Monday, January 2, 2017

Inheritance Taxes, Inequality, and the Economy

Inherited money doesn’t do much for the economy, so let’s spread it around, writes Caroline Freund of the Peterson Institute for International Economics, writing for MarketWatch. Freund writes:

According to conventional wisdom, inequality is an inevitable byproduct of strong economic growth. Talent, innovation, and entrepreneurship will inevitably capture the lion’s share of the income being generated, and efforts to redistribute wealth can only be counterproductive, because they weaken the incentives that drive an economy forward.

So far, so good. But notice the collectivist premise. She continues:

The truth, of course, is more complicated. Not all sources of wealth — and by extension not all types of inequality — are the same. The wealth that is created when new products, processes, and technologies are introduced is, indeed, correlated with faster economic growth.

Also true.

But wealth obtained by other means has a much smaller effect, if any, on the economy. So there is no reason it cannot be safely redistributed.

But why? Even if true, doesn’t the non-creative or even idle heir to a fortune have as much right to his inheritance as the talented, innovative entrepreneur has to his fortune? If not, then by what standard does anyone else? As Yaron Brook and Don Watkins argue, “even if it is true that heirs haven’t earned the wealth they inherent, ‘society as a whole’ certainly hasn’t earned it either.” And, I would add, neither has the government. After all, it’s the fortune builder’s choice to leave his wealth to whomever he pleases, which means only the chosen heir as a right to the fortune.

Freund acknowledges that the fortunes of wealth builders like Bill Gates and Warren Buffet are good for the economy. But the implication is that those fortunes are not theirs by right. So the fortunes must be redistributed through inheritance taxes. Why? To reduce inequality and spur economic growth.

I left these comments, somewhat edited for clarity:

So the individual who wills his wealth to his chosen heir, and the heir who inherits the wealth—the rightful owners—are not part of the economy, but the bums to whom the proceeds of inheritance taxes are to be "spread around" are? Why is the good of the heir not good for the economy, but the good of the bum is?

This is the collectivist premise. Collectivism is based on the premise that the standard of moral concern is the group, not the individual. To an economic collectivist, the "economy" replaces God as the supreme being to whom we must all bow down. Hence, the individual who wills his wealth to his chosen heirs, and the heirs who inherit the wealth, are of no consequence if the inheritance is deemed "not good for the economy." That the decedent and the heirs are both part of the economy never enters the consideration of the collectivist, because to the collectivist all individuals are subordinate to and expendable on behalf of "the economy"—”the economy” being that which exists above and apart from the individuals who make it up. The "economy," not the individual, is the only moral consideration. With the moral switch in place, the road is now cleared for the collectivist to trample any individuals who get in the way of "the good of the economy."

But the economy is not an entity, let alone an entity supreme over the individual. The economy is an abstraction grounded in real individuals in their capacity as producers and choices as traders. To say “the good of the economy” trumps the good of any individual is a contradiction-in-terms—and a moral abomination. The individual is the economy. An individual's wealth is his to dispose of, and validly only the property of his chosen heirs when he passes it on. Carnegie may be right about the character-corrupting influence on the young of large inheritances. But that is beside the point. Only the wealth's owner has any right to decide how to pass on her wealth; If not the owner, then whom?

Anyone who is really concerned about a healthy economy understands the importance of investment capital to the overall economy—i.e., to everyone else, including the less wealthy and poor individuals. Large inheritances are never idle, even if the heir is. They provide capital fuel for economic progress. But confiscatory inheritance taxes are not just economically stupid. Even if the heir is totally worthless, inheritance taxes are immoral because they are based on an immoral ideology, as is any ideology that repudiates the moral worth of the individual. Collectivism is the ideological smoke screen of any totalitarian who claims the right to control other people and their wealth.

Related Reading:

Inherit The Wind … And Not Much Else—Don Watkins and Yaron Brook

All Earned Wealth, No Matter How Big the Fortune, is Deserved Whether ‘Needed’ or Not

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