The Republican-controlled U.S. House of Representatives voted last week to repeal the federal estate tax, a 40% levy applied to individual estates of $5.4 million and more.  The estate tax as it now stands is projected to bring in about $27 billion annually — about seven-tenths of one percent of our $3.9 trillion federal budget.

For years, Republicans have chosen to call this revenue source a Death Tax.  Their aim is to stigmatize the estate tax by casting it as a heartless and oppressive government levy on life events that are the province of God, not man.  And when that doesn’t fly, Republicans resort to the argument that the estate tax hurts everyday mom-and-pop concerns who only want their sons and daughters to carry on the family pizza business — or more likely, that 20,000-acre ranch with mineral extraction rights — without having to pay an onerous tax that forces the sale or liquidation of the operation.

You may be surprised to learn that I also oppose the estate tax as it stands.  I understand the justification for progressive income taxes, sales taxes and property taxes, balanced so that the burden of financing government is shared among people of all income levels.  But a tax on wealth alone seems arbitrary to me — more like a taking than a tax.

To illustrate, let’s pretend that Alice and Bob, whiz-bangs in the world of high-finance, each accumulated $10 million during their careers.  Upon her retirement, Alice chose to spend her millions on luxury consumables such as penthouse rents, country club dues, casino trips and expensive cars, and she died practically broke with no heirs.  Bob, on the other hand, father of three, saved and invested his gains so that his $10 million account doubled to $20.4 million by the time he died several years later.  In the end, Alice basically paid sales tax rates (if that) on her $10 million of spending — if we assume her sales tax rate was 7.5%, she would have paid about $750,000 in taxes.  But Bob’s executor had to pay the IRS $6 million (40% of $15 million, the portion of the estate above $5.4 million). The bottom line is that Bob, by having chosen not to spend his wealth, paid $6 million in taxes vs. $750,000 in taxes (at most) that Alice paid to live her chosen lifestyle.

So Republicans don’t need to spin mom-and-pop business fables to argue that estate taxation — and wealth taxation in general — has a shaky foundation.  It is unclear to me what public good is served by taxing a dollar saved at a higher rate than a dollar spent.  This is the basic illogic of the estate tax that, curiously, Republicans never seem to invoke.

Wealth differs from income in a fundamental way: for any given level of income, wealth results from choices and circumstances that arise after the money comes in.  Sometimes, people with low incomes have been able to accumulate significant wealth by showing extraordinary restraint on their spending.  Should the wealth of those persons be taxed the same as other wealth, with a blind eye to how it was accumulated?  If our answer is no, then wealth taxes should be rejected per se and we should rely on income taxes instead.

As a democracy, we can pass any (constitutional) laws we deem fit, including estate taxes and other types of wealth taxes.  But the estate tax still feels like a taking, an undemocratic relic of a long-ago time when wealthy landowners were forced to pay tribute to the king — not because they loved the king more but because that is where the money was.

We shouldn’t soak the wealthy just because they are where the money is.  While doing so may satisfy our passions, we should remember: the rich are people too.  (That’s right, you read that here.)  Our principles of what is just and what is not should apply to everyone, regardless of status, otherwise they are not very strong principles.

Wealth is money waiting to be spent — when it is spent, then it can be taxed.  Our society can afford to wait for it to be spent, as all wealth eventually is, and we can extract our tax on it at that time.  We will not suffer by waiting.

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Ideally, a person’s choice whether to spend one’s wealth, save it, or give it away should be tax-neutral.  On this basis, I could argue that Republicans should not abolish the estate tax entirely but instead treat an estate as if it had been spent during the decedent’s lifetime, taxing that amount at a sales tax rate (under 10%).  This would put Alice and Bob on more equal footing.  Few could claim that an estate sales tax would be unfair or confiscatory.

If former U.S. Representative Barney Frank were reading this blog (and that would be incredible), he would quickly raise an objection.  Barney would first point out that most large estates probably have substantial untaxed capital gains.  Then he would argue, if you agree to treat a decedent’s estate as if all of it had been spent in his last year of life, then you must also pretend that the decedent had to sell his stocks, bonds and property before he could spend the proceeds.  Since selling stocks and other property can create taxable capital gains, the decedent’s estate should have to pay tax on those gains, in addition to that 10% sales tax proposed here.

I hate it when I have to do Barney Frank’s heavy mental lifting for him, and I hate it worse when I think he may be right.  So how about we agree to do estate tax light: 10% on the whole estate (after, say, the first $500,000) and another 15% on that part of the estate that represents untaxed capital gains.  This is still a lot less than 40%, isn’t it?  And it does have a certain logic to it, yes?  Barney?  Are you still there?  Damn, lost him already.

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Such considerations notwithstanding, I still think we can dispense with estate taxes, even the light version, while achieving tax fairness and maintaining revenue.  I proposed this idea almost four years ago, in my post Making Wall Street Pay.   In short, I would raise the Securities & Exchange Commission (SEC) fee on stock transactions from its current $18.40 per million dollars (less than two-thousandths of one percent!) to something closer to a sales tax, let’s say a mere one-tenth of one percent.  An SEC fee of 0ne-tenth of one percent applied to the $25 trillion worth of stock traded annually on the New York Stock Exchange would bring in $25 billion a year — replacing the estate tax almost dollar for dollar, and doing so without having to wait for anyone rich to die.  This is also one of the few ways I know to enact a progressive sales tax, one where the burden is felt more by the well-to-do than by the working class.

So, Republicans, you don’t like death taxes?  No problem!  You can just pay them while you’re alive.  That would be fine with us.