In a man bites dog story, some of America’s richest men have joined together to oppose one of the best ideas in years: cutting or repealing the estate tax. Investor Warren Buffett, Bill’s dad William Gates, anti-capitalist speculator George Soros, lefty ice-cream magnate Ben Cohen, at least two Rockefellers, and many others, have signed an ad that decries the proposed tax cuts on many spurious grounds.
Gates in particular says that if he had time he would found and run an organization called Millionaires for the Estate Tax. Coming from a man who heads a foundation with $20 billion to burn, that is an interesting comment. He is purporting to speak for people with a small fraction of the wealth he has at his disposal. The existence of billionaires is a wonderful testament to the glories of the capitalist system, but let us not forget that many of them are loony tunes on issues outside their core business.
This coalition says an estate tax repeal will decrease charitable giving, as if people only give to charity to escape the tax. Wrong. The effect would be the reverse. As wealth grows across generations, there would be more money to give away. Indeed, after having sapped (at least) half a trillion dollars in capital from the economy this century (Joint Economic Committee, 1998) estate taxes have declined and exemptions increased at the same time charitable giving has gone way up.
More important to these people is the moral argument. They say that inheritance elevates privilege above merit. But this is a false distinction that asserts an egalitarian view of merit. It is also very dangerous because it puts government instead of the private sector in charge of deciding who merits what.
There are many things we don’t "merit" by their definition: good parents, loving homes, quality education, family connections, and the like. We didn’t choose or "earn" those. Should the government take them away in the name of equal opportunity? Scary stuff. A broader and more correct definition of merit would see it as connected with justice, and it is not just that government should tax family earnings away in one generation or many.
I suspect that the super-rich are not giving their real reasons for opposing the repeal of estate taxes. It may at first look like these men are going against their self-interest to favor estate taxes. In fact, the super-rich have a personal interest in preventing others from joining their ranks. With estate taxes they can afford, they still stay at the top of the heap. Without them, their social and economic position will be continually threatened by upstart dynasties.
Buffett and Soros are very gifted men. They have the special talent to create vast sums of wealth in their own lifetimes. But not everyone has such talent. Others need the extra help that family money provides. Far from increasing opportunity, then, estate taxes block opportunity for people who have less entrepreneurial talent than these one-generation wonders. By advocating such taxes, these men are trying to establish a monopoly of wealth at other people’s expense.
There’s also a strange psychology at work among the super-rich. They may be successful entrepreneurs, but none of these men is a convinced capitalist. Most of them give to left-wing causes that seek to undermine the market economy. Lacking any real education in market economics, they feel a sense of guilt for their earnings.
Despite their wealth, they have imbibed the dominant culture’s ethic of egalitarianism and decided to promote it as a means of expiating their alleged sins. No surprise here, since these men read the papers and see the daily attacks on their wealth. They watch television where they are personally vilified as robber barons.
These leftist attacks begin to take a toll. Now, no one would care if they decide to purge their guilt by dumping all their money on private charities. But they want to vacuum other people’s bank accounts. That’s where their intellectual errors become positively destructive.
What’s more, we shouldn’t be surprised that the rich are leading the charge for estate taxes. This is the way it’s always been. At the turn of the century, it was Andrew Carnegie, one of America’s wealthiest men, who argued most passionately for an estate tax. In a series of articles in the North American Review, he said that all wealth should go to the community at the end of a man’s life. Clearly he confused the State with the community.
Carnegie also argued that inheritance is bad for kids. It makes them lazy and un-enterprising. We all know of cases where this has proven true. But there are many ways around this problem: setting up trusts that allocate the money according to certain preset conditions. Even if that weren’t true, whether one family’s kids are indolent or enterprising isn’t the business of government.
And as economist Alexander Tabarrok argues in a paper written for the Mises Institute, “the adage says that wealth corrupts; perhaps, but wealth has no monopoly in this regard. It is easy enough to lead a worthless and parasitical life without an inheritance; I have seen neither argument nor evidence which suggests having an inheritance increases this possibility.”
In fact, Tabarrok notes the tendency of people who bequeath vast sums of wealth to also bequeath a sound moral and educational inheritance as well. "In a capitalist society, the institution of inheritance is more than a moral institution, it is part of the process whereby wealth is transferred to those who can best use it to serve the wishes of consumers."
The most important reason that people save is the hope of providing a better life for their children. A society that punishes that impulse with taxes is foolish. It is draining energy from the single most powerful engine of capital accumulation. If the super-rich don’t want their kids to get their money, fine. Donate every penny of it to someone else. But they are wrong to block others from exercising a free choice.