Want to Increase Your Standard Of Living? Get Rid of the Inheritance Tax.

It seems to be common knowledge and public forum talking points that a heavy tax on the descendent of the "rich" would only serve to benefit those less fortunate.  After all, the less wealthy are much more inclined to spend that redistributed wealth, as opposed to the greedy, rich hoarders. 

It is still not clear to me why the IRS and Congress have messed about so much this past decade with the inheritance tax, estate tax, or what many who think it robbery aptly call it, the "Death Tax".  

Without digressing into an expose on the structure of production in a capitalist society, it is safe to say that we live in a division of labor society.   And in that society, that division of labor is dependent on the accumulation and addition to the capital stock of goods. 

The more capital goods that are available, the longer the production process can be without putting in jeopardy the necessary consumer goods used on a day to day basis.  Also, the more labor that can be employed as a result of the lengthier process, which in turn, produces more goods at a lower overall cost.  As these new consumer products come out at a lower price level, more consumers are willing to buy them, and are able to do so thanks to the employer who, through the wonders of capital, was able to give them a job in the first place.

The inheritance tax is nothing but a tax on capital.   It is a tax on the quality of life that all of us, not just the rich, but the less fortunate as well, have come to expect in our current day and age.   As more and more public opinion is seen shifting towards "entitlements", this standard of living is highly desirable and most want it maintained at any cost.  

However ironic, these champions of the poor are so economically ignorant that they themselves are slowly bringing about a decline in the standard of living simply through the policies their lobbies bring about.

Read a couple of quotes from Reisman in Capitalism :

"Its effect is that substantially more capital exists than would exist without it.   Everyone in a division of labor society benefits from the existence of this additional capital, whether he himself is an heir or not.  He benefits both in his capacity as a buyer of products and in his capacity as a wage earner."(pg.306)

 and...

"As previously pointed out, however startling it may seem, the simple fact is that in a division of labor society one benefits from the property of others when those others are one's employers or suppliers, because the effect of their property is a greater means of buying what one sells and producing what one buys.   The institution of inheritance enhances these sources of gain." (pg.306)

 The estate tax first off takes away more and more incentive for a businessman or woman, or even a wage earner to produce for his or her lifetime.  They only reason they would produce in the first place, or for any job for that matter, is that they expect to take home and keep what they earn.   If they are instrumental in the innovation of some company or invention, they are motivated by both the good that product or service will bring, but also by the financial reward that it will bring them.   Take away this financial reward and you will loose virtually all innovation in the economy.

Secondly, because of the tax reducing the profit motive, it directly decreases the amount of capital goods currently used(because it consumes them), and used in the future(because there is no longer any incentive to invest resources into long-term capital goods).  When the capital stock is not continually grown, that stock of capital is "consumed" and can no longer be used to make vase quantities of the goods that consumers desire, especially at the prices which they demand them.   By taking from the "capitalists and rich" the wage earners(and I am just using them as abroad reference, not to any particular group here) believe that the little extra money that they and their friends may get will be a much bigger benefit than if the capitalist would be allowed to pass on his life's work to his offspring. 

Obviously, the offspring do not need, and will not use to the extent, the money in question in ways the wage earners will.   And to that point, they are absolutely right.   For the most part, the wage earners will spend or "consume" all of the capital that is given to them, which will not help increase the supply of capital goods because there is no increase in the savings rate.  Everything is now being spent, even that which once was in the banks, factories, and other investments of the capitalist.

Now, demand for labor is down, which hurts the wage earner.   Prices for consumer goods are higher because of the increased demand for one-time consumer goods, and it becomes subsequently harder to find labor employment because the capitalists now have a much less incentive to put their money to use when it is merely going to be confiscated from them at the end of their life, or at another arbitrary point in time designated by the state.  Why would they put all the time and effort in just to have it stolen at a later point in time?

I will end with another excerpt from Reisman's Capitalism regarding the estate tax issue and its effects on all people:

"Finally, the use of the inheritance tax to finance such expenditures as welfare payments and outlays for defense, which is what, for the most part, it is actually used for, is nothing but an unmitigated assault on the foundations of a country's standard of living.

 "In every case, an inheritance tax reduces the demand for labor that business firms are able to make and thus either the wage rates or volume of employment that they are able to offer.  Simultaneously, it reduces the economic system's overall degree of capital intensiveness, and thus its ability to implement technological advances.   Equally important, it reduces the demand for capital goods and thus the economic system's degree of concentration on the production of capital goods, and, consequently, the ability of the economic system progressively to raise the productivity of labor and real wages.   An inheritance tax always represents a diversion of funds from capital to consumption and is thus a force working against both economic progress and the share of total consumption in the economic system that goes to the employees of business firms, whose wages are paid out of capital.   Thus, inheritance taxes are against the interest of everyone, non-heirs as well as heirs."