09 June 2006

The (marxist) social engineering goals of the inheritance tax

A response to this column by Sebastian Malleby.

The federal government faces a future of expanding deficits. Thanks to the baby bust and medical inflation, spending is projected to rise by nearly 3 percent of gross domestic product by 2030, a growth equivalent to the doubling of today's Medicare program. What is the dumbest possible response to this? Take a source of revenue and abolish it outright.

Yes, this is the dumbest response. But only if, as a solution to expanding deficits, one looks only at the revenue side of the equation. Here Malleby commits a logical fallacy: false dilemma. There are two sides of the equation: the revenue side and the expenditure side. Malleby focuses only on revenue. We could also improve our deficit problem by focusing on expenditures. The unquestioned assumption here is all of the expenditures are justified. Are they? In fact, they are not? Most of what the federal government does when it comes to spending is unconstitutional. Of course, very few people actually believe that, mostly because they are net beneficiaries of federal government largesse. Then, there is the issue of the ethics of talking something from someone only because he has more of it to take than most everyone else does. Talk about a tyranny of the majority! And look at that last sentence. The wealthy, unlike the rest of us, are not human beings with a right to private property which, like the rest of us, they can bequeath to their descendants as they please. (I can, after all, because I don’t fall into the same tax bracket as "the wealthy." Lucky me!) No, the wealthy—merely by virtue of being wealthy—are merely a source of revenue, hosts, as it were, for a myriad of parasites. The wealthy exist—thanks be to whatever God you may believe in. And they exist for the benefit of the non-wealthy. Malleby seems to think that we have a right to some portion of the heritable property of the wealthy. By logical extension, this means that we have a right that wealthy people exist. Wealthy people have a duty to exist—so that we can take their wealth from them. And let’s be clear: we can take all of their wealth from them; and anything that we decide not to take from them is a gift to them for which they ought to be grateful.

The nation faces rising inequality. Since 1980 the gap between the earnings of the top fifth and the bottom fifth has jumped by almost 50 percent. The United States is by some measures the most unequal society in the rich world and the most unequal that it's been since the 1920s. What is the dumbest possible response to this? Identify the most progressive federal tax and repeal it.

A question: When the United States were less unequal was there even an inheritance tax? Did we, as a society, enter "the rich world" by transferring wealth?

The nation faces the prospect that inequality will damage meritocracy. When the distance between top and bottom widens, it becomes harder to traverse the gap; people of low birth are stuck at the bottom, and human talent is wasted. What is the dumbest possible response to this? Take the tax that limits what the super-rich pass on to their children and get rid of it. Send a message to hereditary elites: Go ahead, entrench yourselves!

Malleby wants to talk about meritocracy? Did his parents never, ever give him anything that was theirs? If so, they how did he merit it? Was he never given any Christmas (or Chanukah) gifts, or any birthday gifts? If they were gifts, then he didn’t merit them. Think about this. The wealthy—most of whom actually worked for a living, by the way—were taxed on the money they earned. That very same money is then taxed again when they leave it to their heirs. And why? Because Malleby and the rest of his marxist economics-of-envy loving ilk, think that the super-rich ought to be limited in what they pass on to their children, the "hereditary elites." On his view, no one who doesn’t "merit" shouldn’t receive. Well, they shouldn’t receive too much anyway. And Malleby and his ilk—benevolent thieves that they are—will decide how much is too much. (And you’ll be thankful that they let you keep anything, by God!) He’s talking about merit? He wants to take money from the heirs of "the wealthy" (because they don’t "merit" that wealth: they did nothing to earn it after all. And he wants to give that money to—get this—others who also didn’t earn it! It’s okay if he and his fellow travelers take from one group of "unmeritorious" and give to another group of "unmeritorious." You see it, don’t you? Malleby doesn’t have a problem with damage to meritocracy. The people to whom he wishes to distribute all that unmerited wealth are no more deserving of that wealth than the people from whom he wishes to take all that unmerited wealth.

For most of the past century, the case for the estate tax was regarded as self-evident. People understood that government has to be paid for, and that it makes sense to raise part of the money from a tax on "fortunes swollen beyond all healthy limits," as Theodore Roosevelt put it. The United States is supposed to be a country that values individuals for their inherent worth, not for their inherited worth. The estate tax, like a cigarette tax or a carbon tax, is a tool for reducing a socially damaging phenomenon -- the emergence of a hereditary upper class -- as well as a way of raising money.

Well, some people regard the existence of God as self-evident. So what? Government has to be paid for, yes. But when you read Malleby closely, he isn’t talking about paying for government. He is talking about transferring wealth and social engineering. Not only that, but if, as Molly Ivins claims, this tax affects only 1 percent of Americans, how significant a hit can revenues possibly take if they are denied that paltry 1 percent? To me, this brings into question the left’s oft-repeated assertion that the wealthy aren’t paying their fair share. I mean that tiny fraction of Americans must be financing one huge portion of last year’s $2.119 trillion revenues, if we are going to suffer all the societal ills which Malleby forecasts. As Molly Ivins would say: "Sheesh!"

But now the House has voted to repeal the estate tax, and the Senate may do the same this week. Republicans are picking up support from renegade Democrats, such as Blanche Lincoln of Arkansas, Bill Nelson of Florida, Ben Nelson of Nebraska and Max Baucus of Montana. Several more may go over to the dark side if a "compromise" bill, which would achieve nearly everything that abolitionists dream of, is introduced in the Senate. President Bush, who has already muscled a temporary repeal of the estate tax into law, would be delighted to sign a bill making abolition permanent.

If the abolitionists succeed, some other tax will eventually be raised to make up for the lost revenue. So which tax does Congress favor? The income tax, which discourages work? A consumption tax, which hits the poor hardest? The payroll tax, which is both anti-work and anti-poor? Really, which other tax out there is better?

Why make up for the lost revenue? Another false dilemma. Why not let government tighten its belt like everyone else has to do? Malleby’s gross assumption is that everything that the federal government presently does it is doing legitimately. If you deny that, as I do, then government should stop doing those things that it does not legitimately do. And when it does so, it will need much less in revenue. Of course, one of the things that government does most is transfer wealth. Obviously it must replace those revenues, since those revenues are presently being transferred from the net producers to the net receivers of those revenues. Malleby also claims that the income tax discourages work? Now that’s an interesting assertion is it not? The inheritance tax is a tax on income. Oh, I know it’s not a tax on the heirs’ income. But it is a tax on the testators’ income. Remember, that income was taxed when it was earned; now it is being taxed again. If you knew you were going to work all your life, only to have what you saved taxed again, why work? How is it, Malleby, that an income tax discourages work, but not an inheritance tax? Is it because we all take pleasure in knowing that our heirs are going to be taxed both on their merited income and on their "unmerited" income when we die? Finally, whether or not a consumption tax hits the poor hardest will depend upon that tax rate, which will further depend upon what government is doing with those revenues. Obviously, if government stays in the wealth-transference business those revenues will have to be pretty high; and so will that consumption tax rate. Tell you what let's do. Let's just take all of it. Since the heirs of the rich don't merit any of that property whatsoever, let's just have a 100 percent inheritance tax. You can save and buy as much as you want, but when you die, game over; it all belongs to the government.

The abolitionists don't respond to this question because there is no convincing answer. Paul Volcker, the former Federal Reserve chairman, has written that "we would be hard-pressed to find evidence that, compared with the alternatives, a reasonable estate tax significantly discourages work or innovation or savings." In other words, killing the estate tax and raising some other tax instead would damage the economy. And that's before you take into account the positive distortions introduced by the estate tax, such as more social mobility and higher charitable giving. Charitable bequests will fall by at least a fifth if the estate tax is repealed permanently.

Well of course there’s no convincing answer. Once you’ve formulated as a fundamental premise that wealth must be transferred from one group (the undeserving "elites") to another group (the "deserving" poor), there could not possibly be a convincing answer to the question. The main problem you are working on has, by your own admission, little to do with funding government (except as an agent of wealth transference). The main problem you are working on, as you have just admitted, is social engineering. It doesn’t matter what sort of answer you receive: the heirs are just not entitled to that money because of your social engineering goals. Once you’ve determined that, there’s no need to worry about how to replace the revenue because you will still want to limit what the super-rich can leave to their "elite" children—even if those revenues could be conveniently replaced.

People often remark on the perversity of popular support for estate-tax repeal. A majority wants to abolish the tax, even though only the richest 2 percent of households have ever had to pay it. Yet this shoot-your-own-foot weirdness is easily explained: Most people just don't know that, under the law's current provisions, a couple can bequeath $4 million without paying a penny to the government.

Okay, so Ivins was wrong: it’s not 1 percent; it’s 2 percent. But the question I raised above is still valid, I think. If the loss of what this 2 percent contributes to federal revenue is that great, then aren’t the rich already paying more than their fair share--or at least their fair share? And if this amount isn't really all that much then the issue isn't revenue; it's social engineering. But then, we've always known that, haven't we?

But I'm fascinated by the spectacle of elite support for this policy. How can the president and the abolitionists in Congress, who understand the tax and its details, possibly want to kill it? They all say they accept the principle that the tax system should be fair -- Bush officials are constantly claiming that their tax cuts are progressive. They all accept the principle that free trade and competition get the best out of American firms, so what about subjecting rich heirs to competition from ordinary Americans?

Well, I am hardly an elite; and I support this policy because I believe that the rich should have the same rights that I have. Because I am not rich, my heirs won’t be "penalized" the way Malleby thinks that the heirs of the rich should be. Note that he talks about merit. Merit can be applied to many things. An employee who gives an honest period of work merits his wages. A murderer merits the death penalty, or at least life in prison. Malleby believes that the heirs of the rich don’t merit their parent’s estates. But note that he apparently believes that mine merit their inheritance. He believes that what "elites" merit is a fine, a fine for being the heirs of wealthy parents. And someone else, who doesn’t merit that money either, is going to get it nonetheless. And this, because Malleby has marxist social engineering goals. And damn your property rights, Mister. (Remember: marxists think that all profit is exploitation. And what is an inheritance but a form of profit?)

Repealing the estate tax is like erecting protectionist barriers around the hereditary elite. It is anti-meritocratic and unfair -- and antithetical to this nation's best traditions.

Well, Malleby, rights aren’t merited. The earner has the unmerited right to dispose of his property as he deems appropriate. Besides, there is only a hereditary elite if one’s heirs don’t squander the inheritance. If they don’t then, in the long run, they earn it. And also, Malleby throughout writes as if we have a static society: once rich always rich. When the fact is that we have a dynamic society: there are rich people now who were not rich when they started out in life; and they got their riches the non-Kennedy/Rockefeller way—they earned it. If Malleby really wanted to decrease the gap between what constitutes rich and poor he should seek to expand the liberties of people to create wealth for themselves, rather than engage in economics-of-envy, government run wealth transfers from one group of unmerited to another group of unmerited.

Malleby believes that property rights should be subject to some (reasonable?) limitations. I’ll just bet he doesn’t feel the same way about his freedom of the press.

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