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Fair Harvard, pt. II

Hot on the heels of a loutish, disgusting protest by current Harvard students, Matthew Yglesias, Harvard Class of 2003, offers his nuanced evaluation of the repeal of the estate tax:

Speaking of which, f**k the small businessman.
Okay, so that little snippet (which I've cleaned up for family viewing) isn't the entire text of his post, but the rest is hardly more cogent. Yglesias essentially argues that someone who inherits a business should pay income tax on the value of that business, because, hey, that's just what you do when you inherit a business:
I might be an earnest, hardworking dude who works in the store. And somebody might die and give the store to me. The store may be worth millions and millions of dollars. If so, I ought to pay tax on it. Why? Because I've just inherited millions and millions of dollars, that's why.
On the basis of the above rhetoric, Yglesias is ready to become a father. When his future kids ask why they can't do something, he'll be able to tell them, "Because I said so, that's why."

The irredeemably curious among us, however, are still wondering why the government should tax the same money once when someone earns it, and then once again when he gives it to his children. "You took your bite out of my earnings, Uncle Sam," I'm inclined to think, "and now the rest of it is mine to do with as I please." For many people, that includes giving it to their children.

To say that such money is now "new" income to the child, not the same "old" income earned by the parent, is not only to engage in semantics, it is to say, ultimately, that no one ever really owns anything outright. Letting the taxman hover inside the family home, ready to seize his share of any lucre that changes hands, undermines the property rights that form the framework of our society.

20 comments:

Anonymous said...

Are you willing to disclose your alma mater?

I see you pick on Harvard quite a bit, so I'm just curious. 

Posted by Brian

Anonymous said...

Brian: 

I don't see that GB has to disclose that to you. Why? Because Hardvard holds itself to be the finest university not just of the United States, but the world. When you, as an institution, do this, you essentially make yourself/your institution a public figure/entity. As such, you are open to criticism.

Especially when your graduates demonstrate that, for $37,928.00 a year (the cost of tuition, room & board for 2003-4 academic year), they didn't come away with demonstrated thinking skills of the rational variety. Community college students come away with a better connection to reality than our nation's best and brightest, as Yglesias' argument demonstrates. 

Posted by Langtry

Anonymous said...

Alma Pater, Brian.

Gaijin Biker sprang fully grown from the head of Zeus in December 2004 with the wisdom of the ages firmly embedded in his noggin. 

Posted by Bojack

Anonymous said...

Bojack, don't tell everybody!

Actually, Langtry is closer to the truth. Because Harvard is regarded by many as the "best" college in America, stuff that happens there, like the Larry Summers speech about women in science, is often seen as more newsworthy. (Although if you get extreme enough, like Ward Churchill, you'll hit the news no matter what school you're at.)

As for my recent writing, it was sheer coincidence that I found the Yglesias post so soon after the protest-vomiter story.

Maybe I should include more posts about other top schools for balance. There are plenty that charge an arm and a leg for tuition these days; I don't even think Harvard is the most expensive.  

Posted by GaijinBiker

Anonymous said...

The best argument for the estate tax is that it gets money with less damage to economic growth than other taxes. But the left is disinterested in that argument, because it would conceed that economic growth matters mroe than "fairness." Instead we get rants about "billionaires for Bush" and a right that grows lazy (from lacking a good opponent). 

Posted by Dan

Anonymous said...

I thought Yglesias made a pretty persuasive point.
The idea that we should feel sorry for someone who has suddenly become a multimillionaire seems a little weird to me, especially since, with or without the estate tax, that person is still getting millions of dollars that they did not earn. I'm supposed to feel sorry for some rich kid getting richer without doing a lick of work for it? Seriously, fuck 'em.

Also, arguments about "taxing the same money" are kind of silly. Pretty much all money in any modern economy is taxed many times, whenever that money is transferred from one person to another. Yglesias isn't saying these rich kids should pay tax "because I said so", he's saying they should pay a tax because a lot of money is changing hands, and transfers of money, whether they be puchases, wages, or gifts, are usually taxed. 

Posted by Big Ben

Anonymous said...

Money inherited by one family member from another should not be considered equivalent to money spent in public commerce. A family is not a business.

Maybe kids should start paying taxes on their allowance? On the birthday gifts they get from their parents? Or how about on their college tuition, if Mom and Dad are footing the bill? Yes, the estate tax only applies when larger sums are at stake. But an increase in the amount of money involved should not change the fundamental principle that money changing hands within a family is none of the IRS's business.

And we haven't even gotten into the issue of heirs who are required to sell the family business so that they can afford to pay the estate tax. Talk about killing the goose that lays the golden eggs! You may not "feel sorry" for a "rich kid getting richer", but how about for a hard-working parent downsized when the company he works for gets sold?

The heir may not have generated his parents' wealth, but the government certainly  didn't. Your point of view only makes sense if you start with the assumption that families must prove why they should be allowed to keep their (already-taxed) wealth, rather than the assumption that the government must make a persuasive case for taking it. 

Posted by GaijinBiker

Anonymous said...

You're begging the question. Nobody's "keeping" their wealth, they're giving it to someone else who hasn't earned it, and in our society (or pretty much any modern society) any major transfer of wealth is taxed.
It is those who want to get a special pass, especially since by definition they are millionaires and can easily afford it, who must make the case for special treatment.

As for heirs selling their family business because of the estate tax, these people are ending up with millions of dollars they otherwise would not have. That they don't also get to run daddy's business without any qualifications other than being born into the right family doesn't make me feel like any injustice is occurring.
 

Posted by Big Ben

Anonymous said...

Viewing heirs to valuable estates as people who were lucky enough to be born into the right family is one way to look at it.

I prefer to see big inheritances, and family businesses, as products of a parent's hard work, not a child's luck. Being able to leave a legacy to one's children is a primary motivator for parents to amass wealth in the first place. To denigrate their efforts by calling their children lucky is to miss the point.

Some heirs may be spoiled and underserving, but so what? Their parents earned the money, and their parents should choose what to do with it. Bill Gates has said he plans to leave his children only relatively small inheritances, giving the bulk of his billions to charity or other causes. You may think that's a noble choice, and perhaps it is. But it should be his to make -- not the government's.
 

Posted by GaijinBiker

Anonymous said...

(Sorry I'm taking so long to reply.)
I don't see why transfers of that size should be exempted just because they are within a family. We're talking about millions of dollars, after all.
And to think that the incentives for amassing wealth are going to be reduced because a few percent of those millions of dollars(after the first few million are exempted) are going to be taxed seems a little forced. Even if it weren't, the sort of people who are motivated by wanting to make their offspring part of the privileged aristocacy are precisely the people we as a society don't want to incentivize. Parents wanting to make their children comfortable and financially secure is admirable, but we're not talking about comfortable, we're taling about filthy rich. Repealing the estate tax incentivizes this sort of behavior and disincentivizes charity.
Again, this is not a restriction on what the rich can do with their money, it's simply taxing large transfers of wealth the way any other large transfers of wealth are taxed.  

Posted by Big Ben

Anonymous said...

Let's not look at this form a moral taxation perspective, because we are all going to disagree about the different moral princliples that are applied when and where in the process.

Lets talk cold hard cash. The numbers will not lie.

The biggest cost in estate planning is trying to get around the estate tax. One you do away with the estate tax, estate lawyers will lose their jobs. (bad thing for them, but good for the nation). Which means less money (econmic actvity) will be spent on not paying estate taxes, and will go to other areas of investment. Removing the estate tax will increase the econmic activity in the US. From an economic process perpective the estate tax could be repleaced with other, better taxes.

Secondly, the amount of money that will be transfered in the next 20 years is absolutly astounding (because once the baby boomers grow old they die), and the goverment will get a cut of all that money (as it stands now), which will reduce the econmic growth of the US.

 

Posted by cube

Cubicle said...

"The best argument for the estate tax is that it gets money with less damage to economic growth than other taxes. "

Actually i disagree. as stated above. I think it actually causes more damage, because it creates another market for a different kind of tax. You have to pay for accountants and estate accounts. It would be more effecenit for all taxing to be located in one location of the econmic flow, so that you are paying less staff

Cubicle said...

"I thought Yglesias made a pretty persuasive point.
The idea that we should feel sorry for someone who has suddenly become a multimillionaire seems a little weird to me, especially since, with or without the estate tax, that person is still getting millions of dollars that they did not earn. I'm supposed to feel sorry for some rich kid getting richer without doing a lick of work for it? Seriously, fuck 'em."

So you mean like the lottery. Why don't we just tax that person who inherited the estate's income (just like we do with the lottery). That would still be essentally an "estate tax" but it would take the form of and income tax.

Actually i am willing to bet that the estate gets taxed, then the person's income is taxed also.

Cubicle said...

"Parents wanting to make their children comfortable and financially secure is admirable, but we're not talking about comfortable, we're taling about filthy rich. Repealing the estate tax incentivizes this sort of behavior and disincentivizes charity. "

Actually there are already incentivties on charity in income tax. Which if the estate tax is taxed as income on the person who inherited it, you would not disincentivize charity at all. it would keep the same incentives, everyone has to give to charity.

Anonymous said...

The Congressional Budget Office has released a report  showing a direct correlation between repeal of the estate tax and decrease in charity. There was a good post about this at Obsidian Wings.  

Posted by Big Ben

Anonymous said...

I saw that post.

My view is that while giving to charity may be a good thing, people should not be pressured to do it as a way to dodge taxes. If we as a society think giving to charity should be compulsory (which kind of means it's not really "charity" anymore), let's be honest about it and pass a law saying everyone above a certain income or asset level has to give a certain percentage away each year.

But I do not consider wealth redistribution to be the purpose of our tax code. For that reason, I see no greater reason to levy a new tax on someone simply because they have become "filthy" (what a loaded word!) rich. Your right to keep your property does not diminish as its value increases. 

Posted by GaijinBiker

Anonymous said...

I don't beleive in forced charity, but using the tax structure to incentivize good behavior has a long history of use by both conservatives and liberals.

About your last pargraph: 1) Wealth distribution has always been one of the main purposes of taxation. 2) This is not a "new" tax. 3) As I stated several times in this thread, no one is "keeping" anything. 

Posted by Big Ben

Anonymous said...

I'm not sure I agree with you on (1). It seems to me the main purpose of taxation is to fund the government, not to create financial equality among members of society.

In (2), by "new", I meant "additional" or "extra", above and beyond the taxes most people pay.

And in (3), I guess we'll just have to agree to disagree. I think that wealth is kept within a family, not transferred from parent to child as if they were arm's-length counterparties to a business deal. 

Posted by GaijinBiker

Anonymous said...

We've gottten to the point where we're mostly arguing semantics here, but when one of the major things the government does is use tax funds to do things for people that they otherwise couldn't afford, then funding the government is redistribution of wealth.

My main point is just that I don't belive that being the child of someone wealthy should automatically guarantee wealth and privilege in an egalitarian society, and that rich kids complaining about being taxed on money they didn't earn gets no sympathy from me when there are so many in our society living in poverty and our government is running a massive debt. 

Posted by Big Ben

Anonymous said...

http://www.marginalrevolution.com/marginalrevolution/2005/04/should_we_have_.html

"My main point is just that I don't belive that being the child of someone wealthy should automatically guarantee wealth and privilege in an egalitarian society, and that rich kids complaining about being taxed on money they didn't earn gets no sympathy from me when there are so many in our society living in poverty and our government is running a massive debt. "

It sounds to me that you are upset that some people are just born luckier than you are. Life is not fair. You have to do the best with what god gave you.

Of course you seem to forget that those poor people's parents were not allowed to keep the moeny they earned to pass down to their children. (Social security taxes)

And if their parents did earn anythign of value, it was taxed again, so that those poor people's parents had to pay an estate tax before it cold be given to their children.

The very poor people you are tying to protect by taxing income and estates is actually taking away the money from the poor people.

"our government is running a massive debt."

then lower spending, and that will solve the massive debt problem. 

Posted by cube

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