In his Wednesday post, Sir Charles says:
Personally, I think all of the Bush tax cuts should be phased out in all income levels and that a couple of higher brackets -- a 45% and a 50% bracket -- should be added to kick in when incomes reach $750,000 and $1.5 million.
I fully agree with this, and then some.
The reality is that some people have annual incomes that dwarf $1.5 million. And it's my belief that they should hit new brackets all the way up. The brackets should be spread far apart so that there's no question of 1970s-style 'bracket creep', but if someone made $600 million in a year, he should pay a higher rate on his last dollar of income than someone who made 'only' $100 million. And if someone were to have income of $5 billion in a year, he should pay a higher rate on his top dollar than the $600 million guy.
So I think there should be additional brackets at, say, $5 million (55% tax rate), $10 million (60%), $40 million (65%), $100 million (70%), $400 million (75%), $1 billion (80%), $5 billion (85%), and even $10 billion (90%). Someday someone will have that much annual income, if they haven't already.
I'd argue that this principle should apply even more so to the Federal estate tax, which after a certain point should become all but confiscatory.
Currently, the first $5 million of the value of a decedent's estate is exempt from tax. I'm OK with that part, because it mostly shuts up the nincompoops who claim that the tax is going to force the breakup of a family farm or the sale of a family business. (It wouldn't be true anyway: the tax from such an estate can be spread out over 15 years.) But the tax is only 35% on the excess, so someone who dies with an estate of $50 billion can pass $32.5 billion to the kids.
Nobody should get that sort of money just for having chosen the right set of parents. And this year, we've seen the downside of individuals having so much money that they can dump tens of millions of dollars into a political campaign that even they know is probably going nowhere. It can't hurt to reduce the number of people who've gotten that sort of money without having had to do anything to get it.
If the Bush tax cuts were to lapse at the end of this year (and the Democratic position should be to let them all lapse, then negotiate an "Obama tax cut" targeted more at the lower brackets), the Federal estate tax rate would return to 55%, with the first $1 million exempted.
Like I said, I'm OK with keeping that at the current $5 million. But the 55% rate shouldn't be dropped; in fact, the same brackets that apply to income above that number should apply to the estate tax too, only with additional brackets at $40 billion (95%) and $100 billion (99%).
It isn't like the heirs to billionaires would be hurting under this plan. Persons leaving $1 billion in their estates under such a tax regime could pass $280 million to their heirs; they'd be able to get by somehow.
I realize, of course, that none of this is anywhere close to politically feasible as things stand. But it won't ever get any closer to feasible if we never propose the idea in the first place. So I'm proposing it: tax brackets ought to go all the way up.
