Taxing Inherited Wealth: Nozick and the Estate Tax

Many individuals, particularly the founding fathers believed the estate tax was necessary to prevent the landed aristocracy of a feudal society from developing. For Nozick, however, this appears to present a problem, as any tax appears to violate his Entitlement Theory of Justice. I will argue the estate tax is acceptable within Nozick’s framework of Entitlement Theory. I believe it fits, because giving property to your children after death, under certain conditions, violates Locke’s second proviso of leaving “enough and as good” for future generations. As Thomas Jefferson noted “A power to dispose of estates forever is manifestly absurd. The earth and the fulness of it belongs to every generation, and the preceding one can have no right to bind it up from posterity. Such extension of property is quite unnatural.”

Robert Nozick

The estate tax seems to violate Nozick’s entitlement theory. After all, if the property was rightfully got, and justly given in the transfer of holdings, then the property should be yours. Nozick’s “justice in transfer” require that the transfer be voluntary, and that the transfer is of something you can possess. For our discussion of the estate tax, the key statement in the previous sentence is “something you can possess.” You cannot possess something if you no longer exist. Individuals should not have the right to transfer their estates after they die (once you are dead you have no use for worldly possessions). Once you cease to be living, you have no claim on any property rights. I am not however, a proponent of the estate tax in the classical sense, but I believe it can be modified to fit Nozick’s “justice in transfer.”

I will provide here a thought experiment. Suppose you are a mother of three children. Your children are in college and you were lucky enough to save money for them to go. You give them money every semester to pay their tuition. One day you are walking down the street, and a car hits and kills you. Should your children not have access to your college fund? I would argue that they should, and I believe this is a commonly held intuition.

How then, do we reconcile the need to honor the wishes of the dead, with the very real threat of the concentration of wealth into the hands of dynastic families. My solution is to propose, as Nozick does in one of his later books, that any individual can give their property to their children, but this cannot be continued ad infinitum. For example, I could give all of my wealth to my child, but she could not give that wealth to her children. This allows us to respect individuals transfer in holdings, while at the same time taking into account Locke’s second proviso.

John Locke, from whom Nozick gets his theory of property

In effect, we would be leaving “enough and as good.” When we die, we do not exist any more. It seems clear that we should honor an individual’s wishes in transfer (ie give their wealth to their children), but this seems to falter after the first generation of transfer. This solution, therefore, addresses the two primary problems associated with the estate tax, and caters to both those worried about protecting individuals property rights, and preventing capital from concentrating at the upper levels of society.

There are a couple of objections I will now address. A luck egalitarian may argue that we should not be able to pass on any wealth to our children, as it gives them a unique advantage. There are, however, all kinds of advantages we receive in life. Some individuals receive money, others receive intelligence, and others receive exemplary self control. On the same token, many others do not benefit from genetic gifts, money, or social position. Money is just like this. I believe individuals want many of the same things, we want to balance liberty, and equality. I believe my proposition seems to address both concerns.

Another objection is that the estate tax is wrong on Utilitarian grounds. Perhaps inheritance lowers the utillity of a population because it exacerbates inequality. In response, for someone like Mill, there is an argument to be made that individuals who start off in a better position (ie have quite a bit of money from their parents) have access to capital, could use that capital to create more value for everyone else. Perhaps these individuals would use it more effectively than a government would. This is an empirical claim, but I have the feeling that inheritance is generally used more as insurance, then used to grow businesses and create more value.

Nozick’s Seminal Work of Political Philosophy

Evidence around this seems to focus on social norms. Herbert Hoover supported the estate tax because he was worried about the “idle rich.” If individuals inherit large amounts of wealth, and simply sit on it, this violates Locke’s second proviso. The founding fathers worried about this because of the culture of leisure in England. Self made men were looked down upon, along with hard work by the aristocracy. If social norms exist (which they seem to) in modern America, that inheritance is looked down upon, and a life of leisure is shunned, then perhaps an estate tax is less of a good idea.

Throughout this paper I have presented a theory that reconciles Nozick’s entitlement theory of justice, with the estate tax. I have presented a way that we can respect individuals justice in transfer, while at the same time preventing power from concentrating into the hands of the very few.