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Thank You For Being Successful! Please Hand It Over When You Leave The Planet

This article originally appeared in The Daily Capitalist.

Most people are in favor of taxing dead rich people. Otherwise, they say, wealth will be concentrated in the hands of just a few idle rich folks which is bad. These pampered rich heirs, who will never amount to anything because they don’t have to work, will end up as a controlling plutocracy. Woe is America.

Excuse me, but this is crap. It is social engineering at best and property confiscation at worst.

Where does the government get off telling you that you can’t leave all your money to your kids? Or to Rover, your beloved dog. Like it or not, that’s exactly what they doing in the name of the “public good.” It’s your property, your kids, and your dog, and you should be able to do whatever you want with your wealth, dead or alive.

The real issues here are class warfare and bad economics.

Class Warfare

So many rich people are cowed into feeling guilty about their wealth that they even agree that the government has the right, if not duty, to confiscate their property when they die.

A few years ago Bill Gates, Sr., George Soros, Warren Buffet, and other prominent guilty rich people were making a cause of this, declaring so in an ad they bought in the NY Times. Buffet whined about us becoming a nation of pampered, fat idle heirs. He complained about the growing disparity of wealth in the U.S. yet he is leaving his wealth tax free to charity instead of letting the government redistribute it. Hypocrite.

I may think it is a waste of your life to see you idling away your time playing bridge, listening to Soros and Buffet, or reading the New Yorker. I may think you are spoiling your kids by sending them to yoga classes instead of making them work the back 40. I may think a lot of things about what is “right” for you and you would rightly tell me to mind my own damned business. Yet when the government does it, it’s OK?

The estate tax, inheritance tax, death tax, whatever you wish to call it, has been around for a long time. It was first adopted here during the “Progressive Era” in 1916 by President Wilson. They got it from the Brits. The Brits did it because they hated the aristocracy and used it to break up the large, inherited landed estates. When the Labour Party socialists came to power, because of their ignorance of economics, they confused capitalism with feudalism, stole the riches of dead industrialists, and thus modern class warfare was born. Today the Democrats are the main standard bearers of this idea, but there are many Republicans who buy into it as well.

Today, instead of saying “We resent your wealth and we are going to take away when you’re dead to punish you for your obviously ill-gotten gains,” they push the idea of “fairness” and the “public good.”

There are deeper implications to all this involving human rights and natural law, ideas created by men like John Locke, and which ended up in our constitution, thanks to Thomas Jefferson. I don’t need to turn this into a philosophical treatise because if you believe in our Constitution and Bill of Rights as originally written by our nation’s founders, you believe in natural law and property rights. Basically it says you are your own sovereign, you own the fruits of your labor, and no one can confiscate them without “due course.”

Bad Economics

Let’s assume for a moment that the government has the right of taxation in order to fund the roles given to it in the Constitution. I may disagree with the entirety of that statement, but I’ll accept it for this argument. How far can the government go when they wield this power? The answer to that is also beyond this article, but there are theories about taxation which basically say the best tax is the most efficient tax that does the least harm to society.

The main idea behind taxation is that it should be based on the result of some economic activity: income is earned from labor, profits are made on a sale of goods, gains are made on the sale of investments, and the like. The point is that some economic activity has created wealth which, if the government doesn’t take too much, can be taxed without much harm to economic actors.

Which gets me to death. Since when is that an economic activity? Obviously it isn’t. Yet the government taxes it.

Understand that if you are rich it’s not that you haven’t paid your fair share of income taxes. In fact you’ve paid far more than your fair share. Look at the data: The top 10% of taxpayers pay 70% of all income taxes; the top 5% pay 59%, and the top 1% pay 38%.

In 2009, a low year, the government collected about $13 billion (normally it’s double this) in death taxes from about 5,500 taxpayers. Considering the budget that year was $3.1 trillion, that’s only about 0.4%. So why do they do it? Class warfare.

Has this tax done anything to solve the class wealth disparities in this country? Not in the very least. The bottom line is that Robin Hood can’t create wealth or wealth equality. There is only one way to do that: capitalism. That is, allowing entrepreneurs to risk everything to start a business and employ others. Entrepreneurs may get rich, and I hope they do, but the now pejorative “a rising tide lifts all boats” is true. Income disparity is meaningless. If you measure the true wealth of the rest of America in goods and well-being, we have one of the world’s highest standards of living.

Need I tell you where the money goes when the government confiscates it from a dead rich person? Down the federal rat hole. Here’s another way to look at it: some entrepreneur combined capital and genius and created something that benefited society (people voted with their own dollars to make it happen) and made himself rich. He paid huge taxes during his lifetime. Later in years, he cashed out of the business and, after paying taxes doing that, invested his remaining wealth in ways that were utilized by the economy for productive purposes.

Then he dies and the government comes in and says “More!” The death tax takes a sizable portion of a rich person’s wealth and destroys it. This tax also has negative effects on the economy, both short- and long-term, but that is ignored by those who foster class hatred. I say it is un-American, unfair, and punitive. We should eliminate this pernicious tax.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Please leave in the reference to my blog. Thanks. This is a provocative piece that investors might enjoy.