Plutocratic Politics

2 May 2005



Senate is Last Stop for Estate Tax Repeal

The tax levied on the very richest of American who expire will raise $400 billion over the next ten years, money the federal government needs if it is going to ever close the $400-$500 billion deficit it runs. But, it is an article of faith in some corners that the "death tax" is destroying American families and throwing widows and orphan into the streets. It isn't true, 9 out of 10 Americans aren't wealthy enough to pay the tax, and those who are can afford it. However, the real reason for retaining the inheritance tax is not economic but rather political.

The problem with the American tax system is simple. Everyone is trying to find a way to create desirable social (which means personal) outcomes by offering exemptions, deductions, credits and such. What must be remembered, though, is that taxes exist to fund necessary government services. Only the ideologically purest anarchist would dispute that government must act on occasion, and that usually requires some sort of funding -- hence taxes are a necessary evil. Taxes exist, not to create incentives for desirable behavior, but to raise money for government action, be it dropping bombs on bad guys or teaching children to read.

Yet, some taxes are better than others. Economically, those that are expensive to administer and generate little revenue are worse than those that are inexpensive and generate adequate funds. Politically, honest people can differ over many facets of taxation. Is it right for the poor to pay nothing at all? On the one hand, they can't afford much; on the other, funding the government is a duty of a citizen in a free republic. Is it good for the rich to may proportionately more than the poor? One the one hand, it may discourage economic activity, but it may also take vital funds from those least likely to miss them.

In the case of taxing the estates of the super-wealthy, many variations on these themes have been trotted out to argue either side of the coin. It is wrong to take a man's wealth from his widow because she may have had a great deal to do with his creation of that wealth in the first place. On the other hand, if she had nothing at all to do with it, and if he chose not to give it to her in life, why does she get it in death? And it isn't like the very rich can't find ways around a lot of this. Trusts can be set up to enrich generations as yet unborn. John D. Rockefeller died in 1937, and his descendants are still able to live without working. Meanwhile, many will funds to charities that would otherwise get nothing.

However, a reason for taxing the rich that no American likes to talk about is the prevention of concentrations of power. As Cicero said, freedom is the participation in power, and if one has huge power based on wealth (especially inherited wealth), that diminishes the freedom of others by diminishing their participation in power. "The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread," as Anatole France observed. The political corollary is that the poor have just as much right as the rich to donate $100,000 to the Democratic or Republican National Committees. But one won't hear this argument advanced regardless of how the Senate deals with the bill the House has passed.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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