The Estate tax: An Interest Group Analysis

In a post on Marxism, Brian Leiter opines:

In the United States, ... a majority of the population favors abolition of the estate tax—what the ideologues of the ruling class now call a “death tax”—believing that it affects them, and that it results in the loss of family businesses and farms. In fact, only 2% of the population pays the estate tax, and there is no documented case of families losing their farms or businesses as a result of the tax’s operation. ...

Leiter cites this as one example of how "the ruling ideas in any well-functioning society will be ideas that promote the interests of the ruling class in that society, i.e., the class that is economically dominant."

I was interested by this, as it seems to convert Marxism into a form of interest group analysis. If so, however, the estate tax seems a puzzling example. After all, repeal of the estate tax was widely opposed by Congressional millionaires like Ted Kennedy and left-liberal billionaires like Warren Buffett, Bill Gates, and George Soros. So what's going on here? In fact, I think Leiter is wrong in his analysis of the estate tax. Compare his interpretation with the following views advanced by Bruce Bartlett:

A man-bites-dog story occurred on February 18, when a group of rich people signed an ad in the New York Times opposing elimination of the estate tax. Since the estate tax only affects those with net assets greater than $675,000, it is per se a tax only on the "rich." Thus, when those upon whom the tax is levied protest its abolition, it is news. But in reality, it is not at all surprising that some rich people support the estate tax, because they benefit from it in many ways.

The truth of the matter is that those with great wealth pay little in estate taxes now. The bulk of the tax is paid by the modestly wealthy--small businessmen, farmers and long-term investors--who may never have had much income. They often die not even realizing that they were wealthy, but without the elaborate tax shelters of the very rich. Their assets frequently have to be sold to pay the tax collector, making it impossible to keep them in the family.

Thus one consequence of the estate tax is that it makes it very hard for small businesses to become big businesses, and for modest wealth to become great wealth. It is no coincidence that many of the richest families in the U.S.--such as the Du Ponts, Mellons and Rockefellers--are heirs to wealth first created during the 19th century, when there was no federal income or estate tax. Those with such "old money" have always disdained the "nouveau riche" and done what they could to protect their social position against upstarts. The estate tax serves this purpose extremely well. ...

Setting up tax-exempt foundations is just one of a myriad of ways the wealthy have of avoiding the estate tax. ... However, foundations are particularly useful as tax avoidance devices because they help ensure that family fortunes stay in the family. ...

Thus we see that for those who are already wealthy, the estate tax is no barrier to the maintenance of family wealth and may even serve a useful purpose in limiting competition.

Personally, I find Bartlett's interest group analysis far more plausible than that offered up by Leiter. For a defense of the proposition that the estate tax is essentially a "voluntary tax," which the wealthy can evade or avoid, by a quite liberal law professor, see Edward J. McCaffery, A Voluntary Tax? Revisited.

Carification: I want to be clear that I am not taking issue with Leiter's suggestion that we look at who benefits from an estate tax and who does not. Such an inquiry is basic to the interest group analysis strain of public choice economics and, or so I gather from Brian's post, also Marxist analysis. I think Brian needed, however, to expand his analysis by decomposing the "ruling class" into multiple interest groups. Those at the very tip-top of the wealth spectrum appear to have rather different interests from those who, while still quite wealthy, are of comparatively more modest means. This is important because Brian's post claims, as I understand it, that Marxism remains useful as a tool of inquiry precisely because it allows one to make qualitative predictions. A model that has but one dominant interest group, however, seems far less useful than a model in which many interest groups compete.