Three Observations on the Estate Tax

Consistent with this blog's subtitle, here are a few items that I thought were worth repeating:

1. Jane Galt notes that today's rich are different than those of the past:

America's widening income distribution cannot be blamed on bequests. According to Piketty and Saez, while in 1929 the wealthiest Americans derived more than 70% of their income from invested capital, and only 30% from wages or entrepreneurship, by 1998 the very rich got only 20% of their income from investments.

2. A commentator on a previous post warns about taxing small minorities:

One big problem I have with [the estate tax] is that it's a tax on a very small group of people. I'm not saying that no law should ever be narrowly tailored, but I think it's tempting in a democracy for a majority to pick on a minority. I'd be more comfortable with the estate tax if the exemption were lowered (especially if the rate were also lowered).

3. Johns Hopkins econ prof Larry Ball emails me a possible rationale for the estate tax:

Can one justify the estate tax as providing length-of-life insurance -- which markets don't do well because of adverse selection? If so, we should probably reverse current law and tax small estates but not big estates, which are intentional intergenerational transfers. Calling it a "death tax" actually makes it sound sensible. (Especially for a party that is "pro-life" and believes in tax incentives to achieve its goals!)