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Fighting to end destructive double taxation

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Death and Taxes Don’t Have to Go Together

Posted by Brian Garst on July 7, 2010

Ray D. Madoff writes in the LA Times that failing to confiscate the acquired wealth of individuals when they pass away will “harm our democracy.”  She reaches this odd conclusion primarily by arguing that, absent an intrusive government willing to pick the pockets of the deceased, our democracy would be harmed by “concentrations of wealth.” She buttresses this argument with the factually incorrect claim that, while “few Americans own an enormous amount … a large number of Americans own hardly anything at all.”

This is simply untrue. Owning a small percentage of American wealth is not the same thing as owning hardly anything.  Madoff ignores that owning a small, or even “unequal,” share of the American pie is still much better than having a large, “equal” or “fair” portion of almost any other, for the simple reason that America creates far more wealth to go around in the first place. This is because America has historically rewarded risk-taking and innovation, while other countries have been more concerned with Madoff’s brand of fairness. The consequence today is that even our poor are better off than the middle and upper classes of other countries.  To understand the backwardness of her agenda, just look at the year she cites as the pinnacle of redistributive fairness, 1976, which was also the heyday of stagflation and malaise.

She also attempts to wave away concerns about double-taxation by arguing that “there is no general principle that says income or property gets taxed only once.”  She supports this claim by saying that the same money is often taxed multiple times as it is earned, spent and passed along.  But each of these activities is economic in nature and represents a separate action.  Paying sales tax while spending the same money one has payed income tax on is not the same as having one’s estate pillaged by the state upon death. Death is not an economic activity.

Contrary to her claims, death taxes are harmful to the economy.  They discourage savings and investment by encouraging people to spend money before it is taxed away, leading to job loss and slower economic growth. Death taxes also hit hard small, family businesses, or those with significant assets tied up in land, like farms.  Would anyone expect major corporations to stay competitive if they had to liquidate and sell off half their assets every few generations?

Madoff’s biggest failure, however, is that she completely ignores the important role of the family unit in economic life.  Households have always been recognized as an economic entity because of the manner in which families work together to advance their economic condition.  To say that a parent has no right to pass on the fruits of their labor to their children and grandchildren is to completely ignore the unique role of the family in economic life.  There’s no more moral justification for taxing estates after death than there is for taxing the allowance a parent might give to a child.  Death and taxes are both be said to be inevitable, but there’s no reason they have to come together.

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