Death and taxes, combined
By Jonah Chan
web posted November 7, 2022
The topic of death and what comes after has fascinated humans from the beginning of time. Countless people have offered theories on the afterlife. However, in his article “Death and Taxes,” Nobel laureate Edward Prescott deals with the practical side of things: what happens to your physical belongings after you die? He argues that estate taxes should be abolished to make better use of resources and encourage labor to increase.
First, he states that estate taxes waste the time of both the “public employees [. . .] [who] construct estate tax codes” and the “expensive lawyers and clever accountants [who try] to get around the [taxes].” Essentially, the issue is the opportunity cost of these people either working to establish and enforce the laws or to evade them. As they spend more and more time on these taxes, they are giving up increasing amounts of other things they could have done with the same amount of resources. He is arguing, and I would concur, that the society would benefit more as a whole if the people working for and against those taxes did something more productive. As a personal example, my parents have spent over $6000 and counting just on their straightforward estate planning, which already does not involve complicated schemes with lawyers and accountants to circumvent the government. All that money could have gone towards a vacation, perhaps, or better technology for our family instead. Imagine those who actually spend the time and resources to save as much of their property as possible! That would be a huge waste.
Prescott goes on to say that “all those opportunity costs [ . . .] would be worth absorbing if we were really getting a good return on our estate taxes,” and explains two major arguments for the estate tax, one of which is the notion that “somehow [. . .] life’s unfairness [can be balanced] by limiting the amount of capital assets that ‘the rich’ can leave their kids.” This is less of an economic point and more of an ethics question, so I will only briefly answer it. The bottom line is that who determines what is fair? It might seem unfair for some people to inherit huge fortunes and never have to work, but would it not be just as unfair for someone who labored his entire life to build that fortune prohibited from doing what he or she wants with it?
The other major argument in favor of estate taxes is that it provides “increased revenue [for] the government [. . .] to go about the people’s business.” Prescott candidly responds to this by saying “we can only grip the neck of our vibrant economic goose so tightly before it eventually dies and quits laying those golden eggs.” This relates to the economic principle of incentives and labor versus leisure. As more taxes are added, people have less incentives to work. If I knew that after I died, a large portion of my property would be going to the government, suddenly, I might not want to work as hard anymore. After all, my children would not benefit from anything extra that I earn. With less incentives, people would choose more leisure over labor, and the entire amount of labor would decrease, harming the economy. Thus, Prescott argues that estate taxes would actually not help the society and economy as a whole; on the other hand, it would contribute to its slow death instead.
I agree with Prescott that estate taxes are harmful to our economy and should be repealed. It would allow for government employees, accountants, and lawyers to better serve the community. Finally, it would increase incentives for people to work, increasing labor and boosting the economy. 
This is Jonah Chan’s first contribution to Enter Stage Right. (c) 2022 Jonah Chan
