Sunday, June 05, 2005

The Death Tax and Morality

The inheritance tax, or the ‘death tax’ as it is dysphemistically called, has seen the tide of public opinion turn against it, much to the bewildered consternation of liberals and socialists.

Many don’t understand why the inheritance tax should be opposed. Those that would inherit the wealth of the rich haven’t earned this money, and so have no right to it. It is a blatant, yet easily remedied, violation of egalitarian principles, is it not? Why should some children come into the world millionaires, while others struggle to make by with the barest of possessions?

Paris Hilton is regularly mentioned as an example of the dissolute and privileged scion, the spoiled inheritor of unearned, and even corrupting, wealth, who is created by the inheritance tax. What possible justification can there be for repealing a tax that only affects the super-rich, and, even then, only by preventing exorbitant and unearned wealth transfer to an undeserving heir, who, in turn, is corrupted by it?

There are a few arguments offered for the death tax, the primary one being that it allows for the accumulation of capital, and acts as an incentive for the continued creation of wealth. But this is primarily an economic argument, and one that doesn’t entirely answer the critiques mentioned above. Although this economic argument could be molded into something of a moral argument, I would probably find such an argument distasteful, as it’s main thrust would be one of expediency, rather than principle. That is, the argument would simply deal in monetary amounts (i.e. more total wealth would be created without the inheritance tax, so we should abolish it), rather than in principles, such as liberty, equality, etc. I am loathe to accept arguments of expediency over arguments of principle.

Of course, economic liberty is, in itself, a worthy principle. But such an argument might falter as the death tax presents a special circumstance: is it possible to violate the liberty of the deceased? I think this argument would still stand, for various reasons, but it is not the position that I want to develop now.

In Constitution of Liberty, Austrian economist and social philosopher F.A. Hayek wrote on the death tax:

Many people who agree that the family is desirable as an instrument for the transmission of morals, tastes, and knowledge still question the desirability of the transmission of material property. Yet there can be little doubt that, in order that the former may be possible, some continuity of standards, of the external forms of life, is essential, and that this will be achieved only if it is possible to transmit not only immaterial but also material advantages. There is, of course neither greater merit nor any greater injustice involved in some people being born to wealthy parents than there is in other being born to kind or intelligent parents. The fact is that it is no less of an advantage to the community if at least some children can start with the advantages which at any given time only wealthy homes can offer than if some children inherit great intelligence or are taught better morals at home.
If it is “unfair” and deserving of remedy that some inherit millions of dollars unearned, which gives them unfair advantages over others, then is it not also “unfair” and deserving of remedy that some are born with uncommon faculties of intelligence, or with sturdier bodily constitutions, or with fairer features, that, in turn, give them unfair advantages?

The child whose parents are industrious will be able to benefit by an abnormally large material inheritance. The child whose parents are world-class pedagogues will be able to benefit from their special, and intimate tutelage. The child who has loving, attentive parents will be able to benefit by the inculcation of superior values and the gaining of a healthy self-image. All of these children will benefit in special ways according to the uniqueness of their parents, but only one will be considered unworthy of his inheritance, and as a justified target of state sponsored intervention. That is unfair.

But what of the Paris Hilton example? Why not have the inheritance tax for the children? This is a bizarre argument for liberals to make. Usually liberals claim to abhor legislating morality (a claim which is, nonetheless, usually framed so as to constitute nothing more than a logical fallacy), but here, they embrace it.

So, the lifestyle of a Paris Hilton is condemnable? And not only that, but condemnable to such a level that inheritance theft is justified? Leaving a large inheritance can be seen as nothing more than another type of parenting. Maybe some parents think that they have nothing to offer there children except monetarily? This is not a far-out example. Take the stereotypical workaholic, philandering billionare businessman. This person might realize that they are a bad parent according to the usual standards of parenting. Therefore, as their attempt at parenting, they attempt to “buy” the love of their children. Why is this form of parenting deserving of a special, state-sponsored opprobrium (whether it is deserving of societal opprobrium, is of course, up to each individual constituting that society) and subsequent taxation?

Now, we will go back to Hayek. He offers another reason to oppose inheritance taxes:
There is also another consideration which, though it may appear somewhat cynical, strongly suggests that if we wish to make the best use of the natural partiality of parents for their children, we ought not preclude the transmission of property. It seems certain that among the many ways in which those who have gained power and influence might provide for their children, the bequest of a fortune is socially by far the cheapest. Without this outlet, these men would look for other ways of providing for their children, such as placing them in positions which might bring them the income and the prestige that a fortune would have done; and this would cause a waste of resources and an injustice much greater than the inheritance of property. Such is the case with all societies in which inheritance of property does not exist, including the Communist. Those who dislike the inequalities caused by inheritance should therefore recognized that, men being what they are, it is the least of evils, even from their point of view.
Hayek rightly takes it as a given that parents will try to gain every advantage for their children. The parents of the rich will naturally mobilize there resources in this same endeavor. It is therefore better that they be allowed to merely transfer riches than, instead, try to corruptly use these riches to gain a job or some position of privilege and wealth to continue the family dynasty. The inheritance tax also encourages the search for loopholes and the use of shady economic dealings to preserve the wealth to be inherited.

Hayek’s mentioning of Communist nations is very apt. In nations with great redistribution of wealth, is there greater equality? William Vallicella, a philosopher at Boston College, recently posted some relevant musings:
The paradox, then, is that the enforcing of equality of wealth requires inequality of power. But, as Lucas points out, the powerful are much more dangerous to us than the wealthy. Your being wealthy takes away nothing from me, and indeed stimulates the economy from which I profit, whereas your being powerful poses a potential threat to my liberty.
People naturally strive for power, but, in America, this quest for power has been sublimated into the quest for the dollar, which then must be used in the great freedom matrix known as the free-market, in consensual exchanges with others. If the dollar loses its connection to power, power in its unadulterated form will again become the goal. Such an eventuality is not to be sought after.

Thus, the death tax is flawed in principle. As the Wall Street Journal put it, “No taxation without respiration!”

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