On the Tamara Ecclestone Paradox..

Chris Dillow suggests a rational paradox in attitudes towards the inheritance tax:

who are the sort of people who expect to get big inheritances and so are deterred from working? There are two (extreme) possibilities:

1. The rich have high skills, and such skills are passed onto their children by genes or environment. If this is the case, the economy will lose a lot if the children of the rich are disincentivized from working. We should therefore favour high inheritance taxes as a way of reincentivizing them to work.

2. The children of the rich are airheads, wastrels and no-marks, so it’s little loss to the economy if they are out of the labour market. If this is so, the case for high inheritance taxes to motivate them to work is weak.

Which generates my paradox. The sort of people who instinctively oppose inheritance taxes tend, I suspect, to believe the rich pass on skills to their children. But if you believe this, you should favour higher inheritance taxes on economic grounds. On the other hand, those – like me – who viscerally support inheritance taxes tend to think the children of the rich are abominations who can safely be kept out of the labour market. To us, the country would be a better place if George Osborne had been disincentivized from working. But if you believe this, you shouldn’t want an inheritance tax that forces the little bastards into work.

While this is true as far as it goes, there are many other dimensions through which people estimate the (dis)utility of inheritance taxes:

      • Allocation of resources: does inherited wealth get cycled productively into the economy? Some think it is a huge waste if money sits in trust dribbling out to support the allegedly idle lifestyle of the heirs. But if the children of the rich are “abominations”, surely they will be parted with the money eventually. It will be spent, and enrich the rest of us based on what we can sell to them (or sell to those who sell to them). After all, economists like Paul Krugman complain that the wealthy’s marginal tendency to consume is too low. An abomination’s big inheritance is a stimulus program! Shirtsleeves to shirtsleeves.
      • Fairness/justice.  Some simply can’t abide that the children of the wealthy should enjoy such a windfall simply by dint of being in the lucky sperm club.
      • Redistribution: Some just can’t stand the idea of all those resources not being available to government or given to the disadvantaged
      • Property/liberty: Some believe estates are after-tax property and can’t be taken on a property rights basis, regardless of what heirs might do with the proceeds.

Dillow thinks too much like an economist. Not everyone views taxation through an incentive lens, although most of our polity could stand to do more of that.

One comment on “On the Tamara Ecclestone Paradox..

  1. Though I understand your point of view, I am way too close to the edge to not know that that, “free,” money is going to be a life saver for those who are out pouidnng the beat looking for jobs from shop to factory and have nothing to feed our family with these days. I know…we support my son and his family while they wait for SSD after a horrendous accident that left him unable to work. His wife works at Micky Ds since she lost her job.We are thankful this Christmas that my husband is still working and that I am available to be grandma after school and some evenings. God has given us thatgift.

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