One of the favorite whines of the people who oppose what they call “the death tax” (that is, who don’t want Paris Hilton to have to pay as much tax on the money she inherited as poorer people do on the money they work hard for) is that it doesn’t just hurt the rich. How about all those family farms, sold to pay the estate tax?
Well, of course those farms are almost entirely mythical. An actual family working the land rarely leaves an estate of more than $1 million, which is where the estate tax would start if we let the Bush cuts expire in 2011. That’s why the Giuliani campaign, having gotten a husband-and-wife farming couple to host a Giuliani event, had to back out (leaving the couple humiliated and outraged, but that’s life in the big city). Seems Rudy wanted to talk about the “death tax,” and his handlers realized that the farm he was scheduled to speak at wouldn’t be subject to it.
If I were Obama or Edwards or Clinton (or McCain or Romney) I’d be on the phone to those folks personally right now.
MORE SO (from Mike O’Hare): Yeah, what he said, except louder. Public understanding of the estate tax, and the arguments used to oppose it with a straight face, deserve a pedestal right at the top of the grand staircase of the policy pathology museum. The richest one in about fifty people face it at all, but the death tax drumbeaters have somehow convinced everyone with a house and car that it’s coming for them. It’s completely avoidable by charitable bequests (Andrew Carnegie said it was sinful to die rich), and the depressing pattern of American money dynasties going to weeds and wastrels by the third generation is ample evidence of how generally debilitating it is to get a lot of resources without having created the value they represent. Furthermore, you can give $10,000 per year, every year, to any and all people you wish to, completely tax free, which can easily set each child, niece, and nephew up with a quarter million dollar trust fund by age 25.
The family farm nonsense is just nonsense, because farms big enough to face any estate tax have very generous provisions for paying it over many years. Artists occasionally get exercised that their children will be impoverished paying estate tax (that is, the two or three a year whose artistic inventory breaks the estate tax limit) in order to inherit all their paintings – though we don’t, admittedly, hear that it’s outrageous for an investor’s kids to impoverish themselves trying to keep daddy’s collection of stocks and bonds intact.
I came across a 2003 talk by Greg Mankiw at the National Press Club which strikes me as one the most irresponsible farragos from a smart person in my recent memory. I don’t want to take it apart piece by piece, but his central points that the estate tax is a tax on capital and therefore impoverishes everyone by hurting the economy, and that it’s actually a tax on the heirs of very very rich people, and that they are sometimes not as rich as their parents, will do for examples. First, it’s a tax on capital when held in large piles by a few people, but not when its held broadly by lots of people. People with lots of money seem to me to invest it in ways that make corporate CEOs and hedge fund investors even richer, while people with mutual funds and small businesses invest it more nearly to serve society’s wants and needs. Second, he makes the “not as rich as their parents” argument on the basis of income, not wealth…and anyway, the correlation is .7! Anyway, when he gets back to argument by parable (taxing the frugal son who dies with his fortune intact and not the spendthrift who parties it away) he’s back to viewing it as a tax on the decedent rather than the heirs…go figure.
To oppose an estate tax, you have to believe that the best place for money is in the hands of the children of people who accumulated (or inherited) a lot of it. I went to college with many of those children and the evidence that they are society’s best stewards of capital almost entirely escaped me at the time, and still does.
Oh yeah…”death tax”? So called to emphasize its terrible incentive effects, leading rich people to not die enough?