Tuesday, August 15, 2006

The Estate Tax Debate

Nothing illuminates the differences between the left and right side of the political spectrum better than the debate over the estate tax. The Left generally argues that large estates should be significantly taxed when ownership passes from one generation to the next. Their desire for maintaining the estate tax is rooted in their deep-seeded need for equality of outcomes. They despise what they see as the inequality of the wealthy versus the poor, and seek to penalize the wealthy for their (or their ancestor’s) hard work and financial success.

The estate tax, however, is simply another collectivist tactic to redistribute wealth. The Left, of course, sees government intervention into the accumulation and concentration of capital as a noble and worthy cause. They are either unaware, or choose to ignore the alternative, and much more efficient use of that capital: Investment in the economy.

The vast fortunes of the “super rich”, as the Left likes to call them, are working in the economy. They invest in corporations, providing necessary capital to these companies who in turn provide jobs for Americans. Many of the Super Rich invest in government securities and bonds that provide the public with money for schools, and roads, and housing for the poor, etc., while providing a safe and secure income to the wealthy. In addition, the wealthy pay income tax (depending on the government security) on the income and on the income from their investments in the private sector.

The investments of the wealthy also are invested in banks and other financial institutions who in turn provide loans and financial assistance to low and middle income people (as well as to the rich themselves).

In short, keeping capital in the hands of individuals instead of government more efficiently and effectively delivers “wealth redistribution” than does the paltry estate tax, which, by the way, amounts to barely over 1% of revenues (in 2005).