Of all the Obama proposals unveiled in the State of the Union address, the one that’s probably drawn the most right-wing fire is the one that would close an inheritance capital-gains tax loophole. This is because Republicans talk about inheritance taxes not just in practical terms but moral ones. Jason Chaffetz, a Utah tea partier in the House, thundered away the other day: “That’s a non-starter. The audacity, that he thinks the government has a right to people’s money? He wants to transfer wealth. It’s one of the most immoral things you can do, is try to steal somebody’s inheritance, to steal it away from their family.”
Chaffetz has it exactly backwards. Undertaxing inherited wealth is what’s immoral. I have pretty good back-up on this point, which I’ll get to. But first, hear the argument. And for openers, let me stipulate that everything I’m about to say applies only to fortunes—certainly not to all inherited money.
That would be absurd. If your parents were thrifty enough to have left you $500,000 or even $1 million, which ain’t “rich” these days, no one—no one—wants to take a red cent of that from you. That’ll help you buy a home, pay for your kids’ college, and eventually if all goes well pay for their kids’ college. So normal pass-downs of money aren’t on the table here.
Great wealth is a different matter. There is no moral basis whatsoever for shielding large estates from taxation. Let’s say your great-grandfather invented the hairpin or the carburetor. Well, life is such that the luck of the draw entitles you to see some of the benefits of that. Sure. But there must be moral limits on those benefits. After all, who are you? You’re just a combination of sperm and egg that happens to have gestated in the uterus of a woman who (let’s say) married a man who was himself a sperm and egg that happened to have gestated in the uterus of the daughter of the man who did the inventing.
The way life works, yes, that does entitle you to some of the benefits of grandpa’s genius. But to go from there to argue, as Chaffetz (and basically every American conservative I’ve ever heard address the subject) does, that government—that is to say, society—has no claim whatsoever to any portion of that fortune is what’s profoundly, obscenely immoral.
It’s all part of the same old ignorant right-wing myth—the whole “I did it all on my own thing” that we debated in 2012 (and my side won). If your grandfather had a brilliant idea and got rich, bully for him; he deserved it. But he most certainly did not do it alone. Society helped, from the consumers who bought it to the advertising and salesmen who sold it to the truck drivers who delivered it to the store and even, yes, to the government, which awarded him patent protection against those who would steal his idea (and built all the roads the truck drivers used and, by the way, the schools in which he was educated, and so on). Society put something into his wealth. Society gets some back. Any other formulation is stupid and selfish.
The conservative position on this is astonishing when you think about it. This is right-wing welfare. If you’re poor and probably black or brown and inherited a habit of dependency, get off yer ass and get a job. But if you’re rich and probably white and inherited many millions of dollars that you did nothing to earn, watch soap operas!
They also say—but it saps initiative. Who’s gonna bother to go out and invent something and work hard if he knows the government is going to take half of it when he dies? Well, first of all, the government isn’t going to take anywhere near half of it (see below). Second of all, who actually thinks like that?
The estate tax was established in 1916. We had fairly high estate taxes up through 2001, but I somehow seem to recall a lot of inventing going on the America of 1916-2001. If you’re the kind of person who’s going to let tax policy that doesn’t kick in until after you’re dead anyway determine how hard you’re going to work in life, you’re probably not the kind of person who has much innovative capacity to begin with.
But it’s been amazing, the work conservatives have put into protecting great fortunes and making sure that poor Paris Hilton gets her fair shake. There may not be a single policy—certainly in the realm of tax policy, but possibly beyond—on which conservatives have more ferociously trained their gun sights in the past generation. All to protect what really amounts to the top .5 percent of the population.
Now I will acknowledge this much: There was liberal error here. When conservatives first set their sights on the estate tax, it was, indeed, too severe. Back in 2001, estates valued at more than $650,000 were subject to estate tax (but only those dollars above $650,000, so someone who inherited $700,000 in 1999, say, paid tax on only the last $50,000). That was too low a threshold. Democrats should have raised it incrementally when had the power to do it, but they didn’t, and it became an Achilles Heel. And then once Dubya was president and the GOP controlled Congress, the Republicans, whose think tanks had spent years sharpening this spear, took it and stuck it into the heel and ran it right up the leg.
So, right now, according to this Center on Budget and Policy Priorities report, the estate tax doesn’t start until $5.43 million per person or $10.86 million per couple. That’s high enough that only the wealthiest .15 percent of Americans pay any estate tax. Among the 3,780 U.S. households that owed any estate tax in 2013, their average tax rate was 16.6 percent. There are massive loopholes that many rich people take advantage of to avoid even that. For one quasi-baroque one, click here (PDF) and scroll down to page 18.
And no, the vast majority of small business and family farms don’t get hit. Those are lies. A few do, enough that Fox News can trot one out from time to time and say “See?!?” But in fact, in 2013, 20 businesses and farm estates owed any estate tax, and the percentage tax they paid was just 4.9 percent. Read that last sentence again. That’s not 20 percent. That’s 20, two-zero, in the whole country.
The conservative position here is not only immoral. It’s un-American, and explicitly so. Our Founding Fathers, as a group, loved inheritance taxes. Loved them. And it stands to reason—they were founding a nation that would throw off the old weights and chains of Europe. Those weight and chains very much included laws of primogeniture and inheritance that resulted in all those layabout royals and their massive estates. America, they vowed, would not be like that. Social position would be earned, not inherited.
And so no less a figure than TJ himself led the fight in the Virginia legislature in 1777 to abolish primogeniture laws. Jefferson even went so far as to wonder whether all rights of inheritance should be abolished and most property basically reshuffled every 50 years. We didn’t do that of course, but every revolutionary state government followed Virginia’s lead.
So the conservative position is immoral and un-American. It’s also un-conservative. I say this because well, on matters economic, who is the conservatives’ great hero? Maybe Hayek. But he’s like the Lebron. The Jordan is still Adam Smith. And Adam Smith believed in taxing huge wealth. He wrote this: “A power to dispose of estates for ever is manifestly absurd. The earth and the fullness of it belongs to every generation, and the preceding one can have no right to bind it up from posterity. Such extension of property is quite unnatural. There is no point more difficult to account for than the right we conceive men to have to dispose of their goods after death.”
No right to bind it up from posterity. No right. Get it?
Case closed. Of course, it’s just like the Democrats not to use this Smith quote against the Republicans. Maybe some have, but it should be talking point numero uno. It’s the Democrats who should be talking about the estate tax in moral terms, not nitwit ideologues like Chaffetz. Democrats, God is on your side, and so are Jefferson and Adam Smith. Use them.