‘Tis the Season of Institutionalized Envy

December 15, 2009

For release noon Tuesday Dec. 15 and thereafter (665 words)

“The evidence suggests that (estate, inheritance and gift taxes) actually cost states more in lost revenue than they generate, that they negatively impact smaller firms disproportionately versus larger firms and that they promote the concentration of wealth by preventing small businesses from being passed on to heirs.” —  Antony Davies, Ph.D., “Myths and Realities Surrounding the Estate Tax”

A tycoon of the late 19th century, William Rockhill Nelson, a Fort Wayne home builder, “went west” to find cheaper land and lower taxes. Starting a newspaper there, the Kansas City Star, his leadership inspired one of the most successful modern American cities.

But at the end of his life Nelson was asked by a banking partner why he had wasted so much time and money on parks, schools, landscaped boulevards, art galleries and nonprofit projects. “Because I live here, damn it,” was the response.

Today, inheritance and estate taxes, the so-called “death taxes,” are driving the William Rockhill Nelsons from our cities. These are the men and women who are our pillars, those who create jobs without the need of rebates or preferential laws, those who guide our charities, civic improvements, infrastructure and all manner of good and important work. Their successors, the executives and various “occupiers” billeted here by distant corporations, have proved poor substitutes.

Nonetheless, this Congress is expected to pass a permanent 45-percent or even 55-percent federal estate tax. It will be no surprise, sad to say, if our Statehouse follows suit. Indiana, after all, is one of only seven states that has historically assessed a separate inheritance tax, one that has been applied at a top rate of 20 percent.

As with all tax policy, the debate is complicated and cynical. Few are willing to challenge the claims of the social engineers, redistributionists or special interests. Economic truth and personal freedom are always trampled in the clamor to institutionalize envy.

There is a compact illustration of all this in the public position of Warren Buffet, who plays a 21st-century counterpoint to Nelson. The Nebraska financial wizard is much admired for his outspoken support of the inheritance tax, making headlines by providing seemingly altruistic testimony for a narrative that says, “Don’t worry, the wealthy can afford it.”

Setting aside the arrogance of a billionaire telling millionaires what taxes they can afford (at gunpoint, in effect, and on penalty of incarceration), Buffett’s generosity conveniently aligns with his financial interest. Let Dick Patten, writing in Human Events, explain:

“Mr. Buffett’s ability to buy family businesses at bargain-basement prices depends on families being desperate to sell — and nothing produces family businesses desperate to sell more quickly than a 55-percent bill from the Internal Revenue Service on all of the businesses’ assets.”

Patten, who heads a group opposed to the tax, argues that besides concentrating wealth into the hands of a few such a tax rate would pull an estimated $847 billion in capital from the economy each year. He goes on to say that the 26 states with no estate tax produced twice as many new jobs. Moreover, their economies grew nearly 50 percent more from than the 24 states that had estate taxes, including Indiana. A study in one state found that 52 percent of tax planners reported the primary reason their wealthy clients left was because of the state’s estate tax.

In fact, the anecdotal evidence that an inheritance tax makes bad policy stretches back to the earliest books of the Old Testament, an economic history that cannot be ignored because it now is politically inconvenient. The envy taxes selectively and unjustly squash a righteous desire that is in all of us — to share success with our family. More than that, they would negate our children’s own labor in protecting and building a farm, business, enterprise or fortune. As a result, the wealthy of all ages, including the settlers of the American Midwest, have fled such laws because they rightly see them as legalized theft.

In Indiana, the first step is for legislators to quit thinking of modern-day William Rockhill Nelsons as tax marks but rather as employers and investors (even treating them as rightful citizens would be an improvement). The revenue from Indiana’s modest inheritance tax won’t reverse our state’s misfortune. It is significant, though, to those families whose heirs must pay the top rates. And you can be certain their accountants will let them know when it is time to pack their bags for more hospitable ground.

Those bags, please know, will be carrying away economic energies and prospects. For there is no quicker way for Indiana to become a third-tier state than to signal to those both within and without its borders that envy and covetousness are justification for confiscation here.

T. Craig Ladwig is editor of the Indiana Policy Review. Contact him at cladwig@inpolicy.org.


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