Wednesday, June 07, 2006

The Capitalist's Argument for the Estate Tax

with little thought to my own welfare
I've defended the Inheritance Tax on
Libertarian/Minimalist Governance,
and efficiency grounds.
Tonight I tackle the Capitalist Argument for the Estate Tax.

I begin by relying on a couple premises, both of which are expounded upon in a working paper of the Minneapolis Federal Reserve Board, Accounting for the Rich, edited by Douglas Clement.

The first point is strictly about where wealth comes from.
Do people earn most of the wealth in this country?
Is most wealth in tax rebates for the poor?
According to economists Kotlikoff and Summers,
80% of all wealth is inherited.
Economist Modigliani disagrees, and says it 25%, but that the difference reflects
"mainly definitional differences."

The second point is about the very basis of Capitalism
Entrepreneurship (omg, is that a French word?)
Who becomes an entrepreneur?
One would need, according to a model derived by economists De Nardi and Cagnetti:

  • inclination
  • ability
  • capital

Yet, if a substantial minority,
or maybe a vast majority,
of all wealth is handed out solely on a hereditary basis
how can it be available to the entrepreneur?
It can sadden one to think of it.

Yet the Capitalist might say (and amazingly, today on the Senate floor actual US Senators, like Jefferson Beauregard Sessions, were arguing that the Inheritance Tax is bad for entrepreneurs)
taxes are not good for Capitalism,
and to that
I'd have to say "yet".

"Yet" think about the alternatives.
Which is better for entrepreneurs,
I simply ask you
to take money from productive citizens while they are alive
or after they are dead?

No comments: