1. Love the Lord your God with all your heart, mind and soul, and your neighbor as yourself.
2. Do what you say, say what you think, think what is true.
3. Subtract superfluities from your life, speech, desires and thoughts.
4. Don't initiate aggression against the persons or property of others, nor support people who do, including the people who "constitute" the government.
5. Respect life and natural law.
6. All people are endowed by their Creator with equal and inalienable rights to the earth and to the fruits of their own labor, and a "Citizen's Dividend" funded by a "Single Tax" on the unimproved value of land and other natural resources would be the fairest way to protect these rights.

For supporting materials, see the Archive and the Recommended Reading and Videos section at the bottom of this page.

Monday, November 12, 2007

Becker-Posner talkin some sense about inheritance taxes

Although the Georgist Single Tax on the unimproved value of land and other natural resources would be by far the "fairest" tax, by virtue of natural law and economic efficiency, inheritance taxes also find justification in natural law and economic efficiency (especially in comparison to the evil that is the income tax). The dynamic blogging duo of Gary Becker and Richard Posner recognized some of the economic justifications for replacing income taxes with inheritance taxes in their post yesterday.

Some nuggets of truth from Gary Becker, winner of the 1992 Nobel Prize in Economics:

"To be sure, some of these "self made" billionaire businessmen accumulated some of their wealth from political connections that gave them protected markets. This category includes Carlos Slim, many of the richest Russians, and some others. They tend to be able businessmen, but there is a vast difference between the contribution to society from starting a Google, Microsoft, Wal-Mart's, Arcelor Mittal, or IKEA, and the extraction of profits from a monopoly position protected by government regulations."

"Still, there is pressure in most countries to tax heavily the very wealthy. One possible reason to do so would be to prevent their children and other descendants from having large advantages over descendants from financially modest families. But to help in equalizing opportunities, taxes should be on inheritances, not as in the US and many other countries, on estates."

"A heavy tax on the very wealthy would also raise tax revenue that could replace income and other taxes on the not so wealthy."

Then comes 7th Circuit Court of Appeals judge Richard Posner talkin some more sense:

"I also agree with Becker that the benefits to consumers from the entrepreneurial efforts that produced Microsoft, Google, Apple, E-Bay,, Wal-Mart, private-equity firms, hedge funds, and other commercial successes that have generated large personal fortunes are much larger than the personal fortunes garnered by the founders and principals of such companies.
It does not follow, however, that these billionaires "deserve" their fortunes and therefore should be as lightly taxed as they are. As the economist Sherwin Rosen showed in a famous article, in certain circumstances a very small difference in ability can translate into an enormous different in reward. The key is the reproducibility of a product or service or innovation. If one pianist is slightly better than any other, his recordings may capture the entire market for recordings of the kind of pieces he plays best because the consumer has no reason to buy his rivals' slightly inferior recordings, provided prices are comparable. As transportation costs and tariff barriers fall and foreign countries become richer, the markets for the best American products expand, increasing the profit potential for producers with the lowest quality-adjusted costs. The greater output of the superior producer confers real value, but there is only a loose relation between that value and the reward to the producer. Bill Gates is extremely able, but not a thousand times abler than pikers worth a mere $50 million."

"Yet even without thinking these fortunes dangerous, or the product of anything more sinister that skill and luck, we might as Becker suggests see in them an attractive source of tax revenues. The ideal tax is a tax that produces large revenues but has minimal allocative effects. A uniform head tax, avoidable only by emigration, would have minimal effects on people's behavior but would generate only modest revenues, because if genuinely uniform the tax would have to be set at a level that the poorest person could pay. A highly progressive income tax, without loopholes, would produce a great deal of revenue but probably would generate significant misallocative effects by causing people to substitute leisure for work and riskless jobs and investments for risky ones.
In these respects the estate tax is somewhere in between the head tax and the highly progressive income tax. Death cannot be averted, and in that respect an estate tax resembles a head tax. But the potential revenues are much greater, especially in an era of large fortunes. Adding up the fortunes listed in the Forbes article for just the 10 wealthiest Americans yields a total of almost $600 billion. The estate tax has as many holes as a very large Swiss cheese, but they could be closed."

"So although a stiffer estate tax on large fortunes (which would not require an increase in the tax rate but merely a closing of loopholes) would probably impose some cost in loss of charitable donations, which could in turn increase demand for public spending, I believe the revenue potential of such a tax would offset the costs. The tax increase could be made revenue-neutral, enabling a less efficient tax, such as the personal or corporate income tax, to be reduced."