So the same would hold for gifts given to children? At what age should this be enforced? If I pay for my kids grad program should that be taxable?
Of course it should. Income is income. If your 12 year old is out mowing lawns all summer, he's supposed to pay taxes on his income. Even his tips.
In practice kids are usually overlooked by the IRS. I suspect that has more to do with the puny amounts of money involved instead of their ages, though. It's not cost effective to audit a 12 year old for $30 in back taxes. But if that 12 year old inherited a few billion, I'm absolutely sure they would audit for their due.
Dividends and capital gains have theoretically already been taxed at the corporate rate, which is why I believe those are different.
This argument has always confused me. Yes, a corporation pays taxes on their profit. Then they pay their employees, who pay income taxes on that profit when it's converted to income. Then the employee pay sales taxes when he spends his taxed income which came from the taxed profit. Then the company pays corporate taxes on whatever the employee bought after paying sales taxes after paying income taxes after the company paid corporate taxes. ALL money has been taxed before. It gets taxed every time it changes hands.
So it doesn't make sense to say "dividends have already been taxed once" unless you also think you shouldn't have to pay sales tax because "my income has already been taxed once." They've both been taxed before. It's not like you can follow one dollar through the economy as it is traded and spent over and over again, because it is comingled and fungible. We don't tax dollars. We tax transaction events, like payroll or purchases or dividend payouts.
So theoretically this would be similar to you owning a chain of grocery stores and being taxed on the profit and then being taxed on the profit again when you take a portion of it home.
Yes! Exactly! If you're both the owner and the employee, you pay both kinds of taxes! Once on the corporate profits, then again as payroll taxes when you take home income. Then you pay taxes
again as the consumer, when you buy something from your own store! Then again as the owner on the profit from the sale from your store to yourself as the consumer! That's how taxes are supposed to work. Every transaction gets taxed, every time money changes hands Uncle Sam gets a cut.
An inheritance is just another transaction. It should get taxed, IMO. The only reason it doesn't is that the super-rich have effectively carved out a little exemption for themselves to protect and preserve their position of privilege, to perpetuate income inequality, to ensure that their families will always be the rich and powerful and that nobody else can challenge that secure position.