Friday's New York Times ran an editorial with the folllowing title: "Long Live the Estate Tax". Of course, I immediately feel vindicated when I'm in the opposite camp as the NYT on most things, but this editorial really pushed some buttons. Let me mention a few.
First, the article points out that the most commonly heard argument against the estate tax -- that it represents unfair double taxation -- is specious. True enough, the estate tax hits appreciated assets that have not been taxed in the income tax system. I call this the "cheat the government and die" rule, embodied in IRC § 1014. However, that rule goes out the window with estate tax repeal. There is no step-up in basis associated with death, so that those assets are still in the tax system.
The emphasis on the problem of the estate tax should not only be on its double taxing effects (which do indeed exist, as the tax also applies to wealth that has been accumulated in after-tax dollars, just as it applies to unrealized appreciation), but also on the fairness of a tax in which one group of people decide to take away the property of others solely because they have more. Taxes of this nature should raise profound philosophical and moral concerns.
Suppose that you belong to a tribe that adopts this rule: when you die, your hard-earned home and personal goods are forfeited to the tribe to do as it wishes. Thus, your heirs are left to their own devices (or the goodwill of others) to care for themselves. Would this tribe be attractive to anyone? I would guess that the folks who tried to build and earn would want to get out of that tribe and move somewhere else, whereas folks who just hope to profit from the work of others might think that is just fine. Something also tells me that people would probably stop working on that new hut and choose to just fish or whatever pleased them. As a result, those who like to fish all the time and enjoy life would not get as much from these people.
The NYT folks think that this system is ok when you take away stuff from people who are really successful, or alternatively, really lucky. In other words, if you worked really hard and made a nice hut, your heirs have to give up a room or two (or perhaps the vacation hut on the shore), but not if you have only a small hut. This deal is still not very attractive, and in fact I fail to see how this form of confiscation is any more principled.
Some argue that it is rooted in the idea that the tribe helped you get the larger hut, so you should give back. But this denies reality. The tribe didn't do it, but specific people in the tribe may have. For example, I think my Sunday School teacher was a lot of help to me in my formative years. I thank her for that when I see her. And she is glad to hear it. But I don't see her demanding a portion of my salary. I may well do some nice things for her and for the church, but that is part of gratitude and social interchange among people in your circle, not to a broad, faceless group. The reality is that people help all of us achieve, but they are specific people. They are our family, friends, and neighbors. The duties we owe to them are different than the duties we owe to all Americans, for example. Reinforcing this kind of loyalty is important to making society better and more productive.
The NYT also points out that, hey, we aren't really advocating confiscation. They say that a tax rate that tops out at 47 percent is not too high, particularly when it only hits the really rich. Well, once again, I have a different view. If you take nearly half of a family's wealth away just because the upper generation has died, you are confiscating. And it is a sick and twisted reason to take away the property of people. Taking away the orphan's cow as a death tax in medieval times was a bad idea, and doing the equivalent thing now -- albeit only to "rich" people -- is still wrong.
Don't get me wrong, we need taxes to help share the costs of government. But it is problematic for citizens to take away the property of others solely because they covet what they have. Madison raised this issue in Federalist 10, and he thought it was a perennial problem for people living with democratic machinery to avoid having the majority export their burdens to a minority. Taxes should ideally affect all of us, as this keeps one group from targeting another and shirking their fair share. The NYT folks don't get this -- and those who believe that soaking the "rich" is ok with them should think again about why it is morally right to do so.
Finally, some think we need an estate tax to keep the rich from continuing to be too successful. Do these people ever read the newspapers, watch television, or study the Forbes 400? Time and chance affect us all. I don't see many Morgans, Vanderbilts, and Astors ruling the 21st century industries. People are creative and they come up with new things to value and new forms of wealth, which is very good. But they also get lazy. Their kids make stupid decisions. They do drugs, drink heavily, and waste the family fortune. Sadly, this bad stuff can happen to rich people too.
I want to live in a world where people approach life from the perspective of being creative, looking to help and serve others as they can, and growing economic opportunities. If someone else does well, we should try to avoid the desire to covet. (That is, after all, in the Ten Commandments, but I guess they are out of favor these days in some circles.) Instead, grit your teeth if you have to, say "good for them" and then go find something you can do to improve your situation. I find this much more attractive than scheming, whether individually or representatively through our Congress, how to take things away from others because we act as though the pie will never grow and we want to get ours now.