Income Inequality Effects of Estate Tax

The controversy surrounding the estate tax has emphasized moralistic arguments. The first is that proponents claim that eliminating the estate tax will increase wealth inequality. The second is that opponents argue that the estate tax is coercive and deprives earners of their right to property. A corollary of the first is that the estate tax enhances government revenue. A corollary of the second is that the estate tax taxes wealth that already has been taxed via capital gains and income tax.

But what if the estate tax increases wealth inequality?

The claim that the estate tax reduces wealth inequality overlooks a critical point: not all estates are taxed. In particular, wealth placed in family trusts is not taxed. Since the ultra-wealthy tend to place their wealth in family trusts, the wealth-equalizing effects of the estate are uncertain.

There is surely a statistical argument that if you eliminate wealth of the top 2-0.5 percentiles of wealth earners, then there is more wealth equality. But wealth in the top 2-0.5% of wage earners is not what might be called deviant levels of wealth. The top 0.5% of wealth is in the 3-4 million dollar range, which is not enough to escape at least the threat of having to earn a living. Someone who aims to live a luxurious lifestyle would need to have much more than that. Thus, the variance of wealth distribution is a deceptive measure. It is only with respect to the top .1% and above that income inequality has significant effects on one's prospects, and it is precisely this group that establishes family trusts.

As I have previously blogged, a prime example is the Ochs Sulzbergers, owners of the New York Times, who have repeatedly advocated estate taxes for everyone else, but have dodged them for themselves for the past four or five generations via a family trust. To be fair, an estate tax would tax family trusts first, say 70% of a pro-rata share of each beneficiary who dies, before lesser wealth is taxed. I have never heard of a Congressional proposal to tax family trusts. Hence, Congress has never really cared about wealth inequality where it really counts. Just the opposite.

That is, there is a more subtle question. The onerous taxation of families in the top 2 - 0.5% percentile while exemption of families above that level from estate tax via family trusts may actually increase wealth inequality. This cannot be proven nor disproven empirically.

It takes some firms several generations to grow into Fortune-level concerns. Examples include Johnson and Johnson and IBM. If there are fewer very large firms than there would be without an estate tax, shares of the very large firms trade at higher prices than they would under conditions without the estate tax because there is less competition. The estate tax may accentuate the wealth of the very wealthy by nipping competition in the bud. If there would be a greater number of large firms in a free and fair market than there are today, then profit levels of the large firms would be lower. Stock prices of the large firms will also be lower. There will be more firms, more economic diversity, and as a result, more equality.

There would be more equality without an estate tax because the wealthiest, like the Ochs Sulzbergers, would not be as wealthy, and because the ranks of the very wealthy would be increased by a greater number of competitors. The larger number of competitors would reduce the wealth of the very wealthy and would increase their number. Thus, wealth inequality would be reduced. Moreover, the incentive to invest long term would increase, stimulating more Americans to achieve high degrees of wealth. The end result would be that income equality would be increased. This could have large effects on wages if increased competition increases demand for workers.

In other words, the estate tax may be increasing inequality by reducing the number of firms that become large over several generations and increasing the wealth of the Ochs Sulzbergers and other ultra-wealthy families. This freezing of American capitalism leads to a more permanent form of income inequality than would a competitive economy where families are struggling to compete with large firms.

As a result, not only can one not say with certainty that the estate tax reduces wealth inequality, but one can be fairly sure that the estate tax INCREASES the MOST IMPORTANT forms of social stratification whereby an ultra-elite that includes the Ochs Sulzbergers differentiates itself from the rest of society not because of merit but because of government and law.

One response might be to tax family trusts, and if there is to be an estate tax at all it should be applied to family trusts first because the oldest, least innovative firms are held by the oldest money that is most likely to be in trusts.

The most innovative firms that are most likely to create new technologies are held by families in the top 2-.5 percentiles. Thus, the estate tax may create wealth inequality in yet another way. By freezing out innovation and supporting the upper echelons in outmoded technologies, new business ideas that create new sources of wealth have been inhibited by the estate tax. The result is a country that is poorer because there is less innovation and economic growth and more wealth inequality. The effects of the estate tax likely exceed any mere statistical variance or Gini coefficient and may be unobservable because no one knows how badly the estate tax has harmed innovation.

Do not look for these ideas in the New York Times.

Candace de Russy on Solzhenitsyn

Candace de Russy on Democracy Project blogs about Solzhenitsyn:

"Like many of my generation, I owe much to Solzhenitsyn. His magisterial and uncompromisingly truthful writings jolted me into examining more rigorously my, and our culture’s, moral values and politics. He galvanized us into confronting, justly fearing, and committing to a lifetime of fighting – to the best of our ability – what he called “the absolute Evil” of totalitarianism in the world. Moreover, this moral titan put us on guard against “the timid” and “pacifist” in our ranks, in particular, the faint-hearted “American Intelligentsia,” which would abandon us to the barbarians, past and present, who ever threaten our gates."

For me as well, reading Gulag Archipelago was critical. It puzzles me as well that while Nazism, or National Socialism, has been appropriately reviled, Socialism in One Country, which is the name Stalin gave it and is an accurate description of all real-world forms of socialism, as John Lukacs points out, continues to receive healthy support in universities. Solzhenitsyn showed us the reality of collectivist and socialist depravity, and so is a true giant.

New York Sun Covers Shut-Down of Mitchell Langbert's Blog/Google Apologizes

The New York Sun's Anna Phillips has covered the shut down of this and other anti-Obama blogs last week. Google has posted a general apology here. The Google text follows the Sun article.

Google insists that the problem is purely due to their computer algorithm. I do not know enough to argue, but it seems too coincidental that the Hillary Clinton campaign was having a similar problem several months ago when Hillary was running against Obama, and now I and other Republican anti-Obama bloggers have had the very same problem.

Just by way of self-defense, although it may look like I spend more time on the political diatribe-type blogs, the academic-type blogs such as my write-up of Howe's book on the Whigs take up 4/5ths of my blogging time. Thus my claim to Ms. Phillips about the blog being two thirds academic stuff is probably an understatement, although it may appear to be an overstatement.

Anna Phillips's Sun Article:

>Anti-Obama Bloggers Say They Were Silenced

Web loggers who are campaigning against Senator Obama's presidential run are accusing Google and Obama supporters of silencing them after their Web logs were marked as spam and their accounts temporarily frozen.

On Thursday, hours after publishing a post about an online petition demanding that Mr. Obama publicly produce his birth certificate, an associate professor of business administration at Brooklyn College, Mitchell Langbert, found that he could no longer access his Web log.

Google's Blogger hosting service had suspended "Mitchell Langbert's Blog," which Mr. Langbert describes as "two-thirds academic stuff I'm working on and one-third politics," until it could verify the Web log was not a "spam blog," or a site designed solely to increase the page views of associated Web sites.

A day later Google lifted the block on the account, but the incident and earlier Web log freezes in late June have led Mr. Langbert and other anti-Obama bloggers to accuse the Illinois senator's supporters of intentionally identifying their blog addresses to Google as spam blogs. They also say the company has reflexively suspended the sites.

"These tech-savvy smart alecks have figured out that if you report a blog you don't like, you can do some damage to a person," Mr. Langbert said.

A spokesman for Google, Adam Kovacevich, said in a statement that an overzealous antispam filter was responsible for the blocks.

"We believe this was caused by mass spam e-mails mentioning the 'Just Say No Deal' network of blogs, which in turn caused our system to classify the blog addresses mentioned in the e-mails as spam," he said. "We have restored posting rights to the affected blogs, and it is very important to us that Blogger remain a tool for political debate and free expression."

Several of the blogs that were blocked, including hillaryorbust.com and comealongway.blogspot.com, are part of the "Just Say No Deal" network of anti-Obama blogs. But Mr. Langbert's blog is not, leading him to conclude that Obama supporters had targeted him.

On her right-leaning blog "Atlas Shrugs," Pamela Geller keeps a list of blogs that Google has temporarily blocked. "The blockings do come in waves," she said. "The last wave was this past week, and now it got very quiet."

Some writers have had their blogs unblocked, while others have moved them to WordPress, a rival blog host.

"I don't think" Google has "malicious intentions at all, it's just that spammers can literally overrun a service if you're not careful, so their defenses have become overzealous," a spokesman for WordPress, Matthew Mullenweg, said in an e-mail.

"We always have human review before turning off an active blog," he said. "People invest so much time into their blogs, to treat it with anything less than the utmost respect is criminal."

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Two Google Apologies (h/t Phil Orenstein):

Google Apology

Spam Fridays

"While we wish that every post on this blog could be about cool features or other Blogger news, sometimes we have to step in and admit a mistake.

"We've noticed that a number of users have had their blogs mistakenly marked as spam, and wanted to sound off real quick to let you know that, despite it being Friday afternoon, we are working hard to sort this out. So to those folks who have received an email saying that your blog has been classified as spam and can't post right now, we offer our sincere apologies for the trouble.

"We hope to have this resolved shortly, and appreciate your patience as we work through the kinks."

AND

You Are Not Spam

You knew that already, and now we do too. We have now restored all accounts that were mistakenly marked as spam yesterday. (See: Spam Fridays)

We want to offer our sincerest apologies to affected bloggers and their readers. We’ve tracked down the problem to a bug in our data processing code that locked blogs even when our algorithms concluded they were not spam. We are adding additional monitoring and process checks to ensure that bugs of this magnitude are caught before they can affect your data.

At Blogger, we strongly believe that you own and should control your posts and other data. We understand that you trust us to store and serve your blog, and incidents like this one are a betrayal of that trust. In the spirit of ensuring that you always have access to your data, we have been working on importing and exporting tools to make it easier to back up your posts. If you'd like a sneak peek at the Import / Export tool, you can try it out on Blogger in Draft.

Our restoration today was of all blogs that were mistakenly marked as spam due to Friday's bug. Because spam fighting inherently runs the risk of false positives, your blog may have been mis-classified as spam for other reasons. If you are still unable to post to your blog today you can request a review by clicking Request Unlock Review on your Dashboard.

Letter to Chuck Schumer Re Death Tax

PO Box 130
West Shokan, New York 12494
August 4, 2008

The Honorable Charles E. Schumer
313 Hart Senate Building
Washington, DC 20510

Dear Senator Schumer:

I oppose the inheritance or death tax and urge you to vote to repeal it. There are many New Yorkers, to include the Ochs Sulzbergers, the Rockefellers and the Goulds, who are wealthy but have never paid any inheritance tax because they put their money in trusts. Congress has never seen fit to tax trusts, leaving the big fish to eat the remains of small.

There is one estate tax I do favor: an estate tax on trusts that hold family-owned newspapers. Your patrons at the New York Times ought to practice what they preach, and I am sure that you will see to it that they never will.


Sincerely,


Mitchell Langbert