Forces appear to be gathering to push America toward the greatest aggrandizement of the state since the New Deal.
It is a theme of fiction: when someone dies, people line up to steal from him or her—estranged relatives and strangers alike. The deceased cannot protect himself. This is a reason that we should expect that death may be a time for the state to work some injustice too.
Thus, we should begin with a healthy suspicion of a tax levied at death. Hillary Clinton’s recent call for a 65 percent federal tax on large estates signals to Bernie Sanders supporters her Leftwing bona fides, but it should signal to the rest of us her lack of a sense of justice. When one adds in taxation from states like New York, the government could then confiscate more than four-fifths of a decedent’s property.
To be sure, our basic intuitions about justice are often hard to justify, but there seems to be a large difference between taxing people’s income at a reasonable rate and taking a large portion of their assets. We think of income as a flow, into which the government may dip, whereas assets constitute a fixed bedrock that is wholly our own.
Our difference in intuition about assets and income might suggest that all estate taxes are unjust. But one plausible justification for sound estate taxes is that they can be a proxy for other uncollected income taxes.It is hard to tax capital gains on a yearly basis, given the lack of liquidity in assets. The passing of assets to heirs is an event that likely requires making assets more liquid. But, it is also difficult to tax assets bought long ago because of record-keeping issues. Consistent with this insight, our estate tax allows a stepped up basis on capital assets, making litigation about ancient valuations unnecessary. It then subjects the estate to separate taxes as a rough proxy for capturing capital gains that would otherwise have escaped taxation. But this justification does not support estate tax rates like that in Clinton’s proposal, which far exceed the rate of income tax.
A secondary indication of the injustice of Clinton’s proposal is that it would make the top rate of America’s estate tax the highest in the world by a substantial amount. Indeed, most industrialized nations have lower estate taxes than the United States has now.
Beyond the individual injustice of her proposal, this kind of tax will harm innovation and make the state even more powerful. It is the really rich who can best invest in moonshots that may transform our world, rapidly advancing the wellbeing of everyone. The rest of us cannot afford the risk of the loss of capital. Moreover, it is the really rich who can best stand up to the government. Even a democratic government needs to be restrained. Democracy is a blunt instrument that cannot prevent many kinds of injustice and failures. Majorities can be passionate, yet very wrong, as the hindsight of history shows.
None of my relatives or I will ever be subject to the rate of the estate tax that Clinton proposes. But for me, it shows Clinton’s basic impulse to injustice, her indifference to innovation, and her desire for fewer checks on the power of the state.