More on Comprehensive Inheritance Taxes

Thomas Nagel (Professor of Law, New York University) recently published his article entitled Liberal Democracy and Hereditary Inequality,63 Tax L. Rev. 113 (2009).  This article references a previously-mentioned article by Lily Batchelder.  An excerpt from the beginning is below: 

Lily Batchelder has presented an elegant and persuasive proposal for replacement of the U.S. estate tax. I couldn’t agree more with her recommendations, so I will not talk about the proposal itself but about the best way to defend it. While Batchelder considers various justifications for policy in this domain, the justification she favors is the type of welfarist argument found in the optimal tax literature, modified to include inheritances in endowment. She presents her proposal as a move toward the welfarist ideal, allowing for imperfect information and political constraints. I agree with her that some of the standard criticisms of welfarism – utility monsters, expensive tastes, the difficulty of interpersonal comparisons – can be dismissed as academic nitpicking. Still, I do not think a welfarist approach to this issue gives us the whole story.

What I would like to do in this brief Commentary is to take up in more detail some of the other arguments Batchelder identifies, and a few she does not. In part, I elaborate on factors that she might classify as political constraints, but that also deserve moral attention in their own right. My aim is to examine those normative disagreements that are close to the political surface in people’s reactions to the issue of how to tax estates or inheritance, and to say something about how they are related to welfarist considerations. Taxes have extraordinary resonance in U.S. politics, and one of the challenges facing any effort at reform is to engage with the values that move and divide the public – to be, if possible, both normative and political.

As Batchelder points out, some economists have extended the idea of a social welfare function to accommodate deontological and other values that are clearly not functions of individual welfare in the original sense. Perhaps formally this can be done, and it has the dubious virtue of making everything quantifiable by the same metric. But the values in question still have to be understood and debated in their own right.

Let me begin by listing a number of normative issues raised by the tax treatment of inherited wealth, most of them mentioned by Batchelder, which reveal conflicts that are prominent in contemporary liberal democracies.