N. Gregory Mankiw is brilliant and prominent, a professor of economics at Harvard University, author of a best-selling introductory economics textbook, and, under President George W. Bush, chair of the president’s board of economic advisors.1 So why he is talking total bullshit on the estate tax in the New York Times?
Well, as Greg tells it, he’s all about the fairness:
“From my perspective, the estate tax is a bad way to tax the rich because it violates a principle that economists call horizontal equity. The basic idea is that similar people should face similar tax burdens.”
Mankiw posits two retired couples, the Frugals and the Profligates, both sitting on $20 million. The Frugals save their cash and the Profligates spend it, setting up the following slippery complaint from Dr. Slippery:
“So here’s the question: How should the tax burdens of the two couples compare? Under an income tax, the couples would pay the same, because they earned the same income. Under a consumption tax, Mr. and Mrs. Profligate would pay more because of their lavish living (though the Frugals’ descendants would also pay when they spend their inheritance). But under our current system, which combines an income tax and an estate tax, the Frugal family has the higher tax burden. To me, this does not seem right.”
Let me unpack Doc Slippery’s dishonesty for you. He started out comparing Mr. & Mrs. Frugal with Mr. & Mrs. Profligate and then all of a sudden we’re talking about “the Frugal family”. Because here’s the thing: Mr. & Mrs. Frugal don’t pay the estate tax, because they’re dead. They don’t exist. They own nothing and they owe nothing. They’re out of it. It’s their heirs, who did nothing to earn the $20 mil, who inherit the whole pile—and, under Doc Mankiw’s “fairness” regime, wouldn’t pay a penny of tax. Meanwhile, anyone working a minimum-wage job, whether supporting themselves or a dozen dependents, would be paying a hefty Social Security (“FICA”) tax. Is that fair? And, furthermore, if we’re talkin’, not the “Frugal” heirs, but the Waltons, or the Kochs, they’ll get literally billions tax-free, all courtesy of Dr. Fairness.
Of course, Dr. Mankiw knows all this. He just hates to see a rich man suffer.
Afterwords
Why it should be “profligate” or “lavish” to spend your retirement money when you’re, you know, retired, is a question that Dr. Mankiw leaves unanswered. He seems to think (or, rather, pretends to think) that it is wrong to live like a millionaire even when you are a millionaire, even though the only beneficiaries of his benevolence would be millionaires (and billionaires).
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That is to say, chief economic advisor to the president whose economic record is the worst since Herbert Hoover’s. ↩︎
