Respiration? how about a sigh?

By John Calhoun

Richmond '09

We should have an estate tax. I'll first clear away Paul's primary objections to my position and then offer a brief, positive justification of the estate tax. This is a complicated issue, so don't expect a comprehensive response.

First, Paul's interpretation of the government-as-provider paradigm is confused. The estate tax is not a tax on the deceased, or on the act of dying. The tax is levied on an estate valued at over $3.5 million as it is passed down to an inheritor. Therefore, the burden affects the inheritor, not the deceased. In other words, the estate tax is not a "death tax."

Second, the estate tax does not perpetuate the concept of a "permanent aristocracy." This criticism is particularly strange seeing as how, as Paul notes, part of the purpose of the estate tax is to dismantle undeserved, multi-generational patterns of wealth (by taking from the rich inheritors and giving to the rest of society). In order to support his claim, Paul points to one of the boundary cases: small business owners in asset-heavy industries such as lumber, who could make themselves into permanent aristocrats if it weren't for the estate tax.

There are a few problems with this defense. Paul's specific example isn't too compelling as a critique of the estate tax because it affects relatively few small businesses in asset-heavy industries such as lumber/mineral use, and even Boone Lumber can -- and does -- take out an insurance plan for a little less than $60,000 a year to cover most, if not all, of the costs of the estate tax. When your business is raking in more than $12 million per year, $60,000 is not very much. Paul exaggerates the cost to small businesses and the number of small businesses affected.

Paul's third criticism is that the estate tax impedes economic growth. While this is technically true, it's negligibly true. Recall that most taxes constrict economic growth, including a lot of the taxes Paul supports. The estate tax affects a small percentage of the American population, all of whom are quite affluent. The tax is levied during the process of inheritance, which minimizes the risk of providing an incentive against work or frugality. After all, what rational 50-year-old man would decide to stop working hard because, after he died, his kids wouldn't receive his entire estate? He will still want to work to improve his life.

The stronger argument for Paul's side is that the estate tax will encourage the rich to spend their money rather than save it. By saving their money, the rich provide more funds on which banks can draw while lending to businesses, thereby oiling the gears of the economy. Paul points to the current economic crisis and suggests that the estate tax makes it worse. But wouldn't it be a good thing at this point if the rich, spooked by the estate tax, jacked up consumer spending? I'm being tongue in cheek, of course, but it's still worth considering. Nonetheless, despite the negative impact on economic growth, our country should have an estate tax. The children of multimillionaires don't deserve their parents' money, just as the children of poor parents don't deserve their poverty. The estate tax takes a portion of a vast inheritance and channels it to public programs (some of which benefit the rich just as much as the poor). The only suffocating thing surrounding the estate tax is Paul's narrow-mindedness.