Kilroy Was Here
December 23, 2003
More thoughts on the Estate Tax
Let's assume that we both agree on the level that government should be funded. I know this is probably not the case, but for the sake of argument, let's assume that we both believe that the government should provide the a set of services S and that it should cost $X trillion dollars. (Any difference in this assumption comes down to a scope of government or spending issue and is separate from a taxation issue.)

Given this assumption, the question is which dollars should we use to fund it. Our first approach might be to look to fund this $X trillion dollars with dollars that will limit the impact on the little guy.

It seems obvious to me that the negative impact on the little guy by taking away food-rent-shelter dollars to fund this $X trillion dollars is greater than the negative impact the little guy might feel if we take away luxury-dollars to fund the government even if those luxury dollars, through the magic of the capitalist market, may provide some positive benefit to the little guy.

Second, investment does provide needed infrastructure to our society. Those that invest in building that infrastructure are already rewarded (many times, very richly) by getting a return on their investment without having to spend any time or energy to earn that dollar. This is a good thing. However, much infrastructure is not created by private investment but through government action. And the development of that infrastructure must be funded.

I think that returns on investment should be used to fund more of our government than salary from labor for three reasons:

  1. Our country has a moral belief that providing benefit to our society through work is central to a citizen's life.
  2. A greater percentage of salaries is used for food-shelter-clothing dollars than for luxury dollars.
  3. Salary dollars bear a closer relationship to the element of time than dollars earned through investment. Since time is so precious to each citizen, we should hold the money exchanged for time and labor to be more precious than money earned through investment.

Currently, our tax code punishes labor and rewards leisure.

The money earned by investment is taxed a much lower rate and has more opportunities to avoid taxes. The money earned through labor though is very difficult to shelter from taxes and is taxed at a higher rate. I find this antithetical to our country's moral values. Also, I find this has the practical effect of widening the gap between rich and poor which is damaging to a democracy. If the current trend continues, history shows it cannot end well for us.
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