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Kill the Death Tax


Are we supposed to be impressed that some of the country’s richest men want the government to continue taxing estates? I don’t see why their opinion on this matter is worth more than that of anyone else. After all, just because someone is good at making money, that doesn’t make him an authority on economics or ethics.

But Warren Buffett, George Soros, David Rockefeller, William Gates Sr., and several others with deep pockets say the Republicans are wrong to phase out the death tax, which can take up to 55 percent of an estate and force the liquidation of businesses and farms. These men fret that repealing the tax would reduce charitable giving, impose burdens on the nonwealthy, and establish a plutocracy by letting the rich pass their wealth on to their children.

Do these arguments have any merit? None at all.

Buffett et al. claim that if estates are not taxed, people like themselves won’t give as much to charity. In other words, charity is merely a tax shelter. Perhaps they should speak for themselves. In the nineteenth century, before there was an estate or income tax, the wealthy gave huge sums to charitable causes of all kinds. In the 1980s, when top income-tax rates were cut substantially, philanthropy soared. Apparently, rich folks give money out of generosity, tax considerations or no tax considerations.

But even if it were true that giving would drop with repeal of the death tax, so what? In a free society the government should not use the tax system to manipulate the people. Stimulating charity is a poor reason to impose or maintain a tax. The argument that getting rid of the death tax will burden the rest of us is also weak. True, if other taxes are raised to make up the revenue, that would be harmful. But there is no need to raise other taxes. Surpluses are anticipated, remember? Moreover, the federal budget — approaching $2 trillion — should be slashed dramatically. And finally, the estate tax really doesn’t bring in much money — because people like Buffett hire lawyers to find ways to avoid it.

Finally, the rich defenders of the tax fear that if the wealthy can pass all their money on to their kids, no one else will be able to get rich. This is the most ridiculous reason of all. It is so riddled with fallacies that one hardly knows where to start.

The most basic fallacy here is that the amount of wealth is fixed; that if Buffett can give all his money to his children, someone outside his family will be deprived of an opportunity to get rich. To see how absurd this is, all you have to do is read up on how life changed in the United States between 1800 and 1900, when there was no estate or income tax. Living standards for everyone improved substantially. Why? Because new wealth was created at an unprecedented rate. In the following hundred years, material well-being accelerated at an undreamed-of rate. It had nothing to do with taxes. Rather, it had everything to do with freedom and entrepreneurship. That Warren Buffett leaves his fortune to his children in no way impedes a scruffy, ambitious kid in a garage from working his tail off to launch a possibly world-changing enterprise.

In fact, the opposite is the case. Without a death tax, great fortunes remain in the private sector to be invested in new products and services. The next Bill Gates Jr. has a better chance of getting rich without an estate tax than with it — not because he can inherit all his father’s money, but rather because no estates would be diverted to wasteful government spending schemes. (Gates Jr. obviously did not have to inherit money to become the world’s richest man.) The idea that the government will make better use of those fortunes is demonstrably wrong.

If the economics of the death tax is flawed, the ethics is worse. The question that always gets lost is: whose money is it? If the creators of wealth aren’t entitled to dispose of it, no one is. And if their designated heirs aren’t entitled to own it, one is hard-pressed to understand how the government or “the people” are. Is this a free society or not?

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    Sheldon Richman is former vice president and editor at The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.