Matt Yglesias, Paris Hilton, the Spirit of ’76,
    and Section 6166 of the Internal Revenue Code

The estate tax does not force the breakup of family-owned firms and farms, so let’s not argue about whether it would be a bad thing if it did.

Matt Yglesias is entirely right to prefer inheritance taxes to estate taxes. Conceptually, an inheritance tax puts the focus on the recipient of money he or she didn’t earn, rather than on the decedent, who having faced one inevitability arguably shouldn’t be faced with another. “Paris Hilton” or no, there’s a strong, and perhaps politically potent, argument to be made that it’s just plain wrong for people to be taxed on the money they earn but not on the money that’s given to them.

Practically, an inheritance tax has two big advantages: It encourages breaking up huge fortunes, thus reducing the problem of hereditary plutocracy, and it treats those who inherit as part of large families equitably compared to those who inherit equal amounts as part of small families.

But Matt is wrong, it seems to me, to scoff at the small business/family farm issue. An economist may view ownership of an enterprise as merely a form of wealth like any other, but someone whose family has owned the local hardware store or newspaper for four generations may have an attachment to the business, and the people who work in it, that isn’t at all the same thing as just being rich. That attachment may even have some social value.

But Matt is even more wrong to argue about whether it’s all right for the estate tax to orce the breakup of family businesses and farms, when in fact it does no such thing. As Stuart Levine explains, Section 6166 of the Internal Revenue Code allows estate taxes on closely-held businesses to be spread out over fourteen years at very generous rates of interest: currently under 3%, which is much lower than the rate on student loans, for example.

So the “family business” question is a mere red herring, which a better-trained newshound than Matt would not have allowed to lead him away from the trail.

The repeal of the estate tax, unless it’s replaced by an inheritance tax, is a profoundly anti-democratic and anti-meritocratic move, taking us one step closer to reproducing the regime of inherited status against which the generation of 1776 fought and won a revolution. Being wealthy and important because of your ancestors is European; making it on your own is American.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com