The Maryland Public Policy Institute
Should Congress repeal the federal estate tax? Should the General Assembly scrap Maryland’s estate and inheritance taxes?
Given Donald Trump’s views on the issue, the federal estate tax may be nearing an end (I have doubts that Maryland lawmakers would repeal the state’s tax, but I’d love to be wrong about that). This has, predictably, provoked opposition from liberal pundits who chalk this up as just another way to reward the 1%.
Perhaps the perfect summation of “progressive” thought on the estate tax is summed up by this Tweet from Matt Yglesias: “This will be a huge win for white working class people who inherit fortunes worth over $5 million.”
I think that Yglesias manages to say a lot of wrong things in this short tweet. While I think the economic argument for ending the estate tax is strong, I also think there is a good cultural argument (for lack of a better term) to do so, too. It’s something that Yglesias and his ilk who express a disdain of the working class don’t seem to understand. It also that goes to the heart of why these voters reject liberal politicians.
His tweet linked to a story in the Financial Times about how the estate tax affects family farms. The fact that Yglesias casually dismisses the concerns of farmers and their heirs indicates a fundamental misunderstanding of how rural areas work and how working class people think. My grandfather was a farmer. He’s still alive and active at 91 years of age, although he has stopped farming. I grew up near the family farm, spent a lot of time with him on it, and worked for him for two summers. He and his working class heirs don’t share Yglesias’s view.
When a farmer dies and leaves his land to his children, he is not bequeathing them a “fortune;” he is bequeathing them land. That land has a theoretical value, but that value is only realized if it is sold. The sale value of my grandparents’ land is high. My grandfather has often remarked while he could sell it and get millions of dollars, what would he do with that money? He prefers the land over the money, and that is clearly a preference that many farmers have.
Ending the estate tax isn’t so much about preserving a “fortune” for farmers as it is about preserving a legacy. Proponents of the estate tax point to evidence showing that no farms have to be sold in order to pay the estate tax. To the extent that this is true, it’s because farmers are planners. They recognize the threat that the estate tax poses to their legacy and go through expensive maneuvers to structure their farms to avoid the estate tax.
My grandfather spent a lot of money on surveys, lawyers, and other things in order to ensure that the family farm will not be broken up after his death. All this money that he and others spend to avoid the estate tax is wasteful, however. It is being spent to avoid a tax instead of on activity that produces value in our economy. In fact, various studies have concluded that the money spent avoiding the estate tax far exceeds the amount of revenue collected by the tax.
If my grandparents hadn’t spent all that money restructuring the family farm, they wouldn’t have paid the estate tax when they died; their heirs would have. These heirs are of the white working class of which Yglesias dismisses, and they would have had to sell the family land to pay their share of the tax. That may seem like no big deal to people who simply view land as something to be sold off whenever you need money. But that’s not how my family views land, and it’s not how a lot of rural families view their land, either.
Growing up in a place with high poverty with a lot of working class people, I never heard anyone complain about farmers having too much land or too much wealth. What I heard over and over again was admiration for someone who worked hard. No one had disdain for wealth, and no one thought it was right for the government to take it from your heirs when you died.
There has been a familiar refrain over the years from liberals who are confused as to why white working class people support conservative politicians. After all, the lament goes, don’t these people know that the politicians are going to enact policies that go against their interests? That paternalistic view is widely held and widely wrong. Urban liberal elites don’t know what’s best for working class voters; these voters are more than capable of determining that for themselves.
It should be no surprise that Maryland tax policy embodies this type of thinking. Our state imposes not only an estate tax but an inheritance tax. Even though legislators raised the estate tax exemption in 2014, they have consistently resisted calls to eliminate it. That makes dying in Maryland a costly proposition. As tax attorney and CPA David Rosen wrote for the Maryland Public Policy Institute’s Maryland Journal in 2011:
The effect of the estate tax law on Maryland residents is significant. According to one commentator, estate-planning attorneys have an ethical duty to discuss with estate planning clients the virtues of moving out of state. Maryland legislators have a choice. They can keep the state death taxes or drive the wealthy residents to Florida, Virginia, or elsewhere. Unfortunately, if the past decade reflects on future actions, the choice they make will be the wrong one.
The estate tax is a good example of how disconnected the liberal elite is from the working class. It is also bad policy. Progressives like Yglesias should spend less time dismissing the white working class as being ignorant of their own interests and more time getting to know these people, how they live, and what they think. Maybe if analysts did this they might actually learn a little something about how policy works in the real world.