On this blog and in my scholarly articles, I have argued that a country's tax provisions should work to enhance democratic egalitarianism. Equity, not efficiency, is the primary yardstick by which we must measure our tax code. By helping ensure that resource allocation decreases gaps between the rich and the poor, tax policies can undergird democratic institutions that permit the polity to work together for a better society, developing human and financial capital to serve the well-being of all the residents.
In particular, I have argued that the estate tax belongs in the panoply of tax mechanisms used to redistribute resources. Death is an appropriate time for an accounting, since the entrepreneur who gathered those resources is no longer alive to make use of them. Redistribution reallocates those resources across all the people, rather than allowing them to become concentrated in the hands of people who have done nothing to generate the economic growth. If corporate ownership is passed intact at death, an ownership class arises that has no connection with the creative entrepreneurial spirit that founded the corporation even though that class controls vast amounts of corporate wealth. The ability to identify with the problems of the underprivileged becomes attenuated, and the poor become invisible, as the underprivileged were in pre-Katrina New Orleans.
With an estate tax in place, a mechanism exists to ameliorate with each passing generation, to some extent, the inequities of wealth concentration. The resources that would have become more consolidated in the hands of the privileged few can be made available to help people from all circumstances develop their potential and participate in the economic life.
The World Bank agrees with me, as noted in this description of its position on the use of inheritance taxes in developing countries. In the World Development Report 2006, the World Bank notes that
“Because heirs have not earned the wealth, taxing gifts, estates and inheritances is consistent with the report’s notion that predetermined circumstances should not affect a person’s life chance.”
It goes on to state that taxing inheritances helps distribute ownership of the corporate engines of the economy across society. An estate tax serves distributive justice by ensuring that the poorest among us have more of a chance for a decent life. It also serves economic efficiency by preventing the ossification that can come from passing control of corporations down through family dynasties. A policy that is right because it is fair is also likely to promote more efficient use of resources--estate taxation advances both equity and efficiency.
"[Such] a design that restricts transfer of control rights on corporations can be good for both equity and efficiency.”
Another argument frequently made in favor of a substantial estate tax for multi-millionaires is that the stable legal, economic, and social institutional environment provided by the state is a significant factor in any person's ability to amass a fortune. Consequently, it is appropriate that some accounting be made at death, to pay over to the state some portion of the fortune in recognition of the role of the state in making the fortune possible. Those funds then support human capital expansion for others, leading to a constantly rejuvenated economic entrepreneurship that promises a better life for all.
That argument was, interestingly, supported in the amicus brief in a case involving major research universities and the Solomon Amendment. As you may recall, the Solomon Amendment has been used by the military to claim that it has the right to ready access to universities for recruitment purposes if those universities receive any federal research grants.
There are various reasons why the Solomon Amendment should be found unconstitutional, especially if it is interpreted, as the military interprets it, to grant the military access in order to stifle the universities' message that the military's anti-gay policy is discriminatory and not worthy of American values. If you are interested in reading those arguments, you may want to read the various briefs in Donald Rumsfeld vs Forum for Academic and Institutional Rights.
But it was something else that I found particularly interesting in the amicus brief filed by Columbia, Cornell, Chicago, Harvard, New York University, Pennsylvania and Yale. The brief articulates the essential role of research universities in the economic and social life of the country. Here are two short paragraphs explaining the importance of federal taxpayer dollars in support of basic research at major research universities.
By any relevant measure, the unencumbered provision of federal funds for university research has been .exceptionally productive.. Nat.l Science and Technology Council, supra, at 331. The results of that partnership are ubiquitous and indispensable; they touch almost every factor of modern life. The computer on which this brief was written is a descendant of the Whirlwind, the world.s first high-speed, general purpose, electronic digital computer, which was developed at MIT with federal funds. MIT, The Federal Government and the Biotechnology Industry: A Successful Partnership (1995), available here .The Internet, now an integral part of society, began as a network of computer science departments funded by the National Science Foundation. National Science Foundation, The Nifty Fifty, available here. (last updated Jan. 27, 2005). The biotechnology revolution, which has spawned most of themedications on which we depend, emerged from pioneering academic research conducted with funds from the National Institutes of Health. Arthur Kornberg, Support for Basic Biomedical Research: How Scientific Breakthroughs Occur, in The Future of Biomedical Research 38 (Claude E. Barfield & Bruce L.R. Smith eds., Washington, DC: American Enterprise Institute & The Brookings Institution 1997). Federally funded academic research on fiber optics paved the foundation for the modern telecommunications era. National Science Foundation, supra. Indeed, the social value of basic research conducted at America.s universities is difficult to overstate: secure credit-card transactions, lasers, doppler weather radar, sign language, even the yellow highway barrels that minimize injuries from car collisions. all of these mainstays of daily life, among many others, likely would not exist without it. See id.
These innovations have contributed enormously to the national economy. Studies estimate that roughly one-third of the total value of the NASDAQ market stems from federally funded university-based research. Margo Carmichael Lester, Federal Funding Spurs Private Innovation, LARTA Vox (Nov. 3, 2003), available here. In the high-technology sector, where federal funding of academic research is most robust, America is the world leader, accounting for about one-third of global production. National Science Board, Science and Engineering Indicators -2004, at 6-8. And because .U.S. high technology industries have been more successful exporting their products than other U.S. industries, [they] play a key role in returning the United States to a more balanced trade position. in a time of growing deficits. Id. at 6-11.
Without the fundamental research mission of our major research universities, we would likely never have discovered various technologies that we use daily to make our lives better, from medicines to the internet. And much of that research would never have been conducted without the support of federal tax dollars. The tax dollars paid by you and me (and, hopefully, by rich people too) turn around and support cutting edge research that in turn ultimately results in new businesses, new medical treatments, and even new forms of art. The cycle of tax dollars from entrepreneur to entrepreneur is the wonderful saga of a democratic society at work. That work is made more possible by mechanisms such as the estate tax.