The U.S. House of Representatives voted 272 to 162 in April to abolish the estate tax. An editorial in last Friday’s Wall Street Journal said that President Bush needs eight Senate Democrats to cross the aisle so that total repeal becomes filibuster-proof in the upper chamber.
Regardless of the Senate outcome, a big cut in the estate tax looms. Unhappy with this inevitability, estate-tax supporters have used the media to spread the false notion that repeal will save the rich from having to “give back.”
An April article in USA Today described the belief among estate-tax supporters that “wealthy Americans owe a special debt because their wealth would not be possible without tax-supported schools and regulatory agencies.” In the same article, William Gates Sr. voiced his support for the tax as “a fair payback to society for the opportunity to do business in our marvelous economy and society.” Leaving aside the questionable value of tax-supported schools and regulatory agencies, not to mention the millions of jobs created, charities funded, and taxes already paid by the wealthiest Americans, Gates and the pro-estate-tax lobby get the whole concept of giving back exactly backwards.
Von Mises once wrote that the entrepreneur who fails to use his capital to the “best possible satisfaction of consumers” is “relegated to a place in which his ineptitude no longer hurts people’s well-being.” Successful entrepreneurs help consumers, while failures by definition help no one, and often hurt consumers.
Successful people, by virtue of being successful, have met previously unmet market needs, saved lives, saved consumers money, and in general have removed what Von Mises referred to as “uneasiness” from the marketplace. A look at the 2004 Forbes 400 confirms his thinking.
‐ Charles Schwab, the 68th richest American, made investing in the stock market easy and affordable for the middle class. In doing so he helped launch an investment boom that an increasing number of Americans are able to participate in.
‐ Dr. Patrick Soon-Shiong, the 234th richest American, has developed a drug (Abraxane) that is injected into cancerous tumors. The tumors feed on Abraxane, only to be wiped out by a cancer-killing “Trojan Horse” within.
‐ It is estimated that Wal-Mart stores save consumers $100 billion a year. In other words, Wal-Mart’s customers get a raise every time they shop there. Unsurprisingly, Wal-Mart’s heirs and executives take up spots four through eight on the Forbes 400.
‐ Can anyone imagine living without Google, Amazon, and travel websites such as Expedia? Internet trailblazers Sergey Brin and Larry Page (43), Jeff Bezos (38), and Barry Diller (215) are all Forbes 400 members.
That the individuals behind the products and companies that improve our lives often reside in the Forbes 400 should not surprise us. Indeed, the greater a person’s wealth, the more likely than not that he or she did something extraordinary that benefited others. “Giving back?” High profits are the surest sign that someone has given back. Can the same be said for entrepreneurial failures?
Furthermore, it’s not just morally wrong for the government to use the estate tax to redistribute wealth, it’s also bad economic policy. Wealth by definition is savings. When savings are confiscated for government use, entrepreneurial opportunities in need of capital go wanting in favor of immediate consumption.
Edward Wolff, an economics professor at New York University, told the Wall Street Journal in May that a poll showing a majority of the “rich” back estate-tax reform is a sign that “any notion of noblesse oblige is disappearing.” Wolff gets it wrong too. As the late Warren Brookes once said, “we are blessed by the genius of the few.”
When the brilliant few innovate and improve our existence, we are receiving their very best and being given to in spades. The estate tax penalizes society’s greatest benefactors, and for doing so should be repealed.
–John Tamny is a writer in Washington, D.C. He can be contacted at firstname.lastname@example.org.