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Thoughts Online Magazine
Collected Articles on Culture & Politics
It's 2010, and Estate Tax Comes Back in January 
20th-Sep-2010 06:17 pm
What are the effects of the return of the estate tax? Well, in a well-put-together study (PDF), we have these notes:

This paper examines the impacts of a higher estate tax rate on asset accumulation, small and family businesses’ cost of capital, investment outlays, desire to hire, size of payrolls and jobs. In each instance, raising the estate tax has significant negative impacts. In particular, letting the tax rate rise to 60% will cost as much as 1.5 million jobs, and even a more modest rate of 15% could diminish hiring by over 350,000 jobs.

Other impacts on small and family businesses:
Raising the “hurdle rate” of return required for investment by 34 basis points
Reducing capital outlays by 7.8%
Decreasing the probability of new hiring by 8.3%
Cutting the size of payrolls by 2.5%

This is consistent with prior studies of the estate tax such as this (1996), this (2004), and this (2010). And, since it hits small businesses hard, this is not that surprising.

What might be surprising, though, is what I learned as a lawyer who was doing estate tax planning: paying estate tax is an OPTION if you're rich enough. You don't have to. There are a lot of ways to plan around it, and once it's in place, a lot of reasons to plan around it so that it never impacts the estate at all. So if you're really rich, you don't have to bother with it. It's only if you aren't that it has a chance of gutting your business. And this is the law being restored: the one that allows the rich to avoid the whole thing by paying lawyers to figure out how not to pay it. How fair can you get?
24th-Sep-2010 09:34 am (UTC)
The government, of course, has nothing to do with the legal framework, societal stability and military protection that allowed those people to accumulate wealth - yeah, right. And your assumption that heirs are always loved by their forebears deserves nothing but laughter in response. The reason to create empires - financial or otherwise - has nothing to do with family love and everything to do with family pride (study the internal relationships of Napoleon's family before you answer, and don't tell me they were not typical). Even so, since when is love a justification for handing someone immense power over people and things? If that were the case, I could easily have made a certain woman an Emperess. No, what you are saying is that families that have great power should be allowed to accumulate even more power, generation after generation. To which I answer: Les aristos a la lanterne!
24th-Sep-2010 10:19 am (UTC)
"Three generations shirtsleeves to shirtsleeves" is a saying that came into use before the estate tax. Power generation after generation comes from other sources than wealth: and trying to reach it by focusing on wealth is a distraction.

Appeals to slogans appropriate to village life in pre-rational development are hardly an answer.
24th-Sep-2010 10:28 am (UTC)
"Three generations shirtsleeves to shirtsleeves" is also comfortingly wrong, as generations of Rockefellers, Sainsburys, Agnellis/Elkanns, and so on, could tell you. And the slogan in question came from revolutionary Paris, which was even then hardly a village.
24th-Sep-2010 10:41 am (UTC)
The slogan is appropriate to pre-rational village life. The stressors which caused the regression of society to that level are not difficult to recall: but that does not mean that it is currently appropriate. There are middle-class Rockefellers, and absent the political arm, the dynasty would be headed that way faster.
24th-Sep-2010 06:03 pm (UTC)
And of course the political career of successive Rockefellers has nothing to do with inherited wealth. You keep making statements that don't connect.
24th-Sep-2010 06:52 pm (UTC)
It's the other way around. The wealth increases due to political connection, and is less in those family members without it.
25th-Sep-2010 09:10 am (UTC)
But no Rockefeller would have got into politics unless their forefather had set up Standard Oil.
25th-Sep-2010 04:09 pm (UTC)
Correct. But useless. Given the large number of people in politics, it would be surprising if none of them came from wealthy backgrounds.
26th-Sep-2010 07:24 pm (UTC)
Sophistry. Rockefellers don't get into politics to become small-town mayors or state representatives. They head straight for the Senate and become serious players. And that for no reason except inherited wealth.
27th-Sep-2010 03:01 pm (UTC)
So the effect of wealth is not that they don't enter politics, it's that they enter it at the national, rather than the local level? And you thought my idea was sophistry?

The wealth gives them a claim on resources. It must be managed, and employs many people in that process, as well as leading to new ideas and new investments. Some work out, some don't. People who go into politics also create wealth -- mainly private wealth, frequently their own (see the many studies on the returns of Senate stock portfolios). Among the places they have to spend that wealth is in persuading voters to keep sending them back. This year, like 1994, looks like one of the years where persuasion won't work as it has previously. And that is where those who want to cut the government back to something that can be handled by those elected to it come in. We know that whatever local village goodness the representatives have, they can't write long bills. Every time they do, they bobble it. Doing so requires understanding too many things at once, and no one has more than seven to 10 holding spaces in their brains to handle current work. As a citizen, it is my privilege to obey the law AS THEY WRITE IT, not as they would have wanted to write it had they actually been able to understand it, and to hold the govenment to those laws as a standard.

Your agricultural village orientation has problems with claims on resources not backed up by local virtue, and you don't think creating jobs is a virtue.
28th-Sep-2010 07:14 pm (UTC)
When are you planning on setting the American House of Lords? My agricultural village orientation is that of Washington, Jefferson and Franklin: "We hold these truths to be self-evident..." It was the King of Britain who fought his side of the war on the principle that "influence" is a necessary and justified part of society, and that one man is more important than another, not because of anything he did, but because of birth. And if you don't believe me, read the poet Cowper's disbelieving reaction to the American idea of political equality. Incidentally, it is also that of Winston Churchill, who, as a leading member of the Asquith-Lloyd George governments of the early nineteen hundreds, was a leading proponent of the tax on inheritance. What amazes me is that you probably still think of yourself as a libertarian, when the logic of your argument is driving you to something that has no match except in the oldest reaches of Toryism.
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