“Death” Tax? Thoughts on the Estate Tax

Posted on October 20, 2010

I was surfing the internet the other day and ran across a blog article regarding what the author thought about the estate tax.  In a blog article previous to the one I just referenced, the blogger spoke of the “death” tax (his quotation marks).  He acknowledged the masterful marketing represented by the phrase, while disputing what appeared to be the truth about the estate tax.  He did this while denying what most people feel about estate tax: because of its name(s), people feel it is a tax imposed on death.  One of the most effective political ads of 2008 had actors who were passable imitations of the common man and woman, one of whom uttered the priceless line, “When I die, Harold Ford’ll let me pay taxes again.”  In truth, what we know as either the “death” tax or the estate tax is formally known in law as the Unified Donative Transfer Tax, a tax imposed on the right to give away property.  It is called Unified because it encompasses both lifetime and deathtime gifts.

Numerous wealthy people have recently banded together in a group spearheaded by billionaire Warren Buffett to advocate retention of the estate tax.  Prominent members of this group are Buffett, Bill Gates, Sr., and Abigail Disney, among others.  What I find interesting about these people is that while no one is restricting their ability to direct some or all of their wealth (whether created by them or inherited) to the federal government, that is not enough for them.  They want to tell others what they should do and have their wishes become orders with the force of law.  They want to use the force of government to have you do what they think is best.  They do all this under guise of benevolence, of making things equal for everyone.  Of course, they will admit that perfect equality can never be achieved but that it is a goal worth aiming for.  Why do these people think they have the right to tell anyone else what they should do?  Because, for the most part, they believe that inequality is immoral.  Their answer to this perceived immoral situation?  Government-compelled equality of result or outcome.  They also use the argument of “giving back” to the community that made the acquisition of such wealth possible.  As if the wealth was as ill-gotten as that of a highway robber, rather than having been acquired by providing goods and services that people wanted at a price they saw as a net gain to themselves, preferable to the money they gave up to get the goods or services.  Another argument for estate taxes: property passing under the law gets a “stepped up” basis and thereby avoids capital gains taxation.  I have yet to hear anyone using this line of argument frankly acknowledge that government-caused inflation should be netted out of such capital “gain” calculations.

But the equality assumption is the bedrock behind most assertions of the immorality of not having an estate tax.  “We’re a country opposed to an aristocracy,” they maintain.  I thought it was Revolutionary France, not America, that had aristocracy problems.  I’m going to leave aside history and the Robber Barons (while leaving aside some good counter examples, like J. J. Hill, transcontinental railroad tycoon who eschewed exploiting taxpayers by not using the federal government to “assist” his efforts).

Let’s focus solely on the phrase in the Declaration of Independence, that all are “created equal”.  I would submit that equality as understood by the Founders of our country had nothing to do with equality of outcome but everything to do with equality of opportunity, given a less than perfect world, an imperfection which is so systemic that it is incapable of manmade remedy.  In his book and film series Free to Choose, Milton Friedman notes the Declaration concept and elaborates thusly on it: “ . . . this did not mean all persons should or will have equal talents or income. Equal opportunity to better one’s self, and the right to personally benefit from the gains realized, are consistent with freedom. Equality of results requires force. Taking from some to give to others destroys freedom and removes the incentive for creating new wealth.”  Friedman rightly notes that if there were government-imposed equality at any instant in time, the very next instant inequality would erupt again because people’s native abilities and talents cannot be equalized, only penalized by taxation or rewarded by incentives such as keeping the fruit of one’s labor in exchange for risk-taking.  Part of that incentive is the right to pass on what one has earned without the government asserting it has a right to a portion of that.

I am especially irritated at estate planning lawyers who argue for retention of the estate tax because it is a self-serving argument.  Estate planning lawyers directly benefit from keeping complex laws that require their assistance to avoid.  I don’t fear the abolition of the estate tax because estate planning is much more than tax avoidance or minimization.  It’s much more about passing on values that made possible the acquisition of whatever was acquired, as well as protection of what has been acquired.

The condescension implicit in advice given us by those who believe themselves to be our “betters” is infuriating.  I suspect my sensitivity to it is partly because I used to be one of those who freely advocated such positions.  There is hardly one so fervent as an ex-anything.

If you’d like more clear thinking on this particular phenomenon, I would heartily recommend Angelo Codevilla’s work on the Ruling Class vs. the Country Class.

2 Responses to ““Death” Tax? Thoughts on the Estate Tax”

  1. fls
    Nov 14, 2010

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  2. Ron Tedwater
    Nov 18, 2010

    Thanks for the post