Over at ThinkProgress, Matt Yglesias looks at the relative fortunes of various tech billionaires and concludes that the estate tax can’t have much of an effect on technological output. In a previous post, he notes that Steve Jobs was less wealthy than Google founders Sergey Brin and Larry Page, and says:
Nobody has $6 billion and thinks to himself “man, I need more money.” Yet by the same token, nobody expects Brin & Page to say “we’ve got plenty of money together, who cares if our company is successful.” The incentives to succeed are all there, and all clear enough, but can’t have much of anything to do with cold hard cash.
But this is the wrong question to ask about the estate tax. Obviously, the estate tax didn’t stop Steve Jobs from trying to be the best tech innovator. The more relevant question is whether it stopped Steve Wozniak.
Wozniak co-founded Apple Computer with Jobs and both left the company in 1987. But while Jobs kept working and eventually came back again to serve as CEO, Wozniak basically retired in his late 30s and lives as a full-time eccentric billionaire.
In case you’re not familiar with Wozniak, a few anecdotes: he buys $2 bills by the sheet and has them bound into notepads, then he rips the bills off individually and uses them to tip cocktail waitresses. He plays Segway polo. During the 1990s, he was an avid Tetris player and sent so many high scores to Nintendo Power magazine that they stopped printing them—so he started submitting scores under a pseudonym. Later, he dated Kathy Griffin and co-starred on a season of her reality show, though Griffin says they never actually had sex. In 2009, he competed on Dancing With the Stars but was eliminated in week 4.
Would Wozniak have devoted his post-Apple life to trivial pursuits even if there were no estate tax? Possibly. But as a side note to a story about his 12-year-old daughter winning a $7500 Keno jackpot (and the Secret Service taking an interest in his $2 bill notepads) he makes clear that he is acutely aware of how the tax code makes it somewhat pointless for him to try to make more money:
The downside of [the Keno win] is that Sara gained $7500, I lost $7500, the government gained $7500 and the casino lost $7500. You see, I had to fork out the $7500 to my daughter and collect the winnings myself [because she was a minor]. But about half the winnings would be paid by me on my taxes as income, and other half of $7500 would be paid as gift tax for giving the winnings to my daughter (I’d already transferred the maximum yearly tax free gift of $10,000 to each of my kids).
This only looks like a 100 percent tax rate because Wozniak paid the full pre-tax amount of winnings to his daughter. But when this story took place, the effective tax rate on Wozniak’s investment income would likely have been around 30 percent, then subject to 55 percent estate tax at the time of his death, for a total effective tax rate of 68.5 percent.
Now, if you’re like Steve Jobs, your love of technology would keep you working anyway despite that tax situation. But if you’re like Steve Wozniak, and you’d just as soon sit around and play Tetris all day, the financial incentives could matter a lot. These are the sorts of people I worry about becoming less productive at the margin due to the estate tax.
Edit to add: I also think Matt is wrong to say “Nobody has $6 billion and thinks to himself ‘man, I need more money.’” I probably wouldn’t think that if I had $6 billion. But some people are remarkably keen on amassing wealth even when it’s hard to comprehend what they could do with so much money. And such people will tend to be overrepresented among the subset of people who come to possess $6 billion in the first place.