By Kevin D. Williamson
Sunday, November 12, 2017
The Republican tax plan may be kind of dumb, but if it
were three times as dumb as it is, it would only be half as dumb as the Washington Post’s analysis of it.
Catherine Rampell, the scrappy young self-described
Princeton “legacy” who handles the class-war beat for the Post’s opinion pages, offers up a truly batty take on the
Republican tax plan: that it too strongly favors “passive” income in the
interests of those who spend their days — here comes the avalanche of banality
— “yachting and charity-balling . . . popping bottles of champagne and hunting
endangered wildlife.” All of the usual clichés make an appearance: “passive
owners of capital” vs. “workers,” “those who work and those who don’t,” etc.
The New York Times isn’t the only
newspaper getting carried away with celebrating the centenary of the Bolshevik
Revolution, it appears.
Rampell is wrong on many of the specifics and doubly
wrong to take “passivity” as her overarching theme. Criticizing the current
Republican tax plan without discovering any substantive and persuasive
criticism is a neat trick, a kind of negative accomplishment, like falling out
of a boat without hitting water. But given the popularity of the errors she
makes, her ignorance is potentially educational, so let’s peer briefly into
that goofy abyss.
Rampell argues that reducing taxes on inheritances
undercuts the incentive for work, something about which Republicans make a
great deal of noise when it comes to welfare reform. The idea is that the
larger the inheritance, the less the incentive to work. But that ignores the
complicated facts about inheritance in American life. Of course, there are a
handful of born-rich idlers who will never work and never feel the need to,
though those are in fact pretty rare: Donald Trump never needed to work a day
in his life (and, indeed, by many estimates would have been financially better
off if he hadn’t, and had simply parked his substantial inheritance in a good
index fund), but, then again, neither did Bill Gates, whose father was a very
wealthy man in his own right before Junior became a billionaire. The existence
of Waltons and Kennedys in varying degrees of insufferability is not much of a
basis for making tax policy.
In reality, inherited assets and gifts make up a tiny
share of the wealth owned by the richest Americans — about 15 percent for the
top wealth quintile and 13 percent for the top income quintile, as the Bureau
of Labor Statistics runs the numbers. By contrast, inherited assets account for
about 43 percent of the wealth of the lowest-income group and 31 percent of the
wealth of the second-lowest. (There’s a reason for that: Low-income people
don’t have much in the way of assets at all, but many of them inherit a house
from their parents or grandparents.) Of course it is the case that 13 percent
of $1 billion is a lot more than 43 percent of $150,000. But the proportions
suggest very strongly that, by and large, the very wealthy do not get that way
by inheriting money but by earning it.
A cleverer class-war columnist might derive a useful
insight from that: Rich people have all sorts of ways of helping their children
to grow wealthy rather than just leaving them money or giving it to them.
(E.g., getting them into Princeton.) It is the case that people with rich
parents are a lot more likely to end up rich than are people with poor parents,
but enacting a larger estate tax probably will not have much effect on that,
given that people who inherit large estates typically already are wealthy and
are in most cases well into middle age and well into their careers, if not into
their retirement, at the time they inherit.
It’s all good and fun to sneer at them as “passive,” but
there are two sides to an inheritance: Those fortunes do not build themselves,
and they generally are not the result of “passive” anything. American
millionaires and billionaires typically get wealthy through one of two avenues:
starting a business or investing, on their own or as part of a firm. The number
of hectomillionaires and billionaires made mainly through salary or contract
labor is vanishingly small: a few very rarefied CEOs, maybe, and a few score
athletes and entertainers.
If you have had the experience of signing both sides of a
paycheck over the course of your career, you might in fact regard salary or
wage income as a good deal more passive than investment income. The salaried
worker gets a guaranteed check every fortnight; the entrepreneur and the
investor do not. Business owners and investors are “workers,” too, if “work”
means anything at all.
But whether they end up Bill Gates rich or just
retired-California-schoolteacher comfortable, people who save and invest their
income — perhaps with an eye toward leaving a bequest to their children or
their grandchildren — are the opposite of passive. They take charge of their
financial lives. Anybody who wants to become a “passive owner of capital” can
do so sitting at home in his underwear in front of a computer. Those who are
truly passive in their economic lives tend to end up at the unhappy end of the
income-distribution curve.
None of which is to say the Republican tax plan is worth
a damn; it’s possible to make bad criticisms of things that deserve other kinds
of criticism. More broadly, this also isn’t to say that we really should
privilege some kinds of income — inheritances, dividends, capital gains, etc. —
over salaries and wages and more ordinary kinds of income. Some people will
take $5,000 and sock it away in a brokerage account or an IRA, and some people
will take $5,000 and take the family to Disneyland — and there’s no particular
reason the tax code should reward or encourage one over the other. There is a
pretty good argument for treating all income the same way for tax purposes. I
am sympathetic to abolishing the fiction of “corporate income” and taxing
everything at the same rate once it hits somebody’s bank account in the form of
a payroll deposit, dividend, profit-sharing payment, etc. But Rampell isn’t
making that argument, and neither is the rest of the class-war Left. It’s
something they might want to start thinking about, if they start thinking about
things.
Funny thing about those idle rich: They seem awfully busy. Starting businesses, investing,
building fortunes to leave to their heirs. Where do they find the time between
the champagne and the yachting and the charity balling and the hunting
endangered species and whatnot, I wonder. Perhaps Rampell has overlooked
something.
Princeton legacies ain’t what they used to be.
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