June 11, 2002
The Repeal of the Estate Tax

Last week the Republican-led House of Representatives voted to repeal the estate tax. If it gets past the Senate, George W. Bush will sign permanent estate-tax repeal: he believes that it is unfair that those who leave estates--even those who leave estates of more than $5,000,000--would have to pay two-fifths of the excess to the federal government in estate taxes. It would be fairer to have no estate tax at all--and thus, relative to our current system, give an average present of $3.5 million each to the heirs of the 2,400 people who die each year leaving estates of more than $5 million.

So why is it a high priority of both the Republican Congressional leadership and the Republican President? Why is it a high priority to give another tax break to the rich? Why is it a high priority to remove an obstacle that keeps the rich and powerful of one generation from ensuring that their grandchildren have--unearned--relative riches and power as well?

Earlier generations of Republicans would be astonished. It was Abraham Lincoln, after all, who said that the great thing about new America as opposed to old Europe was that in America wealth, power, and influence were not inherited: by and large Americans did not work for landlords or bosses but worked for themselves, and "the man who labored for another last year, this year labors for himself, and next year will hire others to labor for them." A country in which wealth was inherited was, in his view, not a good country at all. Andrew Carnegie, a principal funder of the 1900-era Republican Party, put it more bluntly: "he who dies rich dies in disgrace." Accumulated entrepreneurial wealth was a public trust to be used for public betterment--hence the Carnegie libraries, endowments, buildings, and universities scattered over America. Accumulated entrepreneurial wealth was not--or so Carnegie thought--something that could be morally used to give your descendants a cushy life.

But all this was in centuries past. Back then America was a place--in theory at least--where people made themselves. Who you were depended on what you had done, did, and were going to do. It was--in theory at least--different from Europe, a place where who you were depended on who your daddy was. The foundation on which America was--in theory--to be built was the principle of "equality of opportunity." And back then solid obstacles to the intergenerational transfer of wealth and power made sense: if there is to be an upper class, let it be made up of those who have been skillful and lucky in their deeds, not of those who just happened to choose the right parents.

But now it is a new century and a new millennium. Now it seems that the highest legislative priority of the Republican Party to eliminate the estate tax. Now the Republican Party has a standard bearer who thinks that it of all the forms of unfairness in American life, one of the most unfair is to keep someone from squeezing every single ounce of advantage out of one's daddy's position and accomplishments. It is an interesting definition of fairness--one in which "Fairness" is far removed from "equality of opportunity."

It was never the case that opportunity in America was as equal as our civic religion proclaimed. But it was always the case that America was a special place because of universal agreement that inequality of opportunity was unfair, and that we needed to work to make opportunity more equal. If permanent estate tax repeal passes, we will have lost a piece of what makes America special, great, and lovely. Posted by DeLong at June 11, 2002 03:13 PM

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Not only "unfair" but unhealthy in that it eventually renders a society uncompetitive.

Posted by: cap on June 12, 2002 01:50 PM

"give an average present of $3.5 million each"

Be honest at least in what you advocate. Ceasing
the extortion of wealth from another is not a gift. Taxes are collected by threat of force and
ending that sort of activity is not a "present".
You may support a forced based system of exchange
but don't conceal the grim necessity.

Also, it would seem that the Adam Smith quote is a call for a flat tax -- "in proportion to their respective abilities...". Not out of proportion.


Posted by: Duncan Frissell on June 13, 2002 12:27 PM

It depends on what benefits you think that the government provides for you, doesn't it? If you think--as Adam Smith did--that government's main purpose is to protect the wealth of the rich, then lifetime taxes should be roughly proportional to wealth, and an estate tax has a big potential role. Remember: wealth is much more concentrated than income, and your reading of Smith suggests that taxes should be proportioned to wealth.

Of course, you can denounce Adam Smith as a commie. But that seems a losing rhetorical strategy.


Posted by: Brad DeLong on June 13, 2002 08:26 PM

Some states have gone a long way to subverting estate taxes:
they have either repealed or emasculated their rules against
perpetuities. In Florida, a trust can last up to 360 years. In
South Dakota, and a few other states, it can last indefinitely.
So, a rich individual can set up a trust in Florida or South
Dakota, grant up to her unified credit amount into a dynasty trust
and set up her very own aristocracy. All that's required, usually,
is for someone to pay the federal income taxes on the income
or gains of the trust. (And guess who benefits if Paul O'Neill's
dream of 0% capital gains taxes comes to pass?)

JP Morgan uses its presence in Delaware and Citicorp uses its
presence in South Dakota to serve as trustees for their private
banking clients. How state legislatures passed this sort of "reform"
without having it branded complete obeisance to the court-tennis
set is mind-boggling,

Posted by: Tim Francis-Wright on June 13, 2002 09:39 PM
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