• Wall Street Journal continues subversive estate tax campaign

    I’ve taught in elite academic settings for a while now.  Academic life being what it is, many of my students come from wealthy backgrounds. Children of the affluent can attend great high schools and extra tutoring. They can take unpaid internships. They can spend semesters abroad learning German. They can take an unpaid intern at Greenpeace or Slate rather than spend the summer waiting tables at Chili’s.

    The above paragraph underscores the reality that American meritocracy retains a strong, perhaps inherent class overlay. This is a serious problem, most recently emphasized in Chris Hayes’ new book. In an era of rising inequality, the problem becomes correspondingly more troubling.

    Still, at least these affluent parents are using their wealth to help their children become capable and accomplished, genuinely qualified for competitive jobs and educational opportunities. Despite some troubling structural implications, these human capital investments are  more admirable and productive than just providing your kids with fancier stuff.

    My Friday Wall Street Journal includes the following story, which concerns “High-End Luxury Suites Aimed at the Sulky Set”:

    As families have gotten smaller and houses have gotten larger, the teen room has begun to evolve into a social center in its own right in recent years. Experts say that’s partly because parents today spend more time with their children than ever before….

    The story includes an amazing slideshow of kids’ living areas with indoor basketball courts, Harry-Potter-inspired passageways, and more. On a more tasteful opulent note, some parents are still thinking big:

    Jacquie Kim, a mother of two in San Diego, turned a pool house into a teen lounge for her son Alex’s 16th birthday, partly as a way to keep him home after he got his driver’s license. She hired designer Kristy Kropat, who turned a Mediterranean-style casita into a modern-industrial room with modular furniture, LED accent lights, metallic gray walls with pixelated Space Invader vinyl decals and bright pops of color.

    OK I admit it. I don’t know what a casita is. A web search yields the following:

    1. A small crude dwelling forming part of a shantytown inhabited by Mexican laborers in the southwestern U.S.

    2. A luxurious bungalow serving as private guest accommodations at a resort hotel, especially in the southwestern U.S. or Mexico.

    This being the “Mansion” (a.k.a. real-estate porn) section of the paper, I’m betting definition #2 is operative.  That’s too bad, because Alex might learn more from the first one.

    The Mansion section, like its New York Times’ counterpart “Style,” exists to chronicle the conspicuous consumption of a tiny slice of affluent America.  As a cultural signifier, it’s still depressing. At least I think it’s depressing, since I’m not quite sure what a cultural signifier really is.

    I do know one thing. If you’re building your tween a room-size “closet inspired by ‘The Lion, the Witch and the Wardrobe’,” you might provide her with something a little bit more lasting by giving her a little bit less. I’m not a wealthy person. So I don’t understand what’s really appropriate or wise to provide your child if you live in a multi-million dollar home. A little proportion and restraint does seem in order.

    Sometimes I wonder if George Soros or the Nation magazine doesn’t secretly produce these stories. From a broader perspective, the “Mansion” section provides a weekly Veblen-ian reminder that there’s one group of Americans who truly have so much money that they can’t figure out how to spend it, beyond purchasing bigger and more impressive monuments to their own wealth.  Our tax system might do more to help them address this problem.


    • So many questions, where to begin??

      1. What does this have to do with health care economics?
      2. By what rationale is it any of your business how other people spend their money.
      3. Perhaps covered under the answer to “2”, if you do not approve of how a family spends its money, what gives you the right to confiscate the funds and use them for your own purposes?
      4. If you have a right to take from people money that you suspect they will spend in ways you consider wasteful, does that right extend to me as well? If I think your, for example, going to the movies is a waste of money, do I get to claim your money as my own? Or to redistribute it to some third party?
      5. If you and I both have that right, does that extend to everyone? We could get into a very complicated situation where Person A seizes the money of person B, Person B seizes money from Person C, and Person C seizes from A. I am not sure what this would accomplish other than violence.
      6. I the right extends only to you and people who share your priorities, how would you enforce that? Who decides whether their spending is close enough to your principles to give them the right to continue?
      7. I know I asked before, but what does this have to do with health economics?

      • 1/7 – simple, a common argument against expansion of public health services and/or health-care coverage has been lack of public funds. Plans to increase public funds by increasing tax revenues (especially taxes on the rich) have been largely rebuked by conservative politicians. This article highlights the manner in which the potential tax-payers are currently spending their money, and makes the case that higher taxation of this class may be a reasonable option.
        2: Through the reasoning hinted at above, that I am a voting member of the public and my vote helps determine how our government taxes.
        3-6: So much fallacious reasoning… but put simply. “I” do not have the right to take your stuff, the federal government explicitly has the right to tax you. There are numerous things that private citizens cannot “do” that the government can (try/imprison you, regulate your actions or business actions, tax you, declare things “imminent domain,” draft you, etc.) This is all part of the contract we have made with our elected government.

        Let me say that I do not like appeals for policy that affect a group of people to be based on anecdotal singular accounts (narrative, pseudo-emotional appeals vs. rational/statistics based appeals). And that such arguments rarely add much to my knowledge or thinking about an issue. (A numbers-based discussion of what taxing wealthy Americans would “do” (revenue, increase in tax rates, number of individuals taxed, etc.) is much more interesting to me then the argument that because Alex Kim has a “casita” I should encourage the government to tax his family more….)
        However, there is nothing that bugs me like someone making the assertion that government taxing is equivalent to private citizens confiscating the belongings of other private citizens. One is a well-established and legally verified ability, one is illegal… Conflating the two demonstrates willful ignorance (or ignoring, more likely) of simple principles of governmental theory.

        • If we taxed the rich more, the government could spend more money on something, or borrow less, but why assume it would be healthcare, or anything else you would like? Why assume that spending more on healthcare would be desirable? We would be better off spending less.

          A government is a collection of private individuals.

          The thrust of the post remains that an individual’s level of taxation should by determined by whether someone else finds that person’s spending to be wasteful.

          Insert gratuitous insult here in place of reasoned argument.

    • If we taxed the .0005% and their estates at a higher rate, we could have nice things like universal healthcare.

    • “Casita” is the diminutive of “casa”. Google translates casita as cottage. Perhaps casita is being used by the financially endowed with hispanic heritage the way the word cottage was used by the Vanderbilts to describe their residence in Newport RI.

    • Pollack is being subversive: by revealing the ridiculous ways the very rich spend their money, the WSJ is unwittingly supporting a rationale for the estate tax. It’s like the Robin Williams’ joke that cocaine is God’s way of telling Williams that Williams makes too much money.

    • I get the idea that if someone spends money in a way I find to be wasteful, then I have the right to take that money from them. I may not agree with this, but at least I understand it.

      I note that this implies if I find, say, federal spending to be wasteful, then this is an argument not for reforming spending, but taking money from the federal government by reducing taxes. I believe that much military spending is wasted (we have been paying many millions of dollars to have jets fly over air shows for entertainment, for military bands… ), as is spending for Air Force One (nearly all of this travel could be replaced with telephone and video conferencing, at vastly lower cost), fancy state dinners, tours of the Capitol… The list of “why are we paying for this???” would go on for thousands of pages.

      I believe the federal government wastes money, so let’s take money from it by lowering taxes.

      The part I do not get is the second step of the argument. “This rich person wastes her money, so let’s take it from her and GIVE IT TO THE FEDERAL GOVERNMENT” Where does this second part come in?

      I could see “This rich person wastes her money, so let’s take it from her and build a fancy pool house (and pool) in my back yard, instead of her’s”. Or more simply “take it from her and add it to my bank account”. But why do we assume that if she loses her right to the money by “wasting” it, then the federal government acquires the right to it?

      • Basic economics tells us that every dollar spent is not spent equivalently.

        Morality aside, you should know this. Part of government’s job is to tax and spend in a way that both grows the macroeconomic environment or re-allocates money towards more productive means. We can argue all day as to whether or not government (today’s version) is even capable of doing that.

        However, I think we can agree that all other things being equal, the money spent towards building a teenage lounge is far less meaningful than assisting poor people with healthcare. Anyone that reads this blog should be able to draw that conclusion….

    • I’ve been struck by how, as you climb higher on the income ladder, there’s always a new level to aspire to. If you have the right sort of house, suddenly people are marketing yachts to you. If you have a yacht, my bet is that it’s the private jet.

      It fuels a global expectation of what people of status should have. In Russia, it’s wristwatches, as they are easy to price. Even the Patriarch of the Russian Orthodox church was caught with an obscenely expensive one. But everywhere, no matter how poor the country, the elite is well-dressed .Mrs. Mugabe has a charge account at Harrod’s. Madame Duvalier chartered planes to Dior in Paris when she was first lady of the Western Hemisphere’s poorest country.

      In order to support this lifestyle, huge amounts have to be extracted from the lower rungs. This about the fee Romney extracted from businesses so that he could amass his incredible wealth.

    • The interesting thing to me is they are more tutored but they should be far less motivated.

    • LT, and others

      Raising the federal estate tax rate would contribute to expanding coverage if this “universal health care” were federally funded. So let’s go with that assumption.

      Revenues from estate taxes are not earmarked for health care. They go into general federal revenues. They then are applied to all federal spending. Not all federal spending goes for health care.

      It is not obvious, in fact it is unlikely, that an increase in estate taxes would lead to a dollar for dollar increase in federal spending, let alone any increase at all in spending for a federally funded universal health care system. Increases in estate tax revenue could as likely be used to reduce borrowing, or even to lower other tax rates.

      An increase in estate taxes of the levels I have heard proposed would not come close to the cost of providing health insurance to all the people currently uninsured. One could try to raise the rates to collect as much money as possible. Ignoring the political impossibility of doing this, there will come a point where tax avoidance will prevent raising further revenue by raising rates.

      The House has refused to appropriate funds to implement the ACA- which is current law. Given that the Democrats did not propose federally funded universal coverage when they controlled both houses, I place the prospect for the current House passing such a program to be exactly zero.

      Note that federal revenues are up, but the sequester cuts remain in effect. Raising revenues from estate taxes hardly implies that Congress will fund anything more for health care, let alone universal coverage.

      The above implies that, even if raising the estate tax rate increased federal revenues by enough to pay for federally funded universal coverage, even if all of this increase were directed to the program and none used for other programs, lower borrowing, or tax reductions, it would not lead to universal health care.

      Of course, a tax system based on disapproval of other people’s spending has the risk that they would save, rather than spend their money. If they do, then the rationale for higher tax rates goes away, as would the revenue.

      So, again, what does some rich people spending a lot of their money on things I think are wasteful have to do with health care economics?

      • I think Austin/Aaron put it most concisely in a different (unrelated) post:

        “It only suggests one should weigh its likely inertia and imperfections against the moral implications of doing nothing.”

        Whether or not new estate taxes pay for healthcare is not the point. I view taxes are the re-allocation of resources towards more productive ends. You seem ready throw up your hands and declare out Congress ineffective and in never ending partisan deadlock. That’s your right to do so, but I find that to be a particularly weak intellectual point to rely on.

        You view it as an individual right, I view it as an ineffective and unsustainable society. The whole “I got mine and now you get yours” ethic is attractive, but don’t think that’s the only way of viewing the world from a logical and moral perspective.

        Also, this is their blog – it’s their right to talk about what they wish. If anyone here would respect that, I’d think it would be a libertarian like yourself. Unless of course, you are trying to be subversive.

    • “Whether or not new estate taxes pay for healthcare is not the point.”

      That is my point. estate tax rates have nothing to do with paying for health care.

      The problem is not just partisan gridlock. In fact, that may be better than a unified Congress. The latter brought us the Iraq and Afghanistan wars.

      My points are:

      1. However wastefully some people spend their money, they are unlikely even to compare to the wastefulness of the federal government.

      2. There is no prospect of federally funded universal health coverage, now or anytime in the foreseeable future. To pretend that some level of tax increase would lead to such a program is absurd.

      3. It is not at all clear to me that preventing someone from building an over the top entertainment center and giving that money to the government would result in “re-allocation of resources towards more productive ends” The carpenters, electricians and plumbers who work on that pool house, I suspect, are more productive than the pilots who fly around burning up jet fuel, and contaminating the atmosphere, for fun.

      • Healthcare is one of the single largest outlays of the federal government. Taxes are the primary revenue source for the federal government. Anything that effects either side of that equation is meaningful to healthcare, whether or not you draw statutory distinctions in budget allocation.

        If the federal government is so wasteful, perhaps you can explain to me why Medicare has such lower administrative costs than private insurers – a point covered many times on this blog.

        There’s no prospect, ever? Really? Do you have any idea how ridiculous that sounds? I don’t think anyone is saying an estate tax would instantly create a universal healthcare system. This is a complete straw man that I’m not interested in addressing.

        Your last argument is another straw man! There are many examples of profligate spending in the US. They are all part of the problem. To address one need not imply that you must address all instances at the same time. Please stop conflating issues, they are not helping you make your point.

        • Brian,

          Please excuse DBH from the normal strictures of democratic debate. He/she is merely engaging in that time-honored libertarian tradition of finding an intellectual excuse for selfish behavior. The members of the editorial board of the WSJ, much of the “intellectual” apparatus of the Republican and “centrist” Democratic parties, and a fair number of otherwise well-meaning citizens have made such moral gymnastics a national pasttime. As the ship continues to sink and the available stakes get smaller, such exercises will become every more shrill, fierce, and eventually violent.

          In other words: Left v Right is how the Top divides the Bottom;-)

          SB in StL