Greg Mankiw is what passes for a reasonable, sober right-wing economist these days. After reading his op-ed in the NYT on Sunday, I can only say that the bar has been set really, really low.
Mankiw makes the case for abolishing the estate tax by reference to two hypothetical rich families, one of which is spendthrift, and the other is frugal. He argues that it is unfair for the spendthrift family to pay a lower overall tax rate, when you consider consumption, income, and estate taxes, than the frugal family. He also contends that there are better mechanisms to fight inequality, such as the abolition of the carried interest loophole and limits on deductions, than the estate tax.
Here are my reactions to his arguments:
1. The primary purpose of the estate tax is to avoid the creation of wealthy dynasties. For reasons best known to him, Mankiw focuses exclusively on the impact to the dead members of the family; he doesn’t seem to care that their successors, under his regime, inherit huge fortunes and do not have to work for a living.
2. The estate tax is economically efficient. Relative to income taxes, the estate tax creates fewer burdens on one’s incentive to work. It also provides a guaranteed pot of resources from which the tax can be paid.
3. Tax policy is not a morality play. Mankiw appears to accept the Teutonic view that saving is always good, and consumption is evil. In a world in which corporations are sitting on mountains of cash because they don’t see sufficient demand for their products in the future, this attitude does not make sense.
4. The alternatives he cites for fighting inequality would be much less effective. The carried interest loophole only applies to hedge fund workers, and plutocrats do not rely primarily on itemized deductions to maintain their fortunes.
I agree with his point that it is not good policy for the thresholds and the rate of the tax to oscillate wildly. I don’t expect, or advocate for, substantial changes to the system that exists today. I do not, however, believe that the abolition of the tax makes any sense, except to billionaires who think that the solution to the problem of cash mountains is to make them even larger.