Manks links his own CEA Chair speech on why estate taxes need to be abolished.
Until yesterday, a $10 million estate would get taxed at less than 30%. Greg's first argument was that the estate tax is not actually that progressive, b/c, even though it only falls on the ultra-rich, sometimes the kids of the ultra-rich are uber-lazy, and hence not rich until they get their inheritance.
This was his lede...
I can share an anecdote here to bolster Greg's point. A friend of my parents had two aunts who inherited a very large estate ($30 mill plus). He was just waiting for them to die -- it turns out the last aunt lived to be more than 100, by that time the guy was in his late 40s, living a horrific middle-class lifestyle. The day his last aunt finally croaked, however, he, predictably quit his job to become a full-time amateur golfer and globe-trotter.
Your aunts aren't worth $30 mill? Don't worry, Greg says that "the repeal of the estate tax would stimulate growth and raise incomes for everyone, even those who never receive a bequest."
You see, Greg Mankiw, Harvard man, is just looking out for the little guy who is too dumb to look out for his own interests. "The average worker" Greg says, "has little reason to know that his weekly paycheck is smaller because of the existence of the estate tax."
Greg then goes on to argue that repealing the estate tax will raise revenue...
That's it. Greg Mankiw is almost too stupid for me to blog, even in jest. There is just no conceivable way behavioral responses to the estate tax are that strong. People who grew up rich but who have low incomes in adulthood will still get lots of money they do not deserve even with an estate tax. And the idea that economic growth is really that sensitive to taxes on capital is crazy -- after all, both Clinton and Bush cut capital gains taxes, so that now, LT gains for someone in my bracket are not taxed at all, whereas just a few years ago I'd have paid 20%.
A simple, bare-bones economic model used by Mankiw and many leading Macroeconomists might imply that this will increase the capital stock by as much as 40%, and GDP by 15%.
Except, when capital gains taxes are cut the result could not be more different. Greg-- time to update those priors buddy.
Termites in Your Cabinet
7 hours ago
It is not even even "update those priors".
ReplyDeleteWhen GregM argues that abolishing estate taxes increases growth he has in mind either:
#1 Cutting at the same time government spending by the same amount.
#2 Keeping government spending constant and either:
#2a Increasing borrowing by the same amount.
#2b Increasing other taxes by the same amount.
Whether #1, #2a or #2b increase the little guy's welfare is very uncertain.
Unless the model includes the usual priors, oh yes:
#1 is always good because government spending is always less productive than private spending by productivity and creativity that inherit lots o money.
#2a is always good because deficits don't matter.
#2b is always good because taxes on the exploitative parasite that don't inherit anything are better than taxes on the heroes of productivity and creativity that inherit lots of money.
But the key is that cutting estate taxes requires increasing other taxes or borrowing, or else cutting government expenditure.
«Greg Mankiw, Harvard man, is just looking out for the little guy who is too dumb to look out for his own interests. [ ... ] Greg Mankiw is almost too stupid for me to blog,»
IIRC your godfatherly "career advisor" is a wealthy man, a multimillionaire, and he will have grateful heirs. He is not stupid, and he knows very well which side his bread is buttered on.
«get lots of money they do not deserve even with an estate tax»
That "deserve" is a bad comment, because the retort is whether the heir deserves the money is less important that whether the hero of productivity and creativity (e.g. Ken Lay, Stephen Fuld, Jimmy Cayne, ...) who left a huge estate deserves to do what he wants with the fruits of his superior contribution to GDP. Of course he does, he just does not deserve to demand that his heirs get their capital gain tax free.
The reason why people are taxed is not because they deserve it; otherwise of course a conservatve will argue that the exploitative parasites that generate no wealth deserve to be taxed more, and the heroes of creativity and productivity that generate all the wealth deserve tax credits instead.
The reason why people are taxed is to contribute to the public spending plan that they have agreed to have.
Good tax policy is to collect that contribution at a low rate from all possible sources of income according to ability to pay, rather than raise taxes on a few types of income to make some types of income tax exempt (e.g. from capital and from windfalls).
«There is just no conceivable way behavioral responses to the estate tax are that strong.»
In particular as it is a windfall subject to much uncertainty.
Anyhow, I will reproduce here a tax plan that is based on the conservative principles that taxes are punishments for those who deserve it, and that heroes of productivity and creativity are the most deserving citizens, and that income is deserved solely based on productivity and creativity.
TAX POVERTY INTO HISTORY!
* 60% tax take for the economic saboteurs and parasites that contribute less than $30,000/y to the national income.
* 40% tax take for the slow, not-trying hard enough layabouts who only contribute less than $60,000/y to the national income.
* 20% tax take for the barely productive people who contribute less than $100,000/y to the national income.
* 10% tax take for those productive enough to contribute up to $500,000.
* 0% taxes for those earning between $500,000 and $1,000,000/y, as their reasonable productivity should not be punished in any way by undeserved taxation.
* 10% Extra Incentive Tax Credit well deserved by those productive and creative heroes of the USA economy whose productivity contributes at least $1,000,000/y to the national income.
And similarly of course for estate taxes.
:-)
«It is not even even "update those priors".»
ReplyDeleteOops I forgot a bit here. What GregM and other proponents of abolishing income taxes are doing is the intellectually dishonest argument of proposing that those who receive money from a wealthy hero of productivity and creativity should pay no taxes if they receive that money as unearned income as heirs, but should pay taxes if they receive it as earned income as supplier of services and goods.
Because if a wealthy, deserving hero has $10m left and decides to spend $5m on parties and fun before he dies, and leave $5m to his heirs. those who receive those $5m for providing parties and fun pay tax, and those who receive the remaining $5m as a pure windfall pay no tax.
What intellectually dishonest people are fond of omitting is the first bit: that if an estate is spent on goods an services, those who receive the money as earned income are taxed, while if it is spent to provide windfall income to heirs it should not be taxed.
Then there is the impact of that decision on overall level and composition of spending and revenue gathering by the state.
I've said it over and over. How anyone gets more than a pre-tears laugh from Greg Mankiw is beyond my ability to fathom.
ReplyDeleteHarvard should fire him - check that - drown him in the Charles.