There would be many far reaching short and long term consequences to having 100% inheritance taxes.
100% tax above a certain level. Not the same thing as a 100% tax. Estate taxes have brackets, just like income taxes, and I wasn't proposing changing that, just changing the brackets. Say, maybe 0% for the first 10k, and then increasingly progressive amounts up to 100% after 5 million, or something like that.
The concept remains the same. Policies and decision making by businesses and individuals would change as the brackets increase, and change drastically as it approaches 100%. To do anything else would be foolish, and businesses and wealthy individuals are generally not foolish with money.
When business owners know they are taking 100% of the risk of loss with their business, and that that a huge percentage of their business will be taken from them upon death, they will not risk their own capital to expand that business.
What evidence is there that people actually behave this way in the real world? Why would the ability to make lots of money here in the real world, while they are alive, stop being an incentive? Do people generally make their life decisions primarily based on what will happen after they die? Why do people who don't have kids build wealth or invest at all, if giving money to kids is the only reason for building wealth? Why do some wealthy people give their money to charity and teach their kids to make their own way in life?
There is always a risk vs. reward decision when making an investment. In any business or other equity type investment, the investor is taking on 100% risk of loss (let's leave out "too big to fail" which I think was a travesty, but doesn't apply in 99% of cases anyway). They weigh the expected return against the risk of loss. If you cap the reward by pushing taxation towards 100%, there will always be somebody who was on the edge, who would have invested but just barely, who would now say nope, not worth the risk. At 100% taxation, that becomes "Huh? What reward? I'd have to be an idiot to take any risk or put any work into something with no reward."
People who don't own businesses will look at that situation and be less likely to start new businesses. Therefore, existing businesses will grow more slowly, and not create as many jobs, and there will be less new businesses, thus creating even fewer new jobs.
As I said before, this country had at one time a 77% top estate tax and 94% income tax. The economy didn't shut down. I don't understand why this fact alone isn't enough to invalidate these sort of claims.
Also: businesses don't create jobs. That's just something that republican politicians made up recently to try to get the middle class to support tax breaks for the rich (see: http://biodieselhauling.blogspot.com/2012/06/poor-person-never-gave-me-job.html )
I read your page. I disagree with you. First off, a poor or middle class person can start a business--most small businesses bootstrapped their way to success, and as you've stated, a lot of jobs come from small business. Even a business can be barely profitable but still be adding and creating jobs. Of course businesses create jobs, show me the jobs that aren't part of a business. Your argument is that jobs are demand-driven by consumers, but that's only part of the equation. You still have the risk vs. reward decision as described above. Business in a free market is competitive. If the demand for your product is so strong that it's a no-risk easy decision to expand, if there is a large and sure profit, competitors will rush in to compete with you for it--driving profits down, towards the point where that risk vs. reward decision becomes a lot harder. When you mess with the reward side, you will drive down business expansion and creation, and therefore drive down both production and job creation.
Regarding your "fact" about 94% tax rates not shutting down the economy, I think it's hard to say how things would have been different with lower tax rates. Tax rates are of course not the only variable either--the period you're describing is when the economy was rocketing back out of the Great Depression, and includes the effects of WWII. It's quite feasible that economic growth, job creation, overall production, innovation, improvements in real wages, etc. may have all been faster with lower taxation.
Investments in improved machinery, factories, technology, etc. will slow.
Good. We produce and consume way too much crap in this country.
I'm with you on overconsumption. However, as MMM has said, it's amazing that we can live SO CHEAPLY in this country, with so much abundance. That is a direct result of innovation that allows businesses to produce what people need (and want) for so much less now vs. the past. I'm thankful that such thrifty abundance is a possibility. One of the core concepts in the Hazlitt book is that more and cheaper production means cheaper real prices and more real abundance for consumers. That doesn't mean you *need* to overconsume--it means that you can have better products and services for less real work required.
In the long run, this prevents consumers from getting better and cheaper products and services, thus keeping real wages down.
Improved machinery and technology actually keeps wages down, by increasing unemployment via increased production per worker in a system where a company has the option to lay off workers based on no longer needing them, and keep the resulting increased profit.
I'd really encourage you to read the Economics in One Easy Lesson book. There is a chapter that specifically refutes this fallacy (Chapter VII - The Curse of Machines). I suppose I could try to summarize it here as I did the other chapter, but Hazlitt is really a much better writer than I am, and the chapter is quite short--only 15 pages.
The same would be true at the personal level for non-business owners. If all of their income is going to be taken from them upon death, instead of them being able to give it as they choose to their own families, friends, charitable causes, etc., why should they work even one bit beyond what they need to cover their own spending?
Isn't that kind of the whole point of Mustachianism? Why should anyone have to work more than they actually need to? One of the ideas that was mentioned in terms of being FI without being evil is that what we want for ourselves we should make available to everyone. The natural consequence of that would be the economy would expand more slowly. But that would be ok, because we wouldn't need as much total wealth if we weren't wasting so much of it on stupid crap. At the same time, we would slow the rate at which we are using non-renewable natural resources. Win-win.
I'm not arguing that you *have* to work any particular amount. However, I would argue that you should have the freedom to work as much and as long as you want to, and that you should be able to choose how the value created by your own work is directed--whether to yourself, your kids, your friends, your favorite charities, whatever. Hazlitt would argue that the slowdown you're describing would make the quality of life for everyone worse--everything would cost more in real terms/real wages would be lower/more work would be *required* to buy what you need and want (all three are really the same thing).
Of course, there are also a lot of "needs" today that never existed even as a "want" 50 or 100 or 200 years ago. I saw a cabin on a recent trip that was a single room maybe 15' x 30' with a loft, and it was described as a typical rural Illinois home from the 1800s, and it had been used to raise two different families with 5+ children. Heat was provided by the wood fireplace, and the home had survived multiple chimney fires. I suppose I could live that way, but I am glad I don't have to.
