High(er) inheritance taxes are relatively popular among people otherwise not unfriendly towards private property, including the great James M. Buchanan. On July 20, the FT has published a letter, from Mark G. Brennan, that claims that targeting inherited wealth as “unearned” may be but the first step on a slippery slope.
It is per se quite a surprising fact, as these philosophical arguments (of a libertarian kind) seldom get into letter pages.
So writes Mr Brennan:
As leftist revolutions have shown time and again, what starts off as a distaste for “hereditary” wealth often mutates into a distaste for all wealth.
Demagogues past, such as Lenin, Mao and Castro, incited rage in the masses with their attacks on the “injustice” of any wealth that created even the impression of inequality between subservient subjects of the almighty state. And to imagine that the state can somehow abolish what you profane as the “lottery of birth” leads to even worse atrocities. No two humans have the same endowment of resources such as intelligence, height, health and personality, to name just a few of the factors that provide advantages in the pursuit of property. But empirical observations have never stopped the left from pursuing its war on nature and human diversity.
I found the letter refreshingly direct.
READER COMMENTS
Charlie
Jul 23 2019 at 12:55pm
I’m not a subscriber to FT so I’m only going off what’s in this post.
If anything, allowing for ever-increasing inequality (which unchecked generational wealth transfer contributes towards) only exacerbates the very social unrest that leads to the types of movements led by Lenin, Moa and Castro. Brennan has it backwards. Not really up for debate.
john hare
Jul 23 2019 at 4:09pm
The ever increasing wealth only happens if the heirs are good stewards of the money. The ones that invest move up. I’ve met quite a number of relatively poor people with rich parents. One cannot buy prosperity for the irresponsible children.
John J Donnelly
Jul 23 2019 at 4:48pm
This observation leads me to believe that inheritance taxes are one of those “least painful” taxes. There is a nice high minimum estate size subject to the tax and the pain seems to be borne by the person who earned the wealth who will not be around to see it diminished.
Thomas Sewell
Jul 24 2019 at 8:54pm
Rather, inheritance taxes are among the least efficient of taxes, in the sense that they fall largely on people whose parents were on the edge of the limits and/or who failed to hire the right accountants/lawyers ahead of time. Is that really the basis we want for designing a sane tax regime, that if you didn’t have the foresight to do the paperwork to avoid it, or something peculiar in your financial situation meant you missed avoiding it, we tax you for that?
The tax itself doesn’t raise much money from the intended targets, because it’s easily almost entirely avoided by gifts ahead of death, either directly to the intended recipients, or via irrevocable trusts and/or a dozen other permutations. So it ends up being mostly a tax on those “caught out” by lack of giving enough business to tax accountants and attorneys. That’s far from an ideal tax to me.
Tom DeMeo
Jul 26 2019 at 3:56pm
It is reasonable to consider whether the concept of property and wealth, past a certain level, should not survive across generations, and perhaps taxes are the wrong mechanism to accomplish this.
So far, the results of intergenerational transfer have stayed within a set of bounds, and we view it accordingly. It is possible that in the future, such transfers could result in something more extreme.
I think there is a case to be made that future generations are a bit like Congress, where no law can restrict Congress from changing its mind later. Do we now really have the right to assert that a property is perpetually bound to a surname for all time going forward?
Mark Brady
Jul 23 2019 at 2:46pm
As a veteran reader of the Financial Times, be advised that it’s not that hard to get a succinct letter from a classical liberal point of view published on the letters page. As of April 1, 2019, the paid circulation topped one paying readers, so if your letter gets in, you reach a great many people around the world.
John Alcorn
Jul 23 2019 at 2:56pm
To quote Robert Sugden:
Or perhaps such good will is destined to remain elusive?
See chapter 8 of Prof. Sugden’s book for fresh, systematic, nuanced analysis of issues in the psychological stability of market society. The brief discussion of Lionel Messi’s prosperity and tax evasion is worth the price of admission.
dmm
Jul 27 2019 at 3:15pm
“redistributive taxation may be an essential component of a society in which people can see one another’s prosperity with good will.”
Maybe not.
Refutation complete.
However and furthermore, I don’t see how good will is generated (on both sides) by forcibly taking the fruits of one’s labor and giving it to another. I call that slavery.
Alan Goldhammer
Jul 23 2019 at 6:02pm
I am also not a FT subscriber so I only see the snippet that is posted. My major problem with inherited wealth is that unrealized capital gains can be passed on tax free in the case of equities. The inheritors mark the value of the equities to the market when it’s transferred to them. In most cases there is significant wealth that escapes taxation. This will be quite significant for those in the financial services industry (hedge funds, venture capitalists, etc.) who have large unrealized capital gains that get transferred to those in their will without having to pay taxes. Personally, I think the capital gains should be taxed.
robc
Jul 24 2019 at 8:58am
I agree with you, sort of.
I would prefer the change to be not taxing capital gains at all, living or dead. But it should be equitable.
At the least, the inheritance should keep the initial cost basis, not get a reset. So they still wouldn’t be taxed until they sold the assets, but would have to pay the tax on the entire unrealized gain.
Mike W
Jul 28 2019 at 10:35am
But what you describe, “can be passed on tax free in the case of equities”, really only applies to the amount of the estate covered by the exemption, currently $11.4 million and $22.8 per couple. The amount of the estate passing to heirs above the exemption is taxed at the estate tax rate, i.e., 37% of the current market value of estate assets over the exemption plus $12,750.
So, actually, “for those in the financial services industry (hedge funds, venture capitalists, etc.) who have large unrealized capital gains” those gains are taxed at a rate higher than the capital gains rate.
Thaomas
Jul 24 2019 at 7:46am
Like most Libertarian arguments, this proves entirely too much. Does the spectre of Mao and Lenin imply that the optimal inheritance tax is zero, that ANY downward redistribution of income through taxes is wrong?
robc
Jul 24 2019 at 8:59am
Yes.
For this libertarian, the only tax I can morally support is the single land tax, as I don’t think there is any natural law right to land ownership.
Also, any tax with a deadweight loss is a bad idea.
Thaomas
Jul 27 2019 at 10:18pm
Should not your answer be ‘No?” It is not the spectre of Mao or Lenin, but your own preference for no downward redistribution that leads you to believe the optimal rate of taxation of inheritances is zero.
Greg Jaxon
Jul 26 2019 at 8:36pm
Also YES, but without reservations concerning lands acquired by purchase or homesteading. Linking the behaviors that economized resource use and nurtured business skills to the genetic inheritance that formed the platform for those actions seems like the right structure for the natural selection of prosperous human families. ALL other interference in this organic system is tantamount to planned eugenics.
Joe Kristan
Jul 24 2019 at 10:54pm
The evidence showing that people are bothered by inequality is weak. This is you would expect. It’s proper to be worried on behalf of the poor, but it’s just weird to fret that someone has escaped poverty by too much. Inequality only becomes an issue at all when politicians try to win votes by creating resentment that doesn’t otherwise show up.
The bloody, tragic, and impoverished history of regimes built around eliminating inequality should be enough to teach us to not follow their example.
dmm
Jul 27 2019 at 3:03pm
I don’t know, but it seems like your first and last sentences are quite contradictory.
Roger McKinney
Jul 25 2019 at 2:48pm
Schumpeter blamed the decline of family owned businesses as one of the main reasons for the lack of interest in preserving capitalism. He reasoned that middle class business owners are motivated to leave a legacy to their children and that makes them future oriented. Inheritance taxes have contributed to the death of family owned business and the rise of corporations with managers who are short term oriented and want a powerful state they can buy power from for their own purposes.
Fear of inequality through inheritances is overblown. Look around you. Where are people rioting? France, Venezuela, Greece, all socialist countries.
Hatred of inheritances is motivated by pure envy
Dustin
Jul 30 2019 at 2:34pm
Does it matter what motivates the sentiment? The motivation is human nature, and our system of governance should recognize that humans are humans and not objective, dispassionate robots.
Comments are closed.