Thursday, June 08, 2006

The Passions of the Estate Tax

When it comes to matters of society and public policy, economists are normally more even-tempered (perhaps even cold-blooded) than your average person. They can discuss morally-charged issues such as abortion, prostitution, and selling human organs with a dispassion that, to noneconomists, can seem to border on pathology.

But when it comes to the debate over the estate tax, the dispassion often disappears, and the analysis becomes surprisingly moralistic and vitriolic. Here is Milton Friedman in 2001 advocating repeal of the tax:
Spend your money on riotous living — no tax; leave your money to your children — the tax collector gets paid first. That is the message sent by the estate tax. It is a bad message and the estate tax is a bad tax. The basic argument against the estate tax is moral. It taxes virtue — living frugally and accumulating wealth.
Back in 1997, the Washington Post reported a very different view from Larry Summers:

A senior Clinton administration official yesterday condemned congressional efforts to roll back inheritance taxes as part of this year's federal budget agreement, declaring proponents of such tax relief to be motivated by "selfishness."

"In terms of substantive arguments," the evidence put forth by lawmakers advocating repeal of the estate tax "is about as bad as it gets," Deputy Treasury Secretary Lawrence H. Summers said in a meeting with a small group of reporters yesterday. "When it comes to the estate tax, there is no case other than selfishness."

I doubt that Summers thinks Friedman is selfish, or that Friedman thinks Summers is immoral, but they are both quick to use such charged words to describe the other’s policy position. (Summers, a government official at the time, later apologized for his remarks, recognizing how impolitic they were.)

Milton Friedman and Larry Summers are two of the best economists I know. Isn’t it a bit odd that they both resort to overwrought language when discussing a tax that is paid only once a generation and that raises only a fraction of one percent of GDP? Given that there are smart economists are both sides of the debate, wouldn’t you expect a more even-handed treatment from both of them?

I don’t claim immunity from this disease, but I nonetheless find it puzzling.