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Estate Tax Debate

Several of the participants of the Mirror of Justice blog have been having a running debate over the last several days about Catholic Social Teaching (CST) and the proposed repeal of the Estate Tax. I can't possibly link to all the individual posts, so you'll just have to click over and scroll from the bottom.

Now I have to confess that prior to reading these posts, I could not have imagined someone making the case for repealing the Estate Tax on the basis of CST.

But now, I am happy to say, I can imagine it. I just don't find it convincing!

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I will venture into this minefield.It is common for people who oppose the repeal of the estate tax to assume that those who support its repeal must be beholden to the rich, and that this is their reason for supporting the repeal. As Ms. Brown, the blogger at MoJ who has been supporting the estate tax has pointed out, less than 2 percent of all estates ever pay the tax. Moreover, most of the data I have seen indicates that about half of the very wealthy (those that would pay this tax) vote Democrat anyway. In other words, if you are devising a strategy to pander to the electorate, opposing the estate tax is not a good one. This, and the fact that people like me (and others of my acquaintance) who are unlikely to ever have to worry about the tax (I should be so lucky) do so on principle I dont pander to the rich in the hope that one of them will put me in his will.Many of the principles that drive people to oppose the estate tax certainly line up with Catholic moral teaching, and many of the practical shortcomings of the tax (as has been discussed in the MoJ blog) justify its repeal under what I think you mean by CST (that is economic, political, and social policy that supports the common good).As my Dad used to say, its awfully easy to be generous with other peoples money he was talking about me using his money, but the principles the same. The estate tax is sometimes called the Robin Hood tax. The problem is it isnt. Prince John and the Sherriff of Nottingham got rich by stealing their wealth from other people. If Robin Hood was known for robbing the successful and giving to the government, people would have been a lot less sympathetic. Most Americans appreciate that the wealthy got there by providing other people with goods and services in voluntary exchanges heck, even Madonna did it that way.Basically, people are a little queasy about it because it is as close to naked confiscation as you get in the tax system. Bringing this back to the moral question, using the government to take something from someone else isnt a whole lot different than taking it yourself. It smells of jealousy. I agree, you can take this argument too far and subvert any system of taxation, but the estate tax comes perilously close to violating the 8th and 10th commandments this is why many average Americans dont like it.

Sean: what are the source data for your statement that "many average Americans don't like it (the Estate Tax)?"Most "average Americans" aren't remotely able to leave estates that exceed the threshhold for the ET to kick in. Those who do have usually benefitted from tax loopholes, smart lawyers and tax accountants ... you know, the non-average things. I am perfectly willing to let someone take full advantage of any and all legal tax benefits available to them for their earned and investment income. They have earned it.Their heirs have only EARNED anything by being born. Not good enough. And the fact that their parents want them to have it for "free" isn't good enough, either.Let the the heirs pay taxes on their inheritences and then earn income that can be covered by the tax benefits available to all of us.

Jimmy,I said the Estate Tax doesn't affect many people.Interestingly enough, the NPR/Kaiser Family Foundation/Kennedy School of Govt. Poll (hardly a right wing front organization) indicated a slight majority of Americans favor repealing the tax. More interesting in a 2001 poll (McLaughlin & Associates and Public Opinion Research) that asked whether it was right to tax assets that had been subject to income tax during a person's life at his death - almost 90% said no!Even more fascinating is a poll by The Coalition for America's Priorities an outfit that opposes repeal and even supports increasing the estate tax found that only 23% supported repeal, but in their polling question they added the bit of information that the tax only gets paid by the wealthiest 1% of families.In other words, when you describe the actual nature of the tax, most people see it as inherently unfair, and even after you bring in class consciousness and the fact that it will only be unfair to rich people, almost a quarter still think it's wrong.You seem to be operating on the assumption that the government, or society, or the collective us have some sort of entitlement to someone else's property just because they die. We no more earn it than the heirs do. Also, this attitude proves my point - it has the odor of jealousy and covetousness about it.

Is there a principle that suggests that we should gladly pay our taxes? Since I disagree, on moral grounds, with the way my tax dollars are spent, should I not lobby to repeal the estate tax? Am I more or less likely than the government to distribute my estate in a moral manner?

One way to analyze the several issues swirling through most debates over the estate tax is to resolve these issues into questions of fairness and efficiencyokay, so Im an economist and this is the way I think about these things. Catholic social thought guides my thinking about what is fair. The Vaticans recently published Compendium on the Churchs teaching here, as well as its iterative development of the same starting with Leo XIII, builds on the dignity of the human person and the universal endowment. Albino Barrera calls these the gifts from God of self, of others and of creation. Surely private ownershipstewardship may be a better termof creation is supported in CST. Personal initiative, innovation, and entrepreneurship are promoted as necessary for achieving ones own human dignity. The rub comes when our actions deny others their dignity. To flourish as human beings, we must strike a balance between subsidiarity and solidarity in using the gifts God gave us. If we accumulate Gods gifts unfairlyI acknowledge I am begging the question of what is fairredistribution is called for by CST. Taxation schemes are by definition confiscatory, naked or otherwise. I fail to see how SeanH thinks taxing ones wealth is more confiscatory than taxing ones income. Taxes finance government activities and objectives which imperfectly reflect collective choices. Governments sometimes act, usually unintentionally, against the common good. Nongovernmental organizations may at times be preferable, but practice shows that such organizations can not rely solely on voluntary contributions; they also need government grants and tax incentives that spur voluntary contributions.Economic analysis is more suited to addressing the efficiency issues of taxation. I do see that taxation can distort the economic decisions one makes for good or for ill: I might work less if my wage is taxed; I might save less now (consuming more) if my returns from this saving will be taxed; I might contribute more to Commonweal if I can subtract my donation from the base upon which my income tax is calculated. To be efficient is to minimize these distortions; optimal taxation strives to minimize such distortions while achieving the common good.

Mr. Perkins - I respectively disagree. I have worked in government twice. Both experiences were extremely satisfying. My co-workers were both bright and committed. In both instances the job needed to be done and only government could do it. However, it is also my experience that government does nothing particularly well. Generally, it is also a very poor steward. It seems to me that we should attempt to limit the tasks we give goverenment to those that are necessary and that only it can accomplish. Is there any evidence that if taxes were materially reduced that charitable giving would not increase? It seems foolish to contribute dollars in taxes with the mere expectancy of receiving a few pennies. Is there a better way of limiting government's options than reducing what it may spend? I guess I already know the answer to that. I am stuck with being morally repulsed by what is being done with my tax dollars.

"My tax dollars", "my money." I am not a communist nor socialist but I believe that the goods of the earth belong to all. So when five million children die each year before the age of five by preventable causes that is where my excess money should go.What kind of CST exists that ignores the lesson of the Good Samaritan?I understand that the government may not be the best place for the money. So some provision alla Buffet and Gates ought to be made.

Please - not Bill Gates - let's save millions from malaria and kill millions by abortion - but that's another issue.George, I didn't say one was less confiscatory than the other, at least I didn't mean to. The point is that it is confiscatory twice.That being said, there is a difference between taxing income and taxing estates. Sure, if I have my income taxed I will consider the marginal increase in wealth that my effort or investment will bear when making my decision - the type of economic distortion you are talking about. It is a myth of class warfare that wealthy people make money on income taxes by losing a lot of money intentionally. You can never save more in income tax than you lose. This however, is not always true with estate taxes. Estate planners will actually divest or put money in less profitable or even loss positions to avoid the tax - particularly at the end of life. Having worked in the federal government and the military most of my adult life, outside the armed forces, I agree with Mr. Perkins that the government doesn't do most things very well - or certainly not very efficiently. I make an exception for the armed forces because they actually do perform their mission very well - mostly due to a strict ethic. Unfortunately, when it comes to management of resources, they are also inefficient. That being said, they run like a Swiss watch compared to the State Department and the EPA.As for Mr Mazzella's argument about wealth, I agree, it ultimately and metaphysically doesn't belong to anyone - or at least not to anyone for very long. That being said, if we really care about those five million children, we ought to look what actually works to help them. There is plenty of food and medicine to go around. Why doesn't it get to them? I had a friend who was stationed in Somalia in 1992-93. The place was positively awash in food, but kids were starving. Why? Because there was no system of law and respect for private property. Everywhere these two things exist, people are generally better off - in fact, much better off. In fact, where these things don't exist, all the aid in the world may make us westerners feel better (and it certainly helps some people - so I don't advocate abandoning it), but is won't come close to solving the problem.

Just an aside that might be of interest:I show my college class PBS's documentary "The Persuaders" documentary, which features conservative think-tanker Frank Luntz talking about the "death tax," a term that he feels clarifies the estate tax for people.For more on Luntz, see: http://www.luntz.com/I always ask my students what they think the "death tax" is after they see the show--most of them assume it's some sort of tax on your funeral service or possibly a fee you have to pay to have to pay a hospital for declaring you dead--and what their opinion of it is. Most feel that it's unfair.Then I make them look up info on estate tax and give me an informed definition and an opinion. About two-thirds feel an estate tax is fair after they understand that it's a graduated tax on assets above a certain value.In a PR class, of course, this all helps drive home the power of words and catch phrases.More to the point here, young people are poorly educated about how taxation works, and are especially vulnerable to the wordmeisters on both sides of the political spectrum when it comes to forming opinions about taxation.

James Keegan:You asked, Is there any evidence that if taxes were materially reduced that charitable giving would not increase? I do not know where one might find data to test this proposition empirically. There is however plenty of evidence that income tax deductions for charitable giving stimulate contributions and that these contributions increase with the income tax rate. Even though your question may not be answered empirically, there is reason to believe that lowering taxes would reduce charitable giving. Consider my example (in my previous post) of a donation to Commonweal, a publication you (I presume) and I consume jointly. An issue of Commonweal is unlike a pint of porter: for $4 I can buy a pint; what I drink, you cant. An issue of Commonweal is quite different: if I buy an issue, I get to read it and you can too without buying it. You might pick up my discarded issue or you might read it online. Commonweal is a jointly consumed good. Unlike the porter, my consuming (reading) an issue does not preclude your reading it. Goods that can be jointly consumed provide incentives for some to ride freely on the contributions of others. You can read it whether or not you pay for it (by subscription or voluntary contribution). Hence, because of free-riding behavior, reducing taxes, the fiscal conscription often used to pay for jointly consumed goods, would not increase charitable giving.SeanH:I did not say nor imply that government doesnt do most things well. Given your exception for our armed forces, we do seem to agree that jointly consumed goods should be produced or at least financed by government. National defense is the stereotypical jointly consumed good. My consuming the security produced by this force takes nothing away from your security consumption. Were we to leave the provision of national security to the private sector decision making, free-riding behavior by individuals would leave society with less of national defense than it wants. This is inefficient.I suspect you might concede that there are many other goods that to some extent are jointly consumed. If so, you must acknowledge that markets are not able to allocate such goods efficiently (never mind fairly). You seem ready in the case of national defense to prefer government to private market provision. Might there be other goods too? Would our society be better off without a State Department or an EPA?

It surprises me that many posts are basically politically ideological, when I thought the thread was about CST and this issue. Where is the notuion of the "common good?"As a retired government worker, though, I take exception to the argument that governmnet, as a generalization, "doesn't do things well." When incompetent political hacks are in charge, as I saw in the days of Dinkins in new York or more recently, "Good job, Brownie," there are sure to be problems; when big unregulated governm,ent contracts are on the line (cf. Hallibuton in Iraq) much evil can be afoot.But, in general, we are lucky to have our police, fire, sanitation and other profesionals, who(with some venal or incompetent exceptions. who I think are the minority) do great work for us who like to bitch and moan about our money.

Mr. Perkins: Thank you for taking the time to respond to my question. If I may impose on your generosity again, your argument seems to be that because some abuse "free riding" that all taxpayers would treat a windfall with stinginess. If I am missing your point, I apologize for my dullness. Could we not count on those who give generously before any windfall to continue to do so after, and with resoect to, the windfall?Mr. Mazzella: Please allow me to apologize if my poor choice of words offended you. However, it is just because I subscribe to the position of Psalm 24:1 that I struggle with the question of how to best dispose of "my money." {If I tell you that Luke 10:25 et seq. is my favorite parable, can we get the past the vocabulary issue and accept it as a shorthand that we both employ?} Ms. Raber: I believe tht taxes should be progressive or graduated. But I think that much of what is currently sustained by our taxes is immoral. Hence my dilemna.Mr. Nunz: Given your last two (2) sentences I think tht we disagree only in enphasis.Amen.