Freeman

IT JUST AIN'T SO

Capitalists Should Love the Estate Tax?

The Estate Tax Fails to Respect Property Rights

JULY 01, 2001 by AEON SKOBLE

Filed Under : Capitalism, Property Rights, Entrepreneurship

Writing in the February 15 issue of online magazine Salon, philosophy professor Sam Fleischacker says that he found it “inspiring” that George Soros, Bill Gates Sr., Warren Buffett, and several other wealthy people had spoken out in favor of retaining the estate tax. Fleischacker argues that it is precisely defenders of capitalism who should “fervently defend” the estate tax. But his argument fails to take property rights seriously, and although he can cite some historical support, it is insufficient to prove the point.

It should go without saying that just because Bill Gates Sr. says something (even in the March 18 New York Times Magazine) doesn’t mean that it is true. But Fleischacker quotes Adam Smith as saying “there is no point more difficult to account for than the right we conceive men to have to dispose of their goods after death.” Why should this be any more persuasive? I’ll take Fleischacker’s word for it that Smith believed the only justification for inheritance was to provide for dependent children who would otherwise starve, but that’s really neither here nor there with respect to rights. Fleischacker’s best bet for historical support, at least as regards American government, is his claim that Thomas Jefferson was intrigued by the idea of abolishing hereditary privilege. But it’s not clear that this is the same thing as forcibly limiting a family’s right to keep property in the family, and even if it were, it wouldn’t follow that Jefferson’s endorsing it would make it a good idea.

The commentators defending the estate tax on ostensibly capitalist grounds (Andrew Sullivan made a similar argument in the March 19 New Republic) seem to base their position on the theme of aristocracy versus entrepreneurship. This appeals to our sense that what makes capitalism work is that people get paid for their productivity. Since people want to get rich, they have an incentive to be productive. The idea is that, in capitalism, one gets rich by doing something of tremendous value, as opposed to, say, feudalism, wherein one’s wealth and privilege was simply a function of the hereditary “aristocracy.” Fleischacker’s contrast of earned privilege versus inherited privilege is meant to evoke the sort of powdered-wig “nobles” who got their heads cut off, or otherwise experienced a decline in security, in the late eighteenth century. But the idea that rich people in capitalist societies will become the next feudal aristocracy is a bit of a stretch.

Fleischacker argues that a “central principle of capitalist societies” is that social privileges should be earned rather than handed down. But actually, that isn’t the point. The “main theme” of capitalist society, or to put it in less loaded terminology, a free society, is rights. In the old feudal orders that Sullivan and Fleischacker rightly scorn, “rights” referred to special privileges granted by the king to his barons. But the post-Enlightenment conception of rights is something that applies to everyone equally. According to John Locke, for example, we all have an equal right by nature to be free and to own the fruits of our labor. It is this conception of rights that underlies Jefferson’s claims in the Declaration of Independence. So it’s actually true that social privilege is, for the most part, earned, but that is a by-product of classical liberalism, not its essence.

That same system of rights means that I am entitled to use my wealth as I see fit (other than to harm others), and it is surely not surprising that what many wish to do with their wealth is give it to their children. For many people, that’s the whole point behind financial success: to be able to provide a more comfortable life for your kids than you had. In fact, that’s the whole notion of the American Dream.

A Hindrance to Mobility?

Fleischacker isn’t opposing this, of course. His point, and Sullivan’s, is that once a family has a certain amount of wealth, this model makes the children less likely to be productive. They’ll have reached a level where they can just sit in their mansions and be idle. The pro-tax argument is that this is actually a hindrance to the mobility model. But this objection fails for two reasons. One, it presupposes that there is a static amount of wealth in the universe, so that if Jones sits at home on his pile of inherited cash, Brown cannot become wealthy. But as any introductory student in economics can tell you, that is false. In any case, Jones is likely to do more than literally sit on his cash like Scrooge McDuck. A more realistic possibility is that he will continue to invest it to be sure that his children also have a big pile of cash.

Two, if Jones did become totally unproductive, that’s his prerogative in a society that respects rights. As long as he is not using his wealth to harm others, it’s not up to Fleischacker, or me, or the President, or anyone else what he does with his money. Again, Brown still has the same chance of becoming rich regardless of what Jones is doing with his pile of cash. Jones’s likely course, that of continued reinvestments, might make it easier for Brown, as would Jones’s extravagant consumption habits. But the total amount of wealth in the world is not fixed, so Brown has his shot at getting rich no matter what Jones does.

Both Fleischacker and Sullivan make a lot out of the fact that dead people have no property rights (and they both object to the label “death tax” on grounds that the dead don’t pay them). But this is disingenuous. Of course it’s true that dead people do not have property rights, but if living people do, then there’s no reason to think that setting up wills and endowments and trust funds isn’t among their options. If I have the right to buy a yacht when I’m 95 and give that to my daughter, why can’t I just give her a million dollars, and let her decide what to do with it? Fleischacker’s response to this is to say that it’s wrong for me to be able to buy my children political office. Well, of course that’s true, and it is also true that rich people have greater access to power than the non-rich. But that’s an objection to politicians more than it is to rich people. Would it be acceptable for a newly rich dot-com billionaire to buy political power? No. So it’s not the fact that the wealth is inherited that makes it politically dangerous. It’s the fact that all politicians are susceptible to the allure of money, which is indeed dangerous. But we can’t fix that by restricting property rights.

—Aeon J. Skoble
Visiting Assistant Professor of Philosophy
United States Military Academy, West Point
(The ideas expressed here are his own.)

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July 2001

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