re a mean one, Mr Grinch
I don’t want the dude to die, I’m
just interested in the fiscal effects and i hate lazy arguments which assume “vice must cost money.”. Exposing unhealthy infants would also save alot of money. Virtue might be expensive and serious people who want to defend virtue need to defend the expense.
I don't think the claim is that they should be the anchor of federal revenues. I feel you are reading this article incredibly uncharitably and writing your comment with a maximum level of abrasiveness. The U.S. tax code has lots of small bespoke taxes and also small bespoke tax exemptions, and the point is that this alters incentives, and if you are rebuilding the U.S. tax code you are going to want to include a variety of consumption taxes that can help replace lost tariff revenue (the tariffs themselves are hardly making a massive dent in medicare costs!) I do not think anyone who has read this blog for very long can seriously believe Matt thinks the US can pivot to a revenue system solely based on sin taxes. Do you think Matt believes cigarette or tanning bed taxes contribute a large chunk of federal revenue? If you stop and think about this for a minute it should be obvious that is not his meaning.
My core objection is that Matt is talking about economics without coefficients. To me, this is his worst habit.
Matt is smart and has access to AI and support staff and I doubt he thinks that sin taxes can anchor federal revenues. I never said he did!
Still, the fact that sin taxes cannot anchor federal revenues is significan, especially if such taxes would piss off a substantial number of voters.
Re the distribution of drinking. I have lived in an East Atlanta precinct that went 90-95% for Obama and a Fayette County precinct that went 60% for Trump. I have observed similar levels of drinking in both places. Other than Utah, I’ve never gone anywhere in America and seen a hugely different alcohol culture. I’m not saying there is parity between how much Rs, Ds and Is drink, but there are enough of each to make alcohol taxes schoolmarmish and politically toxic. I worry Democrats learned nothing from the recent swing of young men towards Trump.
You should visit Wisconsin, or Michigan's Upper Peninsula. I had a work trip in Calumet (check out Shute's saloon and their 100+ year old stained glass bar) and asked the bartender what I could do while I was in town. He told me most tourists visit the local nature preserve at Copper Harbor; but most locals get a six pack of beer, get in their truck and keep driving until the beer runs out.
Both are swing states….
And have the two highest levels of drinking the the US. I agree with you!
Just figure out who voted for Trump and stick them with punitive taxes (as well as civil asset forfeiture)
Hmm, all life forms require carbon cycles. Ie, even the most basic carbon taxes could help us abundantly plan for scalability and reorientation our economy towards progressive and efficient growth, preservation, and decay of all life; chiefly US voters. I'd suggest a more humble and humanitarian approach to our economic policy, but I rather doubt voters can think beyond their hatred of taxes relative to their pain of loss for assumed benefits, regardless of how even Trump 2.0 handles this.
Tax the hell out of sugar and other high calorie sugar substitutes
I would vote for you, Mr. Bloomberg!
Part of me thinks we could do this by framing the tax as a way to help us help ourselves. MAHA-lite because we know sugar is addictive and terrible and Americans are grossly fat and its killing individuals and society. Even a small tax might encourage producers to pull it out of food. Or tax canned veggies that have sugar added. Amazing how almost everytihng has sugar in it.
Because taxing fun makes voters love you!
good policy and good politics are definitely not synonyms
i feel folks need to be comfortable with 150k-300k earners also having a tax increase if we want more services.
basically the only people who like getting into the weeds about tax policies are liberals making income in that range (e.g. 80% of this comment section)
Look, man, “rich” is above $183,296.23 dollars a year. Everyone knows that,
What, ah, is your total income this year, apropos of nothing?
I’m middle class
Oh hey, I found a quarter. "Rich" is now $183,296.48 a year.
I was going to object to finding a quarter being considered income. But according to ChatGPT, CPA, JD, it’s apparently treated the same way as if you, like, came across a hoard of pirate’s gold (“treasure trove”), and is therefore is in fact income to the IRS.
You haven't been reporting the money you find on the ground as income? I'm totally whistleblowing* you. $.04 to $.08 of that quarter is mine!
*https://www.irs.gov/compliance/whistleblower-office
It's a good day to be broke in the SB comment section.
You're not getting either in the current fiscal environment
The problem now is deficit reduction to avoid debt crisis.
Reduce entitlement spending and raise taxes, while somehow easing it in for minimal pain.
This is the way.
Exactly
the opportunity becoming IMO to look at rationalisations - become the Smart Fiscal Party.
Get deficit down, look at effective ways of improving government performance (not destructive madness like DOGE) - show results to rebuild rep rather than tyring to add more programs in the face of zero street cred outside the people who will always be for more
Imagine if the Democrats actually cared how Government worked!? If you could convince people there was value for money. Hence the rise of Abundance, which is really in many ways repackaging Republican common sense to be palatable to Dems who know better but can't bring themselves to vote R.
We can't afford the services we have now.
Any tax increases will be to partially cover what was already promised
There will be no new services.
Only higher taxes AND benefit cuts
I'm a bad person, so I maintain that anyone making more than the fed salary cap is clearly rich.
Part of the unacknowledged reality that dems confront is that a lot of us don't feel like we want or need 'more services.' I'm all for balancing the budget (we should), but the other option is to accept the current tax base and accept a government that is structurally smaller and does less. R's are winning hands down on this argument - anyone who's been to the DMV comes away thinking, I'm fine with less of that.
Newsom fixed the DMV here
or if we want the same level of services, or even if we want a modestly lower level of services
I don’t want more services. The government sucks at providing services. What folks need to be comfortable with is that just funding Medicare and Social Security is going to require some serious tax increases - and the people making $150k-$300k might simply decide they don’t want to fund someone else’s retirement.
The deduction for car interest is one of the dumbest policies I've ever heard. It's like that reddit post "they should make horseshoes out of uranium... so the horses get radiation poisoning." What possible public good could this serve. "We should make car loan interest deductible... so people are encouraged to take on more car debt!"
and it's regressive as hell because it's a deduction, so you have to itemize to get it... and it's worth more the higher the bracket you are in. I think if people understood how deductions work all itemized deductions would be a lot less popular. Only 10% of people are itemizers!
Tax cuts for top 10%ers with expensive car debt is peak Republican brain.
"Those dealerships won't rent seek themselves!"
I have to think most itemizers now are the idiots like me who bought a house in the last 2.5 years.
You do NOT need to itemize to take it
https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors
thank you for correcting me though it is still much better for rich people who pay 37% vs people in the 12% bracket.
Wow so you get it on top of the standard deduction? Jeez Louis no wonder the deficit shot up even with the massive decrease in health coverage haha
Can't tell if this is better or worse
It is revenge against Democrats for student loan forgiveness. That's it.
Ah yes, the two genders: bought more college than you could afford, and bought more car than you could afford
Paying off everybody's car loans in a one-off would actually be less distortibe than doing this on an ongoing basis.
Sure. But who expects Republicans to be intelligent?
Sadly many people believe that any tax cut is a good tax cut.
This will sound like a joke but it's not; why don't they just eliminate taxes altogether?
Wasn't Trump saying something like tariffs could replace income taxes eventually? (Because that's how it was a long time ago.)
I'm pretty sure Trump said it, but I'm definitely sure that tens of thousands of MAGA bobbleheads said it on Twitter.
He says a lot of stuff, so probably that at some point too
Any tax cut FOR ME is a good tax cut.
>What possible public good could this serve<
I figured it's mainly about votes in Michigan and Ohio? If helping Republicans win the Electoral college isn't a public good, I don't know what is.
Oh my God, mentioning the tanning bed tax brought back a memory of how stupid the arguments around ACA were. I recall some dumb Congresspeople going molon labe on tanning beds. Ridiculous.
I can't believe this never occurred to me before, but I can think of one person in particular who might have lost his mind over the tanning tax.
I’m not a tanning tax wonk, but does it also cover spray tans?
Noah Smith is uneven (in particular I don’t always like his foreign policy views/takes) but here he is spot on:
https://open.substack.com/pub/noahpinion/p/should-democrats-go-back-to-neoliberalism
One more for the anti anti neoliberalism crusade.
His comments are very useful
Notably e.g. the comments on how dumb it is to be scapegoating the retail grocery store biz where the margins are razor thin - at cost - and not going full throtle not at attacking "Big Corps" for illusionary price goaging but at the actual source Stupid Trump Taxation on your Goods (aka Tariffs) and making it more expensive for farm labor too driving up your prices
Exactly. Does anyone look at a grocery store or gas station employee and think "they must be making bank!"
They should go for _real_ neoliberalism that did NOT mean making the income tax less progressive.
Unfortunately, the British Labour Party are a very cautionary tale here: Their pre-election promise to not raise any of the three largest and broadest taxes (income tax, VAT, and national insurance) is causing lots of problems as debt payments increase and public services aren't improving. Currently there's a lot of appetite for various gimmicks that might raise a few billion here and there, but the government are (understandably) trying very hard to avoid breaking that core pledge. My guess is their hand will eventually be forced though.
They could get rid of... the triple lock (gasp!)...
The United Kingdom is a nuclear-armed pension scheme
The most unfathomably stupid pension scheme known to man at that.
what's bad about it?
It is a policy that guarantees that state pension payments will increase every year by the highest of inflation, national average wage increases, or 2.5% (so, a minimum of 2.5% every year). I believe, because of this policy, that British state pensions are projected to cost more than the entire UK GDP within this century.
Wow… that’s… that’s a problem alright lmao
Question: do campaign promises by a UK party persist only until the next election, or indefinitely until the end of the current party’s majority? (Or maybe it’s always the latter in practice even if not theory.)
Well they're not magic, or a legal commitment, so they 'persist' for as long as the party in government persists with them. They will be accused of breaking their 'manifesto promise' at any point if they change, but the effectiveness of that criticism depends on many things like when in the Parliament you are (the criticism gets less effective the further away you get from the election), if any circumstances have changed that can justify breaking your promise, etc.
“What is the implicit temporal scope of a campaign promise, if any?” if you like.
Then yeah, the other answer you got is right. It will be considered out of date (barring any obvious major change in circumstances) when a new manifesto is being drawn up.
Only until the next election really. Then they'll be superseded by whatever the manifesto says for that election.
Labour is coming very close to making Democrats look shrewd and clever.
Better than going after benefits for disabled people.
You can't fund a strong social safety net off the rich. The idea that 250,000 a year is somehow middle class is ridiculous. You can't have your cake and eat it too.
"The idea that 250,000 a year is somehow middle class is ridiculous."
To take Chicago as an example that's the HHI of a police lieutenant and an ICU nurse. Are you saying a cop and a nurse aren't middle class? I have a feeling you're a bit out of touch with how much people make.
If terms like "middle class" don't respond to particular income thresholds, it might be best to just retire the concept.
Economic vs social class. Not sure if the guy you’re responding to is trolling, but they’re perfectly legible concepts
I'm aware of the separate meanings, I'm just complaining that words that can mean such wildly disparate things are deeply unhelpful for fruitful conversations.
And you can seek to 'retire' other inconvenient phrases....
Or work with reality.
Lefty eggheads professional class engaging in campus armchair hairsplitting will achieve nothing more than looking stupid to the wider population. This kind of reflex is 50% of Lefty problem right now.
I didn't mean it as tone-policing. Rather, I mean that if you want to communicate an objective or policy (like "we want to tax people income >$X" or "we won't tax people below income $Y"), and you use words like "middle class" that no-one can agree about the meaning of, then you will mislead or confuse your audience. Therefore, you should not use those words - out of self-interest.
The median family income in this country is about 100k. That means half the population is below 100k. So yes, 250k isn't middle class.
https://fred.stlouisfed.org/series/MEFAINUSA646N
Middle class is a highly relational concept and normal logic or math is politicaly irrelevant. Do you live in the neighborhood where all the doctors and business execs live (you're rich), can you afford to join the country club, even if you don't want to (rich), both kids in private schools (rich). Do you shop at Costco (middle class), eat out infrequently, even if it's just because you have a frugal streak (mc), get up every morning and brave god-awful traffic to get to a job you don't love but can't quit because you need the income and don't have enough saved to live on passive returns (hoo boy are you middle class). Basically 90% of the public self-identifies as middle class and they're not wrong - by the amorphous definition we all intuitively accept, anybody who's not scraping by or a Mr. Burns idle, too-good-for-you asshole is middle class.
OK but when it comes to tax policy, you can't have a generous welfare state and refuse to raise taxes on 90% of the population. Regardless of people's sensibilities, that math doesn't work.
I think this is an absurd definition. You are basically saying that anyone who has to work for a living at all and isn't a bottom-rung underemployed retail or service worker is middle class. I do not accept this amorphous definition. Upper class clearly includes like, doctors, well-off lawyers, highly-compensated engineers, etc. It has been that way for my entire life. I do not believe for a second that everyone in the country has magically revised this definition to say that only the absolute wealthiest people in the country are upper class.
In a 2024 Gallup survey, 54% of Americans self-identified as middle class, 31% said working class, which I'd argue is another version of middle class in the American idiom - only 2% said upper class. Like it or not, it's an uncontroversial truism that people vastly over-identify with the middle class and vote on that basis. Tax them at your peril.
Working class is not another version of middle class, it's definitely a euphemism for lower class.
I don't disagree that people who are rich want to claim they are middle class, I do disagree that actual middle class people *agree* with them. And being middle class is certainly not equivalent to opposing higher taxes, given wealthy white collar professionals are overwhelmingly liberal
If we're going to talk about class outside of a particular context, "has to work for a living" is the opposite of an amorphous definition, and seems like the only stable way to draw a border between upper-middle-class and upper-class. (Emphasis on *compulsory*!)
On the other end, "can't afford shelter or food" seems like a reasonable boundary line between LMC and lower-class, and I'd say "working class" doesn't really exist in the US, unless we're using it to differentiate PCM from non-PMC workers.
On the other hand, we really have to ask, what even is the point of the term "middle-class" here? If it's to build political support for something, you're best off accepting voters' self-id, or you're going to be in for a long fight.
I think working class is a thing. It means you aren't poor but most of the following apply to you:
You can't afford to go on an airplane vacation each year with your kids
You don't have a guest room or two living rooms in your house
You can't work from home even one day per week
Most of your peers do not have a college degree
It is totally off the table for your children to go anywhere but the cheap state universities without scholarships
Like others are writing, I'm not at all sure the concept of class rings true in that way to the majority of people hearing it.
Even just in raw income terms, half of households make less than 100k currently, but quite a few have or will make more than that in their lives (students, retirees), and so broadly align themselves with the concept of someone making 250k.
Right, those are both jobs with significantly higher-than-average incomes. Only a small percentage of police are lieutenants, after all. Most cops aren't making lieutenant pay.
Salary of an officer in Chicago after 18 months is $93,186 and with some seniority and overtime it can hit $173k.
This is sort of like pointing to one of those absurdly overcompensated longshoremen on the east coast and saying that's an example of what normal middle class people make. Police officers obviously only make so much because they are a unionized cartel of rent-seekers extracting more money than they are due from the public purse. A much more normal 'middle class' type job would be a plumber, who in Chicago is not making more than $80k unless they own their own firm.
"The average Union Plumber in Chicago, IL makes $113,301"
The max is $248k.
Where's that from? The ziprecruiter site says the average of actual job postings is $31/hr which is about 65k a year
What percentage of plumbers nationwide are union?
And median *household* income in Chicago is $75k. A household income of $173k would put you in the top 20% of households by income.
A better metric would be median income by age. What is the median income of a 35-45 year couple in Chicago.
I don't know how to get exactly that number, but by this Census table (https://data.census.gov/table?q=age+income&g=160XX00US1714000) the median household income in Chicago with a householder age 25-44 is between $75-100k.
What are you trying to argue at this point?
I remember a lazy guy in college who insisted he was middle class when his parents made over $500k a year. I told him a Jaguar is not a middle class car. Now he lives in an apartment in the upper east side his dad bought, working for the mayor’s office, and his brother is still living at home despite being in his mid 30s.
I think a jaguar could be a middle class job. Zookeepers don’t make that much.
Ha, car not job. Dumb me.
Tony Soprano is just a waste management consultant! Are you saying he's not middle class?
Is their house paid off?
This is the key!
The key to what?
Yep it really depends on where you live
Can someone explain the best argument against taxing investment income differently than other forms of income? I feel like I’m missing something and would appreciate the steelman.
Sure, at its simplest, the belief is that long term investment creates a multiplier effect in the economy and should therefore be encouraged. Hence, taxing long term capital gains at a lower rate encourages economic growth.
One flaw I see in that scenario is that companies, especially in the last decade, will use their profits to buy back stock instead of investing in growth, new equipment, manufacturing, etc. That aspect could be potentially quite glaring if the stock market has an extended setback---not only is there no growth or new assets but all that profit vanishes into thin air.
The argument is that once money is returned to shareholders, they re-invest the funds into companies experiencing higher growth- which is a net positive for the economy. If we forced unproductive companies to keep capital trapped, we know from hundreds of years of corporate history/looking at other countries that managers will build empires for themselves- wasting funds on unnecessary operations to make themselves look more important. Shareholder discipline is 'your company isn't really growing that fast at this point, return cash you don't need so that we can invest for a higher return elsewhere'
companies should invest in growth when they have opportunities to grow profits, not when they have "excess" capital on their books.
by and large, i think us companies are pretty efficient at allocating capital, so i find the idea that buybacks displace investment very unconvincing.
Boeing may be the exception but they haven't produced a new passenger jet for some time and their spacecraft division is having problems. But they've bought back plenty of stock.
As someone who has worked quite a bit with Boeing over the past 18 months on the military side -- they really need to get their act together. Surprising some of the people they have representing them.
The reason they do stock buy backs is because it's the most tax efficient way to distribute returns to shareholders. Dividends are taxed at a much higher rate than capital gains.
A buyback is just a bet that your stock is undervalued. The downside in which there’s no growth already happened; the stock buyback doesn’t cause that.
Capital gains doesn't just apply to stocks. So maybe Bob needs to raise money for a plant expansion a bunch of Bob's rich friends buy into his private company at $100k a pop.
5 years later one of the friends wants to sell to someone else. That's also capital gains.
So actually is the sale of a house.
a stock buyback doesn't functionally do anything since the shareholders already had a claim to the cash on the balance sheet.
is the thinking that, on the margin, people are investing more and consuming less because it's taxed less? Or is the thinking that the marginal dollar going to capital markets in the form of stocks and bonds instead of it going to the treasury is better for growth?
Investing more and creating stickier pools of capital (hence it applies to long term gains). I am sure all proponents would agree with your second sentence, but that is simply because intentional investment should lead to growth directly, where as mere government liquidity would not. It’s not a theoretical basis, however.
What goes to Treasury is not borrowed.
One good argument for having an inclusion rate of 50% on capital gains (so only half your gains are exposed to taxation) that I didn’t really understand until later in life is that it exempts the gains that were just due to inflation. How well a particular exclusion rate corresponds to this amount depends on the how long the asset is held but any discrepancy on the short side can be justified by the productive nature of the use.
This is really important the higher inflation is. If you hold an investment 2 years and make 20% return, but inflation was 7% both years, your taxing people like they made 20% when they actually made less than 5% in real dollars.
If we want to raise the capital gains tax, we should definitely make the basis inflation adjusted.
But a lot of that is made up by the compounding effects of deferral of taxing the gains until they are realized as well as indexing of tax brackets (I pay tax on the same nominal income that I make this year than the same income received in the future). If you had to mark to market every year and pay tax on any increase, that would be different.
Capital gains tax brackets are much larger than income brackets though, and VERY few *people* go past 15% so indexing the brackets means much less.
I'm not sure how compounding matters here. Its the source of much of the growth over the long term, but as such would be the source of most of the gain that is taxed...
>One good argument for having an inclusion rate of 50% on capital gains (so only half your gains are exposed to taxation) that I didn’t really understand until later in life is that it exempts the gains that were just due to inflation.<
I don't understand this approach. Why don't we just apply a deflator tied to each investment's age? Why the crude approach of a flat, 50% exemption? Can't be that difficult to do the former with modern software. I do think it's only fair (and economically efficient) to tax real rather than illusory gains. But we ought to do so with more precision.
It’s a good question. Not sure if tax experts would lean more on the simplicity argument or productive use of money argument.
The way to deal with that is just to index the gaines.
The inflation argument is probably the strongest one.
But the other thing people should realize about this debate is that the majority of middle-and-upper-middle-class people’s capital gains are already tax-exempt because they’re located in tax-exempt accounts—401ks and HSAs and IRAs and 529s. A married couple with a kids could contribute over $100,000 a year to these accounts and none of the gains are taxed (for the Roth version) or the gains are only taxed when you withdraw from the account and not each time you sell an investment. Capital gains on primary housing is also tax-exempt up to $500k. And you can also avoid capital gains by just not selling and when you die the basis steps-up so no one ever has to pay taxes on those gains.
So when we’re talking about capital gains tax rate, the real rate of capital gains tax that middle-class people are actually paying is very low—I’d be surprised if the average person paid even 5% of their lifetime capital gains in tax. The capital gains tax primarily hits rich people and professional traders.
But it's not the middle class people that are driving the investment that makes everyone better off, it's the rich people.
Rich people have money, they invest that money, this is good it grows the economy and creates jobs and wealth.
529s should not be included in the discussion with the other types of accounts as they are substantively different.
The idea is (leaving side the taxation of dividend from already taxes corporate income that ought not to be taxes at all) that you tax both the saving now and then also the income of the saving. Exempting all "capital" income is (with the right assumptions) the same as a consumption tax. So special rates for capital income plus IRA type set ups sort of approximate taxation of consumption.
This is the (only) correct answer.
Part of it is double taxation since the corporate tax exists.
My view is the we should get rid of most business taxes, treat realized capital gains as regular income, and raise individual rates to generate the income we need.
This is the way.
Maybe if you increase the basis by the inflation rate. Otherwise you are just taxing inflation.
Within the income tax system, yes, making realized _indexed_ capital gains as regular income.
>Can someone explain the best argument against taxing investment income differently than other forms of income?<
To me the best argument in favor of taxing investment income differently is that even the Danes do it. There seems to be unanimity among rich country governments that the tax code should provide at least some boost to savings and investment.
Taxing investments encourages consumption. Do you want people to invest their resources into growing businesses or consume their resources?
Also fairness--you're already taxed on your wages. You then invest those wages into companies, which are taxed (when a company pays corporate tax, you as the shareholder are paying that tax, even if you hold this investment in a nontaxable account). And when you take your money back, you get taxed yet another time.
How many layers do we really need?
Best argument *for?
Matt--brilliant. BUT. Isn't there a strong case for tax simplification rather than creating a multitude of new, untried taxation strategies? Seems the law of unintended consequences thwarts many well intentioned progressive tax policies. Less is more ??
Yes complexity is a tax as well. I believe we waste over $200 billion a year on tax compliance costs. That's the budget to the state of CA.
Plus....the economic and social externalities.....probably several times more than the $200B you indicate. How to quantify the social cost of taxpayers' beliefs that the entire system is rigged in favor of the 1,5, or 10%.....
Worth considering.
" ... European VAT (ultimately a big European-style welfare state requires something like this)"
The social insurance system we have, never mind any "European" expansions, requires a VAT.
It seems to me that the deficit is sort of like climate change, politically speaking:
-a genuinely huge problem
-the worst effects will hit in the future, but something needs to be done *now*
-the average voter doesn't give a flying fuq about it and *will* get super mad at you for taking any painful/inconvenient actions to address it, such as raising taxes/implementing a carbon tax
-therefore, the problem is pretty much unsolvable beyond saying, "Godspeed, future generations! Thoughts and prayers!"
The difference is that climate change could potentially be solved with scientific breakthroughs (geoengineering) but there's no way to make budgetary math work with innovation.
I think the equivalent of "innovation" is "being wrong." Many (most?) economists thought Japan would be in much more serious trouble with 250% debt:GDP ratio than they are actually in.
Economists know a lot but there are also a lot of unknown.
I'd rather not take the risk either way though.
Oh, if you assumed arbitrarily large TFP increases. Taxes are progressive in real income.
The technological solution to the debt is to find a way to increase productivity such that US GDP grows by ~6% annually. At that rate, the debt to GDP ratio starts falling on its own
At times, I've imagined the idea of a special kind of carbon tax that is narrowly tailored to consumption activities that only the super-rich can afford. For example, from a moral standpoint, billionaires really should be paying tax on their carbon emissions when they travel around in their luxury yachts or private jets.
However, even this isn't the political slam dunk it appears to be. The amount of money it would actually raise would probably be negligible relative to the federal budget deficit, rendering it little more than a gimmick. And, of course, if the tax were to be high enough to actually reduce carbon emissions (e.g. get the super-wealthy to consume less of this stuff), then some middle-class people who get paid to help build or operate these yachts and jets might lose their jobs (granted, the number of such people would be very tiny, relative to the U.S. economy, but it would not be zero, and even one such person would generate sob stories that would be eaten up by Fox News).
“No taxes on car loans” is a giveaway to car dealerships. The Abundance version of this policy would be expanding D2C car sales
"
The regressive nature of tariffs is clearly one reason Trump likes them.
"
Oh come on. You don't have to think these are good policy to realize that trump likes tariffs because he thinks they'll be good for the industrial capacity of the united states and gives more working people good manufacturing jobs.
Don't assume bad motives without evidence
He likes them because he has total power and people have to come to him with tears in their eyes begging him to give them a waiver.
I'm sure that's part of it. But he was a big believer in tariffs before he ever became president.
He doesn’t care about the industrial capacity of the United States. He just got afraid of Japanese people in the 1980s and wants to tax them.
"He doesn’t care about the industrial capacity of the United States"
I think this is patently untrue. I think many of his solutions are going to be wrong and ineffective.
But this is clearly an issue he really cares about.
To find a counterexample, you have to think back all the way to ... yesterday's Matt column.
That just makes it worse.
Yes, I do think that Hanlon's Razor does apply in this case.
I'd also use this chance to think about the marriage penalty/boost. Today households are taxed at different levels in part because we recognize they are likely to have children and need a leg up, only people aren't having children as much any more!
I'd like to see the tax code restructured so that people are taxed as individuals regardless of marriage status, and you'd get a standard deduction increase per each child you have that still depends on you.
This would make the relationship more explicitly and act as an incentive to have more children by making each more affordable. There are some details that would need to be figured out, like how to handle shared expenses, but other countries have managed to so I don't see why the US can't.
"I'd like to see the tax code restructured so that people are taxed as individuals regardless of marriage status"
Hard disagree here. Marriage is good, we should be rewarding people that get married, stay married, and have kids.
The family is literally the foundation of civilization.
Why should the tax system reward childless marriages by giving them a marriage discount?
If the only reason to tax marriages at a favorable rate is children then it'd be better to give a discount on a child basis rather than on a marriage basis.
Because numerous studies have shown that there is something special about marriage. That kids raised in a married household (not just a two parent one) do much better.
There is a stability and certainty that marriage provides (thought cultural changes are IMHO needed to strengthen it further).
The low-hanging fruit for tax reform has been there for years - run on a platform of generally keeping taxes the same, but making it much simpler. "By the end of my first term the IRS will send you a check or a bill for your taxes, and you'll have the option to make changes before it's final". Then you can strip out the exemptions and carve-outs, tweak the brackets, change medicare vs. SS vs. general income tax ratios, without having to stick to specific proposals during the campaign. And basically everyone is getting something - 90% of Americans take the standard deduction, and 2/3rds get a refund, so you're giving the benefit of reduced paperwork to 60%+ of Americans.
Taxes in America are like tipping in America - there's no good reason for them to be so terrible other than that Americans apparently can't be bothered to do better.
(And as in the tipping subthread, a surprising number of people will argue that no, taxes and tipping are fine, as long as there's a carve-out for their preferred people).
The tipping thing I don't spend much mental energy thinking about because there's no good way to get to a no-tipping society; what are we going to do, ban tipping?
Changing the tax experience you just have to get Congress and the president to agree that it should be simplified. There's a pretty clear path IMO. Yes, some people with carveouts today will be mad, but the benefits to the vast majority of people should give you plenty of air cover.
As an aside, as a liberal there's something to be said for simplifying the primary way that people interact with the federal government. I'm not surprised that trust in the government is low when people's experience with it is having to fill out a mind-numbing form (or paying an expert to do it for them). If a future president wants an Abundance-type government that delivers services, a great place to start is making yourself the person that turned filing taxes into an afterthought.
It's well within the power of an individual state to ban tipping. Even a temporary ban of a couple of years would reset social conventions
I struggle to imagine what would the actual law look like. Certainly you couldn't punish people for tipping. You could say businesses are prohibited from soliciting any money past the amount of the check? Businesses would hate that because they'd need to renegotiate salary with all their staff.
I almost think it would be easier regulating from a technology perspective; ban Stripe/Square/whoever from showing the tip screen or ban payment processors from changing the charged amount to include tips. But that would probably be at the federal level due to payments traveling cross states.
In general, I like the tradeoff of lower rates in exchange for fewer deductions. But, the devil is in the details, and to meaningfully lower rates, you'd have to sharply curtail popular deductions, including home mortgage interest and charitable contributions. In practice, the tax code is like software code. It only gets more complicated over time, as one more rule is written to cover one more case, never simpler.