America’s Un-American Resistance to the Estate Tax – The Atlantic

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Given how clearly the estate tax lines up with American notions of fairness, it should enjoy wider support. The beauty of a free-market system is the absence of a special elite that judges who gets what—consumers vote with their dollars for the goods and services that best fit their needs (at least in theory). Inherited wealth goes against this model: As Warren Buffet has said, “The idea that you get a lifetime of privately funded food stamps based on coming out of the right womb strikes at my idea of fairness.” Indeed, it’s surprising that many of the same people who oppose welfare on the grounds that its benefits are not tied to work can so stridently denounce estate taxes, thus endorsing a system that allows people to receive vast amounts of money without putting in any work.

Critics of the estate tax frequently argue that taking away even a fraction of someone’s wealth upon dying also takes away his or her motivation to work while alive. That’s something to worry about if every asset was forfeited to the state, but a fair estate tax doesn’t necessitate a total redistribution of wealth. The threat of taking a larger portion of the dead’s assets may make people marginally less motivated to work, but they’ll still be very interested in enjoying the fruits of their labor while they’re alive, which isn’t exactly inhibited by the existence of a strong estate tax.

It may sound far-fetched, but there’s even an argument that strengthening the estate tax would be doing the rich a favor. For the last dozen years, I have advised wealthy people with taxable estates, and I’ve come to notice an important difference between inherited wealth and earned wealth. I concede that my observations are purely anecdotal, but I did notice that clients who were entrepreneurs displayed a strikingly different attitude towards their wealth than clients who were trust-fund beneficiaries. The former were proud of their companies, eager to talk about their journey, and seldom fearful that they didn’t have enough; the latter often displayed insecurities about their windfall, worried about whether they would run out of money, and were more like to experience family strife, addiction, and depression. Andrew Carnegie wrote, “Great sums bequeathed oftener work more for the injury than for the good of the recipients.”

It is probably not an accident, then, that most of the large wealth-management firms have specific programs targeted at addressing the challenges of what they call “second-generation wealth.” Like most wealth-management programs, these predominately focus on making sure clients’ portfolios are properly diversified, but they often have additional components, such as providing information about family psychology and offering advice about the governance of family businesses and the management of philanthropic foundations.

Limiting the inheritance of wealth represents more than just an attractive means of raising revenue. It would communicate a commitment to allocating society’s resources fairly and promoting equal opportunity. Working to earn money can be admirable, and indeed it should be celebrated when someone offers a product or service in the marketplace that generates great returns for them and increases everyone’s standard of living. But that can’t be fully, or fairly, realized in a system where some people are forced to work two minimum-wage jobs while others skate by on what they’ve inherited.

America’s Un-American Resistance to the Estate Tax – The Atlantic