Tax lessons from Scrooge McDuck

How the Death Tax Hurts the Poor - It encourages the rich to pick extra fruit, leaving the trees a little barer for the rest of us.

Excerpts:

The death tax sends a powerful message to rich people: "You can't leave everything to your heirs, so spend now, before it's too late. Burn more fuel. Demand more timber for your mansions, more steel for your private planes, and more fiberglass for your yachts.''

Then all those resources—the fuel and timber, the steel and fiberglass—become unavailable to build factories, so the rest of us get worse jobs at lower wages. Those resources are unavailable to build farm equipment, so we all pay higher food prices. They're unavailable to build roads and schools and hospitals.

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We're all living on other people's inheritances and investments in our economy. Just five generations ago, the average American worked 60 hours a week, took no vacations, and earned less than the modern-day equivalent of $6,000 a year. He or she rarely traveled more than a few miles from home, had no central heat or running water, and died at age 50.
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... you don't need rich parents to be a victim of the death tax. You don't need to own a family business or family farm. You only need to be someone who works in a factory or shops in a grocery store or gets sick and goes to the hospital.

Now you might say that if we abolish the death tax, rich people will consume less but their heirs will consume more—so what's the point? To this there are two answers.

First, delayed consumption is still better than immediate consumption. If Scrooge McDuck forgoes a private jet so his nephew Huey can have a private jet 20 years from now, we get 20 years of additional production from the factories that can be built in the interim.

Second, don't be so sure Huey ever gets that private jet. He will, after all, be splitting Scrooge's estate with his brothers Louie and Dewey. A hundred million dollar inheritance, split among three children, and then nine grandchildren, and then 27 great-grandchildren, gets whittled down in just five generations to less than half a million per heir—and that assumes that nobody spends anything along the way! So when Scrooge forgoes his private plane, it's likely to be for the benefit of descendants who fly coach.

I'm not just making this up. One of the great insights of modern economics is that taxes are often most harmful when they encourage overconsumption.

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Every tax discourages work, and every tax discourages risk-taking. That's sad but true, and it's a reason to hesitate before you raise any tax. But the death tax is a double whammy, compounding the damage by encouraging overconsumption. (The same is true, incidentally, of taxes on interest and dividends.) So my message is this: If you must tax the rich, please do it in a way that minimizes the collateral damage to the poor.

Comment: A thoughtful article. I had never viewed the dangers of estate taxes in this way. On Scrooge McDuck