Taxing the wealthy isn’t enough, some are saying. Let’s tax people who had wealthy parents. Since children of affluent parents have all kinds of advantages when it comes to educational accomplishments and social mobility, so, the reasoning goes, when they grow up, it’s only fair that they pay higher taxes.
From Yo Jeremijenko-Conley and Dalton Conley, Were your parents rich? Maybe you should pay more in taxes. – The Washington Post:
We need a tax policy that accounts for how economic benefits and disparities are passed down from generation to generation. To do that, we could calculate tax rates based not just on what people earn now — as traditional progressive taxation does — but also on the income their families brought in during their critical childhood years. We shouldn’t tax the first-generation college graduate who makes a half-million dollars at the same 39.6 percent marginal tax rate as we do the heir who had his job handed to him.
Let’s introduce the Great Gatsby tax rebate for upward mobility: Tax the millionaire who comes from great wealth at 42 percent, and allow the entrepreneur who grew up in a lower-middle-class family to pay 37.2 percent. That would be an extra 2.4 percentage points for the lifelong millionaire and a 2.4 percentage point break for the one who grew up poor. At the same time, let’s not punish a child of privilege who gives back to society by, say, becoming a social worker who earns $25,000 a year; we could confine intergenerational adjustments to the top bracket.
In fact, by designing income tax policy in such a way, we would provide incentives for economic mobility. Of course, people don’t usually alter their behavior consciously in response to tax rates. But that doesn’t mean that they aren’t marginally affected by the ability to keep more (or less) of their money. This has been the argument of Republican tax-slashers for decades. If we make upward mobility more enticing for those from modest backgrounds, those folks will strive harder for it.
The U.S. tax code already tries to address the transmission of wealth across generations: It’s called the estate tax. However, most individuals who receive estates when their parents pass away are already adults who have made their way in the world. Most social scientific evidence suggests that the finances available early in life matter most to our economic, physical and psychological well-being as adults. Adjusting our income tax policy, on top of the estate tax, would affect families during their prime earning years. The policy would not only ask for something back from individuals who have been fortunate for two generations, it would also level the playing field, slightly, for a third — for grandchildren.