The Upside-Down Morality and Economic Illiteracy of Class Warfare

March 21, 2021 by Dan Mitchell @ International Liberty  

My Eighth Theorem of Government is very simple.

• People who focus on poverty want the poor to do better.  People who focus on inequality want government to be bigger.  
  

If someone writes and talks about poverty, I generally assume that they care about poor people. They may have good ideas for helping the poor, or they may have bad ideas. But I usually don’t doubt their sincerity.  But when someone writes and talks about inequality, I worry that they don’t really care about the less fortunate and that they’re instead motivated by envy, resentment, and jealousy of rich people.  And this concern probably applies to a couple of law professors, Michael Heller of Columbia and James Salzman of UCLA. They recently wrote a column for the Washington Post on how the government should grab more money from the private sector when rich people die.

They seem particularly agitated that states such as South Dakota have strong asset-protection laws that limit the reach of the death tax.

Income inequality has widened. One…way to tackle the problem. Instead of focusing only on taxing wealth accumulation, we can address the hidden flip side — wealth transmission. …The place to start is South Dakota… The state has created…wealth-sheltering tools including the aptly named “dynasty trust.” …Congress can…plug holes in our leaky estate tax system. One step would be to tax trusts at the passage of each generation and limit generation-skipping tax-exempt trusts. A bigger step would be to ensure that appreciated stocks…are taxed… Better still, let’s start anew. Ditch the existing estate tax and replace it with an inheritance tax

There’s nothing remarkable in their proposals. Just a typical collection of tax-the-rich schemes one might expect from a couple of academics.  But I can’t resist commenting on their article because of two inadvertent admissions.  First, we have a passage that reveals a twisted sense of morality. They apparently think it’s a “heist” if people keep their own money.

America’s ultra-wealthy have pulled off a brilliantly designed heist, with a string of South Dakota governors as accomplices.

For all intents and purposes, the law professors are making an amazing claim that it’s stealing if you don’t meekly surrender your money to politicians. Apparently they agree with Richard Murphy that all income belongs to the government and it’s akin to an entitlement program or “state aid” if politicians let you keep a slice.  Second, the law professors make the mistake of trying to be economists. They want readers to think the national economy suffers if money stays in the private sector.

Nearly no one in South Dakota complains, because the harm falls on the national economy… We all suffer high and hidden costs…getting less in government services. …South Dakota locks away resources that could spark entrepreneurial innovation.

According to their analysis, a nation such as Singapore must be very poor while a country such as Greece must be very rich.  Needless to say, the opposite is true. Larger burdens of government spending are associated with less prosperity and dynamism.

 

I’ll offer one final observation. Professors Heller and Salzman obviously want more and more taxes on the rich.  But I wonder what they would say if confronted with the data showing that the United States already collects a greater share of tax revenue from the rich than any other OECD country.

P.S. The reason the U.S. collects proportionately more taxes from the rich is that other developed countries have bigger welfare states, and that necessarily leads to much higher tax burdens on lower-income and middle-class taxpayers (as honest folks on the left acknowledge).