Perspective on the Estate Tax as a Social Policy


Here’s a contentious statement:  The main difference between progressives and conservatives is how they frame their thinking, and the main problem is that progressives are wrong.  Consider this paragraph that Kalena Thomhave wrote in The American Prospect:

Think of it this way: There are two welfare systems, and both are conditional on wealth. One is for the poor, and is outward-facing—there are physical offices where people line up to receive benefits. The other welfare system is for the rich, and is hidden, embedded within the intricacies and complexities of the tax code. And when the president signed the new tax bill into law last December, this inequity between the two welfare systems was only exacerbated.

Of course, another difference between these two “welfare” systems is that one involves giving people money and the other involves not taking money from people.  The question of whether wealth is earned is pretty much irrelevant in a worldview that fundamentally sees wealth as something that society distributes, whether through government redistribution schemes or the much-sneakier private-sector mechanisms of freedom.

This sentiment lies at the heart of Thomhave’s perspective on the topic of her essay, which is the estate tax.  Because the framework of her thinking does not entail individuals acting through their own agency, she sees Republicans as hypocrites for wanting low-income adults to have to work for welfare while showing no concern for the degree to which flush estates allow the rich not to work.

Consequently, she misses the critical question of whether we ought to want people to have different attitudes toward work, quoting NYU tax law professor Lily Batchelder as follows:

According to Batchelder, this divide exacerbates inequality of opportunity. “A lot of the reasons [wealthy heirs] have more opportunities is just money,” she says. “But it’s also all the social connections and legacy admissions and all of the things that come along with that money that mean that someone born into a wealthy family is going to have a huge leg up in life,” says Batchelder.

So, the children of wealthy people have all sorts of advantages when it comes to work opportunity, which means they don’t have to work as hard — innovate, build relationships, earn investments, and just be more productive — if they decide they want to work.  Shouldn’t we want to reduce their incentive to work?  Framed this way, by taking money away from wealthy people through the estate tax, the government is depriving those who are less wealthy of the opportunities that the very wealthy will take, instead.

Such lacunae permeate Thomhave’s thinking all the way down the economic ladder.  Notably, she broadens her attack on GOP tax policy to rope in much more than the estate tax, as if each policy affects the same population:

Of course, it’s essential to understand that even before the GOP’s tax reform in 2017, the tax code was structured to disproportionately benefit those at the top. Wealth-building loopholes, such as the mortgage income deduction, the tax shelter for savings, and the deferral of taxes on capital gains, are skewed to the wealthy. Last year, the average benefit from such wealth-building tax programs for a millionaire was $160,190, while the typical benefit for a family working at the median income was $226.

With everything sorting into this rich-poor dichotomy, no wonder the Thomhave of our society believe everybody is trapped.  To the contrary, by attacking “wealth-building” policies, progressives are the one creating society’s ruts (which allows them then to offer government and their own ideology as the gates between them).  Let the wealthy scions keep their money and decide to be idle.  To the extent they decide they’ve got enough, they’ll become full-time consumers or philanthropists, leaving economic opportunities open for people who aren’t there, yet.  People who are more motivated and more productive.

This hugely oversimplifies, but the basic structure becomes this:  Investment coming in from people who want to let their money work for them creates opportunity for those who want to build their wealth through skill and innovation, for which they’ll need the services of those who want to transform their time and labor into cash and a wealthier future.  Maybe this works, and maybe it doesn’t, but there is no contradiction or hypocrisy to tax policies that discourage work at the top and encourage it at the bottom.

The implied approach on the other side is that we should tax rich people to keep them working and give the government money to redistribute so poorer people — who need to build up their earnings — have less pressure to work.  Again, this is the philosophy of ruts, and it is in perfect keeping with an ideology preaching that the good and the wise should make decisions for individual people based on generalizations, rather than allowing them to make their own decisions and allowing the economy to move forward organically.

This isn’t to say that there should be no safety net, but however our welfare programs should be designed, they should be conceived under the principle of letting people live their lives and judge their own needs in their own circumstances.

In this light, the estate tax begins to look more like a component of social policy than of taxation policy.  One would count an inheritance as new income if we see parents as sort of the employers of their children.  Alternately, if we see the family as a unit that supersedes government, then there is no rationale for government to tax money that passes among family (and that has already been taxed upon the family’s earning it).  Consider that we don’t tax money that the wealthy give to charities or non-charitable non-profits.  Is that relationship higher than the family relationship?

Of course, this question highlights most of all how conservatives and progressives look at the world differently.  To the latter, the government doesn’t tax money given to non-profits because, presumably, they’re doing something the government wants done.  Churches are similar; conservatives might argue that they should be exempt from taxes because that relationship supersedes the state, while progressives will assent to the non-profit status only as long as the churches are mainly furthering the interests of the state.

But that’s a tangent for another day.  When it comes to the estate tax, the government not only has no right to intervene in family economics, but we shouldn’t want it meddling in the incentives.  Sure, from the perspective of anybody for whom work is really work, it isn’t fair, but we find ourselves where we find ourselves.  Anybody who promises that they can bring fairness to the world is selling something unnatural and is really promising that, given the power, they’ll make life “fair” for whoever is useful to them.

Being unable to guarantee prosperity (because nobody can), they can only pledge to tear down those who have it and level the paying field.  They’ll do this even if it undermines an economic system that makes shared prosperity more likely.  As suggested at the outset of this post: the main problem is that progressives are wrong.

  • BasicCaruso

    “I set out on this ground which I suppose to be self evident, ‘that the earth belongs in usufruct to the living;’ that the dead have neither powers nor rights over it. The portion occupied by an individual ceases to be his when himself ceases to be, and reverts to the society. ”
    — Famous progressive, Thomas Jefferson 1789

    Actually pretty funny to say “her thinking does not entail” in this context….
    With Thomas Jefferson taking the lead in the Virginia legislature in 1777, every Revolutionary state government abolished the laws of primogeniture and entail that had served to perpetuate the concentration of inherited property. Jefferson cited Adam Smith, the hero of free market capitalists everywhere, as the source of his conviction that (as Smith wrote, and Jefferson closely echoed in his own words), “A power to dispose of estates forever is manifestly absurd. The earth and the fullness of it belongs to every generation, and the preceding one can have no right to bind it up from posterity. Such extension of property is quite unnatural.” Smith said: “There is no point more difficult to account for than the right we conceive men to have to dispose of their goods after death.”

    • Justin Katz

      The “entail” statement wasn’t about the intellectual history of the estate tax, but the difference between taking wealth and letting them keep it. “Whether wealth is earned.” The fact that she lumps in tax shelters for saving, for example, shows that this isn’t some grand philosophical belief on the question of property after death.

      I do love, though, how often you rely on the statements of long dead people as authorities, even to argue that “the preceding [generation] can have no right to bind… posterity.”

      • BasicCaruso

        As always you are welcome to ignore the opinions of those great progressive thinkers, Thomas Jefferson and Adam Smith. Me, I’m with Jefferson.

        “I am conscious that an equal division of property is impracticable. But the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivisions go hand in hand with the natural affections of the human mind. The descent of property of every kind therefore to all the children, or to all the brothers and sisters, or other relations in equal degree is a politic measure, and a practicable one. Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise.”
        — Thomas Jefferson to James Madison, 1785

        • Justin Katz

          I don’t ignore them. I just don’t think quoting them constitutes an argument. Sometimes they were wrong, especially with regard to narrow policy questions. Surely you agree. In this case, I’d particularly point to the way the world has changed, particularly with regard to the nature of property and the centuries of additional thought and experimentation in economics, political philosophy, family structure, and so on.

          • BasicCaruso

            Well, I agree that progressives don’t share your enthusiasm for creating the European style aristocracy your wealthy financiers apparently favor. But Jefferson was hardly a wild-eyed socialist and you do nothing to counter his arguments about the dangers of unchecked inheritance or that an estate tax does not violate any natural right.

            Here’s Franklin in 1783 echoing the same sentiments for “regulating descents”…

            “All Property, indeed, except the Savage’s temporary Cabin, his Bow, his Matchcoat, and other little Acquisitions, absolutely necessary for his Subsistence, seems to me to be the Creature of public Convention. Hence the Public has the Right of Regulating Descents, and all other Conveyances of Property, and even of limiting the Quantity and the Uses of it.”

  • BasicCaruso

    “Let the wealthy scions keep their money and decide to be idle. To the extent they decide they’ve got enough, they’ll become full-time consumers or philanthropists, leaving economic opportunities open for people who aren’t there, yet. People who are more motivated and more productive.[sic]”

    Yes, what this country needs is an American aristocracy! (sound of Jefferson rolling in his grave)…

    “For I agree with you that there is a natural aristocracy among men. The grounds of this are virtue and talents… There is also an artificial aristocracy founded on wealth and birth, without either virtue or talents; for with these it would belong to the first class. The natural aristocracy I consider as the most precious gift of nature for the instruction, the trusts, and government of society… The artificial aristocracy is a mischievous ingredient in government, and provision should be made to prevent it’s ascendancy.”
    — Thomas Jefferson to John Adams, 1813

    • Justin Katz

      Distinctions, Russ, distinctions. Letting people burn up their estates is not the same as giving them political control.

  • Christopher C. Reed

    The 1% don’t pay estate taxes. It’s all in trusts.

    • Rhett Hardwick

      Just for clarification, the “fee entail” is an ancient legal form, restricting an inheritor from depleting his inheritance at the expense of his heirs. This is still readily accomplished by “generation skipping trusts”, etc. The reasons are several, I have known people to do it because they didn’t approve of a daughter in law. They didn’t want her to have any claim in the expected divorce.

      As my mother was fond of saying “shirtsleeves to shirtsleeves in three generations”

    • Rhett Hardwick

      “The 1% don’t pay estate taxes. It’s all in trusts.”

      Another argument for getting rid of estate taxes. They are plainly “soak the rich” taxes. While I lived in Massachusetts, the estate tax began at $200,000. When the average house exceeded that, and “real people” began paying it, they raised it.