How the Estate Tax Lowers Wages and Destroys Jobs
The biggest concern for people on the left of the political spectrum is equality, not liberty or even overall standard of living. The Democratic party becomes more Socialist every election cycle, and this one is no different. Hillary Clinton is pushing a radical form of wealth redistribution in the form of an increased and expanded estate tax.
The estate tax is often called the “death tax” by conservatives, and is the confiscation of a portion of an individual’s assets after they die. This is the wealth that they accumulated over the course of their lifetime, and has already been taxed as income. It affects small businesses and farms where property and resources are owned by the individual proprietor. Payroll tax, corporate tax, and sales tax may have also been paid.
The justification for taxing people repeatedly is that the rich should “pay their fair share”. But what is fair? Government services are provided by confiscating wealth. Economic calculations do not occur in the distribution of these services, so any value assigned to them is arbitrary. Because the State is not forced to compete, and can simply confiscate the wealth of its consumers, the prices we pay in taxes always go up. There is no incentive to reduce costs.
Most people have no problem taxing the rich because they are not rich themselves, and think they never will be. This victim mindset is not only self defeating, but bigoted. It is based on the assumption that the rich have accumulated their wealth through fraud or by taking advantage of the public. While it is true that fraud does occur in the private sector, and many corporations do take advantage of The State, this is not evidence that all rich people are bad. It makes about as much sense as a white supremacist who says that because some black people commit crimes, all black people should be punished. Those individuals who are responsible for committing acts of aggression should pay restitution to their victims. The aggressors are not all rich people and all firms collectively, and the victims are not all poor people.
Because arguments should be attacked based on their merit, and not who makes them, it should be unnecessary to point out that I am not a rich man. I understand basic economics, and I have a moral code that says that success is not a crime. I’m not justified in acts of violence against those who achieve prosperity. I understand the struggle of making enough money to pay bills. I know how hard it is for Millennials entering the work force saddled with debt to find good jobs. In spite of this, I’ve been accused of hating the poor or being rich myself. I’ve also been accused of being Jewish in arguments with white supremacists, so I guess I shouldn’t take it too personally. Moving on.
Currently, the estate tax only affects people with more than roughly 5.5 million in assets at the time of their death. While this may seem like a lot, as land and real estate values go up and down it can affect more people than you would expect. The value of farm land acreage, buildings, equipment, livestock, and other resources adds up. If it is all assessed to be worth more than 5.5 million, then 40% will be seized by the State. In most cases, assets will be sold off to larger corporate farms and businesses to pay these taxes.
Hillary Clinton’s plan is to lower the threshold on the lowest bracket of the estate tax to 3.5 million, and to raise the tax to 45%. The top bracket on her tax plan would only affect couples with 1 billion or individuals with half a billion in assets at a rate of 65%. Framing the tax brackets in terms of couples is intended to protect family ownership, but if a husband dies and the wife takes over what happens when she passes? What about divorced couples, or people who are unmarried but have extended families? Of course, anyone with 1 billion in assets can likely hire a team of lawyers and accountants to tie their wealth to corporations or trusts, move it off-shore, or protect it in other ways, as the Clintons do themselves. This is not necessarily the case with people in the lower brackets.
Many people think of wages as being based on the labor that a person produces. The more labor you do, the more money you make. It is easy to see why people disdain the rich from this point of view, since not many of them have dirt under their fingernails. There is an element of truth in this perspective. A wage is the price paid for labor, and like all prices is determined by supply and demand. Jobs that require more labor or are harder must provide a higher wage in order to attract workers. Many of these jobs do not require a high level of skill, however, so the supply of workers is quite high.
A better way to think about wages is to consider them based on the value provided. If you can improve the lives of others without getting dirty and sweating, then you can still make money. If you can greatly improve the lives of a lot of people then you can make a whole lot of money. What is valued highly is high in demand, and limited in supply.
A farmer could pay people to plow fields by hand with shovels. Hell, why not spoons? This would be very low skilled labor, so anyone could do it. The number of workers needed would be very high, however, and most workers wouldn’t take the job. They have other opportunities competing for their labor, and spending all day on their knees would have to pay a high wage to attract them. It is much cheaper for a farmer to use high tech tractors and equipment to grow their crops.
This is a capital investment which raises the value of the workers that he still needs to make his equipment function. Using the machines, a handful of workers can produce the same value to the farmer as a hundred people with hand tools. The farmer must pay these employees a higher wage in order to keep them working on his farm and not go elsewhere. He is able to do so because of the value they provide.
This is a process that happens in all industries all of the time. Capital investment is what drives up wages, not labor unions or a minimum wage. When it happens through fiat, rather than through free exchanges, the result is that businesses lay off workers prematurely. They invest in capital to raise the value of their workers to coincide with the minimum wage, but the displaced workers are not drawn away by other firms competing for their labor. They are simply told that they are not allowed to work if they are unable to provide the value needed to justify their wage.
Because capital investment is what drives up wages, confiscating that accumulated capital from successful enterprises will drive wages down. Employers will be unable to produce as much, and the value of individual employees will be reduced. Employees will be laid off, and may be unable to find work elsewhere. This will increase unemployment.
An increase in minimum wage at the same time will make this problem worse. If a worker needs to move to a different industry, they will need to enter at a lower wage in order to establish their value and build new skills. A higher minimum wage means that a company is unable to hire as many employees, so the displaced worker is competing with more people for fewer jobs.
Once he is hired, it will take longer for him to receive a raise. As he develops new skills at the entry level, his value is likely lower than his wage. An employer will compensate for this by keeping him at a low wage for a longer period of time. He doesn’t have to worry about losing his employee to a competing business because the competition for the remaining jobs traps the employee in his current position.
As we can see, the estate tax drives down wages, and increases unemployment. It also disproportionately affects smaller businesses and farms with high overhead, who have little liquidity needed to hire people to protect their wealth. This causes a wealth transfer not from the most wealthy to the most poor, as the liberals intend, but from those who are struggling to grow and build capital to those who already have it.
I place the most value in my decisions on personal liberty. I want the standard of living for all people to rise, and for the poor to be lifted out of poverty. This can only be done through the accumulation of capital resources, and providing value to people. Capitalism improves the lives of all people, including those at the bottom. Economic equality is certainly a goal based on good intentions. After all, why should one person live in luxury while others suffer? Unfortunately, the violent State solutions proposed only end up hurting the poor in the end. I want the rich to give to the poor. I like charity, but I don’t want people to be robbed for it. If we use violence and coercion as means to improve the world we will never succeed. There will still be violence, and there will still be suffering.