The estate tax is the most capitalist tax that exists. Capitalism, which some seem to think is based on people inheriting assets from their relatives, is not. Capitalism is based on the concept that each person gets to receive rewards for their work.
Long before Adam Smith, noble rich passed on their wealth to their heirs. It was not Capitalist then and it is not Capitalist now.
Unfortunately many seem to have skipped economics in school and accepted the claim that Capitalism is about protecting the rich. They seem to believe it is a tenant of Capitalism that those that have the gold make the rules. That is in fact a risk that Capitalists must protect the economy from, not something Capitalist approve of. Those who believe in the wealth being passed from those who earn it to those who they like, believe not in Capitalism but in the state not taxing the idle rich but instead taxing those who don’t have millions given to them. While many have come to believe that such idiocy is Capitalist, it is not. People should read the Wealth of Nations by Adam Smith to get a much clearer idea of what Capitalism is about than those in Washington DC have.
You have to have some taxes to run the government. The income tax is a poor tool, as it is a direct disincentives to positive economic activity. The best tax is one that doesn’t take anything from someone who earned it. And that is exactly what the estate does, tax a portion of the millions someone is given.
The income tax, however, is the largest source of income and therefore it will not disappear. But if you are going to lower taxes, that is the tax you should lower not one on people being given millions of dollars. You might want to replace the income tax with a value added tax, but that is an issue for another day.
The idea that you would cut the estate tax when you have taxes like the social security tax and income tax is very poor economic thinking. The only reason to cut the estate tax would be if you collected more than enough money to run the government from the estate tax alone (you had already eliminated all other taxes).
It is a shame to see so many fall for the 1984 Orwellian doublespeak, where protecting the rich offspring of those who earned money is seen as Capitalist. Capitalism is about the free market and allowing the invisible hand of the market to direct resources. Capitalism is not about protecting the wealthy. It is a shame, but not surprising, to hear so many political leaders speak as though Captialism were intended to let those with the gold make the rules.
Adam Smith knew the wealthy would try to setup rules to distort the free market. One of the important roles of the Government was to protect the free market from collusion by the wealthy to distort the free market. The powerful trying to set rules where they, and their friends, benefit and those who don’t have the power lose (are taxed), is new.
The idea that Capitalism is about letting someone not work a day in their life and live off the wealth of their ancestors annoys me. I think Capitalism is a great system for improving the living conditions of humanity. But such poor thinking by our politicians threatens to cause great harm. My favorite charity shows how Capitalism can improve lives. Trickle Up is a charity that helps the lowest income people worldwide take the first steps up out of poverty, by providing conditional seed capital, business training and relevant support services essential to the launch or expansion of a microenterprise. Thousands take that opportunity and change their lives and the lives around them.
I find it frustrating that we have political “leaders” that claim that taxing some of the millions of dollars a relative of some millionaire is giving them is anti-capitalist. That such claims are not ridiculed is infuriating.
- Estate Tax Myths, Washington Post Editorial, July 24 2005.
- 5 Big Myths About the Estate Tax, MSN Money
Estate planning can reduce the tax bite. If you’re rich enough, however, your estate will eventually face taxes unless:
* You die in 2010, the one year in which the estate tax is scheduled to be totally repealed, or
* You give everything to charity, or
* You give everything to your spouse
Now, if it is a death tax, why, if you give the money to charity when you die there is no tax? Oh maybe, it isn’t a death tax at all but instead a tax on those recieving millions from the person that earned it.
- Myths and Facts about the Estate Tax, United for a Fair Economy
- Rich Americans Back Inheritance Tax, BBC quoting Warren Buffett