“The Case For Taxing Death” the cover read, complete with a skull fashioned partially out of a dollar bill. The impetus was the easing of the estate tax in the reform bills that recently made their way through congress. But the only thing for which the magazine really seemed to make a case was why individuals and/or entities shouldn’t get to keep all they have earned.
It starts out informatively enough, for those whose knowledge about “some of the world’s oldest taxes” is sketchy. It cites a roman emperor, Teddy Roosevelt and philosophers such as John Stuart Mill and Jeremy Bentham, both of whom were generally predisposed to individual liberty, as favoring some form of inheritance or estate tax. “Mere accident of birth shouldn’t entitle” one to great wealth.
It’s understandable to feel it’s not fair that the children of Sam and Helen Walton were born to a couple whose industriousness drove them to build one of the most commercially successful businesses in history, the value of which was subsequently bequeathed to them in the form of billions of dollars of Wal-Mart stock wealth. It’s no more fair than the child that’s born to methhead parents who’d rather get high than get a job.
What’s the alternative though, to that fortune staying in family hands? It being taxed away by an entity that would merely redirect the funds into the hands of the less-diligent and/or less-driven, or into subsidized life-support for less successful companies? (And any notion that WalMart’s bottom-line would take a significant, substantive long-term hit should these federal public assistance funds be pared back is too silly to be taken seriously. It feeds into the preposterous, condescending implication that without government assistance, beneficiaries would simply starve, wither away and litter the streets with their malnutritioned bodies.)
One of the points the article attempts to make regards the alleged laziness and incompetence of heirs.
Not all family-business successors resemble the bumbling, book-cooking Ted Beneke from “Breaking Bad.” Nor are they as selfish as the drugged-out, combed-over kung-fu fighter Bobby Pellit from 2011’s “Horrible Bosses.” But even if some are, so what?
The authors point to an unsubstantiated “risk: that people with inheritances work less hard or drop out of the workforce altogether.” There are plenty of people who don’t need inheritances not to work hard, much less at all. Look no further than the 21st century downward trend that has dragged the labor force participation rate to historic lows. And as a former chairman of the president’s Council of Economic Advisers recently asserted, it’s not just reflective of retiring baby boomers.
They also note research that “suggests that lottery winners work less,” and that the more one inherits, the more likely he/she is to “leave the labor force.” Well duh! I don’t imagine the recent Louisiana lottery winners of almost $200M ($119M after taxes) feel any particular pressure to continue to work to support themselves. Having inherited many more times that, I bet the Walton children didn’t either. But that they did, staying active in the management of WalMart, banking, community development, etc. There are more than a few folks out there whose inner drive to be productive overwhelms any desire for perpetual leisure. Pride in keeping the family business going probably plays a part as well.
On the other hand, the report is quick to point out that “the long-run effect … of inheritances … is to increase wealth inequality … in part because richer folk tend to save their windfall, in contrast to poorer folk, who spend it.” Maybe the solution to this problem, such as it is, is in fact fewer/lower taxes, or at least fewer of the wrong ones, like those on work and saving. Perhaps the focus should be on consumption taxes instead. Unwinding artificial monetary policy that has only served to aid those with great means, while disincentivizing saving by those with less, would probably be helpful as well.
Yet another study is cited as claiming “firms that promote family CEOs see declines of 14% in operating return on assets.” So what? Wouldn’t multi-generational companies be at least as likely to suffer from the dynamism of a free market economy? Even if my bosses’ daughter had taken over the video store where I worked after high school, Netflix likely would have devoured it more than a decade ago.
Another “so what” has increasingly come to mind during the current tax reform debate, that “the economic benefits of cutting such wealth-transfer taxes may have been overplayed and the drawbacks underappreciated.” Since when did doing things for “economic benefit” come at the expense of doing the right thing; confiscating less of a free person or entity’s resources? Many estates are the result of ingenuity, diligent work ethic, frugality, etc. The very word “estate” implies a cumulative result of success. It’s quite possible that they’ve already been taxed out the wazoo on multiple levels: the first building blocks of income, the resultant investment gains, the earnings from those investments … how much is enough?
There were other “so what” instances in this piece:
- “Observations from Sweden and America … suggest that … (p)eople save to insure against personal risks, rather than to pass on wealth when they die.” So what?
- “Research also suggests that … parents derive happiness from the pre-tax amount bequeathed, rather than what a child will receive after the tax is applied.” So what?
- “In OECD countries, the proportion of total government revenues raised by such taxes has fallen from over 1% to less than .5% since the 1960s.” So what?
The most troubling aspect of this report however, is captured in two passages: “wealth-transfer taxes ought to be the subject of more public debate,” and “is it sensible for the state to privilege family firms?” The authors apparently believe government, and those who didn’t build the targeted estates, should get a say in what happens to said estates upon the death of he or she who built them. It’s reminiscent of a notion JFK rejected during the Berlin Crisis of 1961: "What's mine is mine and what's yours is negotiable."
One is left to wonder if they are in the “you didn’t build that” camp. Alas, there is nary a mention of the government “needing” money for education, roads, job-training, infrastructure, or any of the usual statist red herrings. It’s almost as if they want companies to die with their makers, and a good chunk of the value be remitted to public coffers.
A nerd like me will always value a publication like The Economist, whether they’re running a “Six Big (economic) Ideas” series like they did this summer, or documenting the history and current relations between India and Pakistan in a multi-page special feature. But sometimes the articles supporting government claims on private property just fall flat, that’s what happened here. It left me anxious to do something else Metallica covered; “Turn The Page.”