Two erudite views on estate taxes

One of the better web destinations for legal thinkers to visit is The Becker-Posner Blog, a forum for the views of University of Chicago Professor Gary Becker and Judge Richard Posner. Last week they debated the efficacy of the federal estate tax.

Becker is against it. In addition to the efficiency and fairness arguments that we've heard before, Becker also thinks that in the information age, wealth is more that physical assets. He writesL

But after the knowledge revolution took off toward the end of the 19th century, bequests of financial and material wealth have become less important in the overall economy. Instead, the most important way for parents to “bequeath” economic position is through the transmission of knowledge in the form of education, training, and other human capital. Such capital embodied in people now comprises over 70 per cent of all “wealth” in economically advanced nations, far more important than material capital.

Posner, on the other hand, is reluctant to give up this revenue source, though he would prefer an inheritance tax and recognizes that the estate tax raises little revenue. In particular, he raises concerns about social mobility in the absence of such taxes.

Wealthy people seem increasingly able to guarantee that their children and even grandchildren will remain in the upper income tier, leaving fewer places for the children and grandchildren of the poor to occupy. Through “legacy” admissions (as at Harvard!), expensive private schooling and tutoring, including tutoring in taking college admission tests, as well as by means of direct transfers of wealth, wealthy people are able to “purchase” a secure place for their children and grandchildren in the upper class. Even if, as Becker argues, social mobility has not actually declined in recent decades, it is lower than it used to be and the conditions for a decline seem in place.

This is a well-thought-out discussion, free of the emotionalism and sloganeering sometimes found on both sides of the question. The extensive comments to each article are worthwhile also, as are the authors' responses to the comments, though I haven't had time to read them all. But if the ranks of millionaires are growing as fast as JLM suggests below, this will remain an important policy concern.