Why the Estate Tax is Morally and Politically Just

And that's the Estate Tax, brothers and sisters, not the phony, lying "Death Tax" tag the right wingers have put on it. Jonathan Rowe has written a tightly reasoned and convincing defense of why it should be retained:

But there is a more basic reason for an estate tax, one that goes to the nature of wealth itself. Wealth is not an island. The most rugged entrepreneur in his or her own estimation, has a silent army of helpers --- co-producers really – to whom he or she owes a large if unacknowledged debt. Take John D. Rockefeller. His wealth came from petroleum, which is a gift of nature, not the fruit of his own toil. He drilled and refined it, for which he deserved compensation. (I’m leaving aside the business practices that made Jeffrey Skilling a Trappist by comparison.)

But he did not create the oil; and his taking left succeeding generations poorer to that extent. The oil he extracted, they will not have. The industry he helped create has been a source of jobs and financial wealth. But it also has created a large and growing burden of fouled air and water and land that will take perhaps equal wealth to undo, if ever it can be undone. Should not his own fortune help pay?

Then there’s the social assist that helped make Rockefeller’s oil so valuable. Where would his industry have been without the massive public outlays for railroads and then highways; and without the military protection of the sea-lanes? (You thought the Sixth Fleet was in the Persian Gulf to protect democracy in the region?) Where would it have been without the many discoveries and inventions that enlarged the market for oil, and that arose from the public investment in schools and research institutions? The federal patent system played a large role as well.

For all this and more, it is not unreasonable to ask compensation from the heirs of large fortunes derived from oil; and the same applies to fortunes from other sources as well. “I personally think,” said Warren Buffett, “that society is responsible for a very significant portion of what I’ve earned.” Buffett has pledged to give most of his estate away; and he supports the estate tax.

That is one reason for an estate tax that has nothing to do with class resentment or envy. Another is philanthropy. That wealthy people devote a portion of their holdings to the public weal, is a tradition of which we Americans can be justifiably proud. In many countries, perhaps most, support for good causes comes much more from government, if it comes at all. This tradition is something the estate tax encourages. It does so not just by way of crude financial reward (contributions to foundations are exempt from the estate tax), but also by creating a way for the topic to come up in the first place. Estate lawyers have told me that they value the tax for this reason. They see the harm that large inheritances can do to young men and women; and the turmoil that large fortunes can cause within families.

I have argued before that wealth does not exist in isolation, and that a multitude of people outside of the wealthy individual help make it possible. We also need to be reminded, as Rowe has done, of the publicly-financed infrastructure that helps make the accumulation of wealth possible. And there is one other factor we always need to remind ourselves of: sheer, dumb luck, random chance, lucky breaks, whatever you want to call it. A thousand accidents of life, history, circumstance, and genetics have helped shape our life courses. The rich sometimes ascribe too much merit to themselves, congratulating themselves on their hard work, their business acumen, their entrepreneurial excellence, and so on. These people need to be reminded that a single bad break along the way could have negated all of this.

Further, there is a reciprocal relationship that exists in any big business enterprise. The entrepreneur creates jobs, but the people doing the mundane, day-to-day work generate the actual wealth derived from the enterprise. Both need each other. The contribution of both needs to be recognized. And the massive accumulation of wealth which the estate tax taps into is, in a very real way, the result of this partnership. It is never the achievement of a single individual.

Killing the estate tax will cost charities billions of dollars. It will deprive the government of one trillion dollars in revenue over the next ten years, when that revenue will be desperately needed. It will concentrate wealth even more powerfully than it already is. For those reasons alone, it needs to be preserved. But over and above those reasons, the estate tax reminds us that no great fortune is ever the product of a single mind, and that gratitude towards all those who helped create it is due.