I asked the question on Twitter, but I don’t know if I’m going to get any real answers or any answers at all over there. Here it is:
What’s the appeal to taxing inheritance differently than other types of income? Aren’t flat taxes bad and regressive?
I’ve occasionally encountered emphatic support for a 100% inheritance tax, but I’m never sure if that’s not really a joke coming out of people’s frustrations with nepotism and generational wealth accumulation. It seems like there are better ways to address those things than making exceptions to the progressive income tax.
You’re assuming marginal cash has the same value for everyone. It doesn’t. Losing 20% at the top bracket might barely be felt. Maybe can’t buy quite as many classic cars for the collection, or can only have eight yahts, instead of nine. But at the bottom, that 20% can mean the difference between being able to make rent and ending up homeless, or between being able to pay the power bill or not. It can be the difference between having to get a payday loan or not (and thus cause a loss of considerably more than 20%).
Look up the term “marginal utility” for an academic treatment of the subject.
I’m not assuming that. I’m just explaining the rationale behind tax progressivity. A 20% flat income tax is not regressive by definition. It sucks but its not regressive because that term refers to something specific.
I’m well aware of what marginal utility is and why it’s not really equal pain which is why I used the quotes.