Sorry to disagree, but you're wrong -- at least as concerns federal taxes:
When a U.S. person dies, the executor of the deceased's estate pays a federal tax. The heirs pay nothing. In computing the federal tax, neither the IRS nor the executor takes into account the wealth or income of any heir.
The next step is that the heirs or "beneficiaries" will be allowed to share whatever is left over, according either (A) to the deceased's will, or (B) in the absence of a will, according to per stirpes rules in the state or other jurisdiction where the deceased resided.
Now here's the crucial point of distinction between the federal estate tax and an inheritance tax:
Under federal law, the heirs don't owe any tax on what they get. An heir can be the richest person in the USA or the poorest. It makes no difference. Either way, he pays nothing. On the other hand, if we had a federal inheritance tax, then the heirs could be taxed directly -- perhaps on an equal percentage basis, on a "progressive taxation" basis, or even on a per capita basis.
To be sure, in some countries the legal system uses the term "inheritance tax" to refer to what actually is an estate tax. Also, it's certainly common for lay people in the USA to use the terms "estate tax" and "inheritance tax" interchangeably and incorrectly. In other words, confusion is rife.
Finally, there are some states of the USA that levy "inheritance taxes" on heirs -- taxes that are computed after the federal tax has taken its bite from an estate. So if you're a putative heir who lives in one of these states, and if you have a very rich bachelor uncle who's in his nineties, move to Texas or Florida while you still have time!
You are right, but now I can’t figure out what the point was that I was remembering and trying to convey. I just read this a couple of weeks ago, and apparently I didn’t understand the entire argument.
On the other hand, I did stumble over several items that suggested that the term “estate tax” was chosen to give the illusion that the tax was on the estate, and not on the heirs. I don’t know why people would call that an illusion, if as you note the tax is irrespective of the number of inheritors or their income/wealth.
As a practical matter, a wealth tax would be way too “expensive” a method to be useful. The death tax costs an enormous amount to determine; taking a full stock of a person’s assets one time at death is bad enough, but an attempt to require such an accounting on a yearly basis would be absurd.
Further, it would be weird. What if one year you are worth “too much” because the value of something becomes overpriced in a bubble, but the next year the bubble bursts? Should you be able to get a “wealth tax refund”?
I think we should do away with the death tax, and replace it with a tax on whatever assets are in an estate that have not previously been taxed, such as the unrealized capital gains on a house, stocks/bonds, and untaxed retirement funds.
Some would add the untaxed life insurance proceeds — that’s not as clear to me since you did pay tax on the money you use to BUY the insurance, and technically the insurance pays out less than it’s cost.
Of course, life insurance companies essentially survive on the money they take in because of the death tax, since it is one way to pass your money on without the death tax rates. If I pay a million dollars to a company to get a 900,000 payoff when I die, that’s only a 10% tax, vs the 35% I’d get under the latest scheme.