So Greg Mankiw wrote an editorial in defense of inherited wealth, and thanks to the prodding of “a number of people,” Paul Krugman has agreed to bless us with his response.
It seems to me that punitive death taxes are really unfair and un-American, and there is no doubt that the most wealthy will find ways to avoid them anyway. As Krugman correctly points out, Mankiw completely ignored the what happens to the money if it goes to the government. To me, any argument that says government is going to do a better job managing money than, well, pretty much any other person or entity, is ridiculous. So when Krugman says,
In fact, what we’re really talking about here is taxation of wealth., and the question is what would happen to that revenue versus what happens if the rich get to keep the money. If the government uses the extra revenue to reduce deficits, then all of it is saved – as opposed to only part of it if it’s passed on to heirs. If the government uses the revenue to pay for social insurance and/or public goods, that’s likely to provide a lot more benefit to workers than the trickle-down from increased capital.
then I’m thinking, pretty sure the rich are going to find better uses for it. Actually, it would be interesting to see the data on what exactly happens to inherited wealth. Another day.
It seems really a stretch when Krugman says that if the government uses that money to pay down debt, that’s the same as saving. I guess definitionally it is, but to me, it’s not really saving unless there is an operating surplus. It’s just lower deficit spending. And once that money flow is in the mix, it’s not going to be treated like the end result of a life’s work (already taxed at least once) that it is. It’s just going to go into the same flow of income as every other source.
Mankiw also failed to address the purchase of the political system by the very wealthy, or as Krugman calls it, “plutocratic capture.” Is it really a choice between inherited wealth and a free political system? Is reform of the electoral system and its addiction to money really so out of the question as not to be even discussed? If the ultra-rich figure out ways to pass on their fortunes anyway, then plutocratic capture is still an issue. What is Krugman going to do, find every rich kid and forcibly remove all of their assets on an annual basis starting at age 18?
Wouldn’t it make more sense to regulate the political system and remove the money being spent there? That would free up a lot of money for more beneficial uses, certainly.