Taxing Paris Hilton

I've never been particularly on board with the concept of guest bloggers, especially if they have a reasonably high profile. They often don't really get the concept of blogging, and instead of writing about what they're reading about, they have a tendency instead to write about what they're writing about. This can take the form of plugging their own books, or, in the case of Jason Furman today, plugging his institution's own research reports. On the other hand, I'm glad Jason did so, because the paper he's plugging, by NYU Law professor Lily Batchelder, is a really good one.

Batchelder proposes that the estate tax, which is going to fall to zero in 2010 only to start increasing again in 2011, should instead return in a significantly different guise: an inheritance tax. The difference is that estate taxes are paid by estates – the dead, basically – while inheritance taxes are paid by inheritors, who are alive. And it turns out that in reality there's a big difference in terms of who gets affected. Under the estate tax, poor people with small inheritances from large estates suffer from large effective tax rates, while many large inheritances don't get taxed at all.

Under an inheritance tax, by contrast, inherited income would be treated in much the same way as any other income, whether earned or unearned or won in the state lottery. Although the first $2.3 million of inherited income would still come tax-free.

Furman sums it up by saying that we should tax "Paris Hilton, not Britney Spears" – ie, tax the idle members of the lucky-sperm club, rather than people who actually make a lot of money themselves.

The irony is that Paris Hilton is actually a money-making machine, whose earned income vastly exceeds that of Furman, Batchelder, and indeed all of the other contributors to the Free Exchange blog as well. To get an idea of the sort of money Hilton makes, have a look at the D-list version of Paris Hilton: England's Tara Palmer-Tomkinson, who apparently earns some $2.5 million in a good year. An A-lister like Paris Hilton, with her own perfume line on sale at Target, undoubtedly gets much, much more.

I'm all in favor of taxing unearned, inherited wealth. But there's a good chance that Paris is going to make more money on her own than she'll ever inherit from her parents.