Death Taxes

The Washington Post has sparked a lively debate about whether Leona Helmsley, who left a $12 million trust fund for her dog “Trouble,” justifies the inheritance tax. first take issue with the notion that rich people “owe” the society where they became wealthy. Capitalism is not a zero-sum game, where more money for Bill Gates means less money for everyone else. Bill Gates not only accumulated wealth; he created wealth. Borrowing a phrase from John Locke, Gates “mixed his labor” with other resources to produce a new, valuable product. He enlarged the pie of wealth by making the entire economy more efficient. Furthermore, Gates made his fortune by exchanging his product for the wealth of others. Because these were voluntary exchanges where both parties perceived a benefit, Gates does not “owe” society for his wealth any more than society “owes” Gates for the joys of FreeCell.

Speaking of Bill Gates, he actually supports the inheritance tax; as does Warren Buffett. This hardly makes them saints, however; nor does it justify the inheritance tax. short, the estate tax does not affect a publicly held corporation like Microsoft, but it does affect a family-owned business. If a son cannot pay the inheritance tax on a small business left to him, he might be forced to sell it to a tycoon like Warren Buffett. The inheritance tax makes the economy less fair by favoring large corporations—like those run by Gates and Buffet—at the expense of smaller, potential competitors.

As several comments point out, lawyers and loopholes help rich people get around the inheritance tax. This doesn’t mean that the rich “aren’t paying their fair share.” (The top 5 percent of earners pay 57 percent of all federal income taxes.) Rather, the loopholes simply show that the inheritance tax, like the rest of the 67,000-page tax code, exists for the sole purpose of enriching lawyers.
Finally, there is the fear that heirs will become unproductive, hereditary drones. To which I say: So what? Those people are no threat to anyone. Contrary to the first comment cited above, Paris Hilton doesn’t “run” anything. As Walter Williams points out, the truly rich are a tiny subset of the population; they’re not worth worrying about. They can’t kick you off your land, bankrupt your future, or give away your money to millionaire farmers. The government does all of these things. So what’s worse—drones who live off their parents? Or drones who live off the taxpayers?

At least the “idle rich” entertain us with top-notch reality shows like The Simple Life and My Super Sweet 16. In fact, I bet if someone started a reality show featuring “Trouble” the dog and his trust fund, it would provide far more value than anything the government is likely to do with another $12 million.