You can't take it with you, so the government might as well have it. Except, you can pass it to your family, or others of your choice.
The reason governments tax people upon death, is
- The primary asset holder is not there to complain when it has to be paid
- The new recipients have not received the money yet so may nor consider it theirs to begin with
- Its only paid once in your lifetime.
- The government don't like it when people have too much savings
- It helps with the governments goals of making people more equal financially.
Basically, there's less attachment to this money than other money, and hence less opposition. Its a soft touch.
Whats wrong with taxing the dead?
It is unjust.
Some taxes seem more pernicious than others. An example, in my view is Inheritance Tax – or Death Tax, as it should be known. Not only does it visit injustice upon the heads of the bereaved, it causes sub-optimal decisions to be taken by the individual while still alive, in order to minimise the bill.
People lose their livelihoods or family homes
One of the best examples of inheritance tax being unjust is the example of the farmer who has had a family farm for generations. The farm generates just enough to live on. The farm is in his name. When the farmer dies, the children take over the farm, but have to sell it to pay the tax bill. This adds insult to injury as well as unjustly removing the children from property that should be rightfully theirs. It is obvious to everyone that the children have more right to the proceeds of the father than the government.
It is cruel
When you are on your deathbed, what you need to be thinking about is how your family are going to survive, when they have to sell the farm/house or business to pay the inheritance tax.
This is exploitation at its worst.
Knowing that the Government are going to get your hard earned savings, is a demotivating and may reduce the output of the person who is later to die.
"In a regime of takings after death we can anticipate that, as people age, they will accelerate their consumption of resources beyond that which they would otherwise choose or, perhaps even more dangerously, they will make increasing numbers of gifts to others. Unlike post-mortem transfers, such inter vivos (during life) gifts would be irrevocable and, should an aged donor miscalculate his or her life span or income, would increase the risk that a donor’s resources would be exhausted before death. Moreover, to the extent that these inter vivos gifts were viewed as deliberately evading the policy of post-mortem takings, they would most likely be restricted as well. Any restrictions on inter vivos transfers would then further reinforce the incentive to consume as opposed to conserving resources.... it is well-known that many persons are strongly motivated to amass an estate that will benefit their children. This desire would be defeated by a policy of takings after death. Such a policy creates a serious incentive problem by undermining the natural incentive people have to be altruistic towards those they love and encourages the consumption of any resources a person may accumulate during his life."
-- Randy Barnett