Estate Tax Nonsense

Outside The Beltway blogged Sebastian Mallaby posits that, “It doesn’t matter if you are liberal or conservative, Democrat or Republican. There is no possible excuse for doing what Congress is poised to do this week: Abolish the estate tax.”

I believe that aboloshing the estate tax makes a lot of sense, and my parents estate was not big enough to be caught by it when they died, and when I die, my estate will not be big enough to be hit either.

This is a rather odd position to take for something that has wide, bipartisan support among both the American people and their elected representatives [The House voted 272 to 162 for the phase-out in April 2005] and the opposition to which can not even muster a sufficiently sizable minority to mount a credible filibuster.

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

And to force family farms to be sold to big agribusinesses, and to cause small businesses to be liquidated when the owner dies, thus putting his employees out of a job.

as well as a way of raising money.

Of course, the estate tax has not actually succeeded in this goal. Names like Bush, Kennedy, Rockefeller, DuPont, and others remind us of that. Indeed, of the top ten people on the most recent Forbes 400 list of richest Americans, five spots are taken by the Walton Family. The Cox and Mars families are getting by, too. One suspects that, a couple decades hence, so will the Gates, Buffett, Allen, Dell, and Ellison heirs.

If the abolitionists succeed, some other tax will eventually be raised to make up for the lost revenue. So which tax does Congress favor?

None. Reduce all as much as possible.

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?

After all, the guy you are taxing is dead, so he can't vote anymore, unless he is a Democrat.

An income tax only “discourages” work if it is so graduated as to be confiscatory. The days of 90 percent, or even 70 percent, tax rates on the upper reaches are thankfully over. And a consumption tax can certainly be targeted so that food, medicines, and other basic necessities are omitted with “luxury” items hit at a steeper rate. And the payroll tax–i.e., the Social Security tax–exists solely to provide for the poor; the very wealthy surely do not need the government pay them a retirement stipend.

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.

Perhaps Americans simply understand a basic principle: Earnings belong to the earner, not the state.

Not as far as Democrats are concerned. They believe you should keep only what the government is willing to let you keep.

Microsoft pays corporate taxes and Bill Gates and Paul Allen pay hefty income taxes on their shares, in addition to various sales taxes and fees. The idea that the state has the right to take another huge chunk of their money when they die, rather than allowing them to pass it on to their children, simply strikes most of us as outrageous.