Friday, September 23, 2016

Political Dynamics Engender Fiscal Dynamics

     When you must purchase the political support required to attain (or stay in) power, you’ll seize on any source of funding:

     Donald Trump wants to completely repeal the federal estate tax. Hillary Clinton wants to raise it in two key ways. On this issue, their views could not be more opposite. Whether you call it an estate tax, a death tax, or a tax on accumulated wealth, it is controversial. It is entirely distinct from income tax. You pay income tax as you earn, but whatever you have left at your death, might be taxed again.

     Presently, estates worth $5.45 million or less are exempt from federal estate tax. Beyond that dollar limit, the estate tax kicks in, generally requiring you to pay a tax of 40%. Clinton wants to raise that 40% tax rate to 45%. She also thinks the $5.45 million exemption threshold is too high. She would cut it materially so that more people have to pay estate tax, dropping the exemption amount from $5.45 million to $3.5 million.

     That would result in a rather significant increase in the tax burden on such an estate – and in an even more significant strain on the sort of small family-owned businesses that are typically the targets of the estate tax. Reporter Robert Wood elaborates on this effect:

     Already, it is hard for many family-owned businesses to stay afloat after the death of a key figure. Not all of the reasons are managerial. Many are financial, and taxes can force a sale. With no step up, we could have the world’s highest estate tax rate. Some have calculated an effective death tax rate of 57%. Then, if you add in state inheritance taxes, the combined tax rate could go as high as 68%.

     [Applause to CM Blake for the link.]

     Yet the predominant characterization of the candidates is that Trump is “for the plutocrats” while Clinton is “for the little guy.”

     Some years ago, a politician – a conservative, of course – made a rather penetrating statement about the estate tax: “Death should not be a taxable event.” Of course a sentence that includes the word should is an expression of opinion. Yet that statement drew a great deal of attention at the time, and despite heavy counterfire from the Democrats about “privileging the rich,” considerable approbation from Americans generally.

     For me it’s a reminder of what the late Cyril Northcote Parkinson said:

     Wasting the labour of the people “under the pretence of caring for them” is exactly what our governments do. Freedom is founded on ownership of property.... It cannot exist where the rulers own everything, nor even when they concede some limited right of tenure. But the modern belief is that spendable income is a concession of the State. The taxation which is intended to promote equality, the taxation which exceeds the real public need, and above all the tax which is so graduated as to prevent the accumulation of capital, is inconsistent with freedom. Against a State which owns everything, the individual has neither the means of defence nor anything to defend....

     There are many human achievements, including some of the finest, which need more than a single lifetime for completion. The individual can compose a symphony or paint a canvas, build up a business or restore order in a city. He cannot build a cathedral or grow an avenue of oak trees. Still less can he gain the stature essential to statesmanship in a highly developed and complex society. There is a need for continuity of effort, spread over several generations, and for just such a continuity as governments lack. Given the party system more especially, under the democratic form of rule, policy is continually modified or reversed. A family can be biologically stable in a way that a modern legislature is not. It is to families, therefore, that we look for such stability as society may need. But how can the family function if subject to crippling taxes during every lifetime and partial confiscation with every death? How can one generation provide the springboard for the next? Without such a springboard, all must start alike, and none can excel; and where none can excel nothing excellent will result.

     [C. Northcote Parkinson, The Law, Complete. Emphases added by FWP.]

     Parkinson, best known for his First Law (“Work expands to fill the time available for its completion”), was largely disregarded by the thinkers of his day. Yet he was more insightful than any of his contemporaries. The above thoughts are especially pertinent to us of today.

     But the Left is opposed to excellence, don’t y’know. It cross-cuts their thesis about “equality,” one of the most abused words in political discourse. And of course, their politicians and rabble rousers need the money.

     For an organization that adopts “coalition politics” as its strategy, the prevailing dynamic is to purchase, via privileges, subsidies, and other subventions, voting blocs amounting to “50% + 1 votes.” To make this possible:

  • A sufficiency of voting blocs must exist;
  • The cohesion of those blocs must be highly reliable;
  • And the means required for bribing them must be available.

     There is a counter-dynamic, which kicks in at or near the desired threshold: Each group importuned at that point, if it’s been watching developments, will know that it can make the coalition a majority. That raises its price. In short, the last of the required votes is the most costly.

     In this connection, thundering about “tax privileges” for the “rich” is particularly attractive to the Left. While lowering the upper bound on a wholly nontaxable estate wouldn’t result in a large gain in revenue, it’s a most effective pander to the envy of many Left-inclined voters. In an envy-riddled society, the pitch itself is of greater value than the revenue.

     If I may be allowed a brief tangent, we have here yet another demonstration of how envy obstructs the ability to see second-order and more remote consequences. A confiscatory estate tax not only “brings the rich down;” it also prevents the not-rich from accumulating wealth of their own. But that item of analysis is lost on the typical Democrat voter.

     To sum up: Inasmuch as the “racism” gambit has failed the Clinton for President campaign, I expect to see the Democrats return to their old soft-Marxist class-warfare themes: the political expression of envy. Whether it’s still possible for them to get a middle class that’s suffered badly during the Obama Interregnum to believe that middle-class families’ travails are the fault of “the rich” is uncertain. However, the attempt is not – and the estate tax will be an important component of the approach.

     Perhaps there’s a countermeasure. It might lie in the thinking of Cyril Northcote Parkinson, if supplemented with this insight from C. S. Lewis:

     What I want to fix your attention on is the vast, overall movement towards the discrediting, and finally the elimination, of every kind of human excellence — moral, cultural, social, or intellectual. And is it not pretty to notice how “democracy” (in the incantatory sense) is now doing for us the work that was once done by the most ancient Dictatorships, and by the same methods? You remember how one of the Greek Dictators (they called them “tyrants” then) sent an envoy to another Dictator to ask his advice about the principles of government. The second Dictator led the envoy into a field of grain, and there he snicked off with his cane the top of every stalk that rose an inch or so above the general level. The moral was plain. Allow no preeminence among your subjects. Let no man live who is wiser or better or more famous or even handsomer than the mass. Cut them all down to a level: all slaves, all ciphers, all nobodies. All equals. Thus Tyrants could practise, in a sense, “democracy.” But now “democracy” can do the same work without any tyranny other than her own. No one need now go through the field with a cane. The little stalks will now of themselves bite the tops off the big ones. The big ones are beginning to bite off their own in their desire to Be Like Stalks.

     As our beloved InstaPundit might say: Heh. Indeed.


Bill St. Clair said...

LIFE should not be a taxable event. Taxation is extortion, a heinous crime. End it.

Anonymous said...

Hillary is out TO GET the little guy.