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Tax Paris Hilton, not Britney Spears

June 15, 2007 in Taxes

Jason’s Furman’s blog post on The Economist’s Free Exchange blog not only has a clever title, but makes a clear argument against an estate tax and in favor of a inheritance tax. Philosophically, this amounts to taxing those who inherit wealth (Paris), but not those who general the wealth (Britney). He cites a paper by Lily Batchelder which states “inheritances should also be included in the heir’s income… because they are just as much income for the heir as are wages or lottery winnings.â€? The reason for an estate or an inheritance tax is to decrease income inequality. Furman writes “the correlation between tax rates under [Ms. Batchelder's] proposed inheritance tax and the current estate tax are 0.23 – suggesting the current system is not doing a very good job of applying higher tax rates to people with greater ability to pay.” Finally, if bequests are accidental–which is unlikely–then the tax will create no economic distortions.

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