In Capitalism and Freedom, Milton Friedman asks what types of inequality are ethically justifiable. In particular (pp. 164–66):

“Inequality resulting from differences in personal capacities, or from differences in wealth accumulated by the individual in question, are considered appropriate, or at least not so clearly inappropriate as differences resulting from inherited wealth.

“This distinction is untenable. Is there any greater ethical justification for the high returns to the individual who inherits from his parents a peculiar voice for which there is a great demand than for the high returns to the individual who inherits property? …

“Most differences of status or position or wealth can be regarded as the product of chance at a far enough remove. The man who is hard working and thrifty is to be regarded as ‘deserving’; yet these qualities owe much to the genes he was fortunate (or fortunate?) enough to inherit.”

I think Friedman is correct here. This is basically the same point that I made in my earlier post: the money that you make because you are smart and hard working is the product of good fortune just as much as the money that you inherit directly from your parents.

Of course, we draw opposite policy conclusions from the same moral observation. For Friedman, the inequality of outcomes that results from chance is necessary to ensure equality of treatment. He uses the example of a lottery to make his point: “Redistribution of the income after the event is equivalent to denying [individuals] the opportunity to enter the lottery” (p. 162). According to this principle, a tax on inheritances is just as pernicious as a tax on earnings: both infringe on a person’s right to the fruits of her production, even though both inheritances and earnings are ultimately the result of chance.

For me, a tax on earnings is just as valid as a tax on inheritances. You didn’t do anything to deserve, in a moral sense, the $10 million you get from your parents, nor did you do anything to deserve the genes that got you into Harvard and landed you a job at Goldman Sachs. Friedman makes a similar point (p. 164): Parents can give their children an advantage by giving them cash or by buying them an elite education that enables them to earn lots of cash. So from my perspective, if you think that a high tax rate on inheritances is justified (as many people do), then a high tax rate on earnings is equally justified.

Friedman recognized that what he called the “capitalist ethic” — everyone gets the value of what she produces — could not be proven to be morally superior to any alternative. Instead, his main argument is that it is required for allocative efficiency (p. 166). That’s a plausible position to take. I just wish more people in the anti-tax camp would realize, along with Friedman, that there is no fundamental, God-given right to your gross earnings that is somehow infringed upon when the government levies an income tax. Calling yourself a “maker” doesn’t make you morally superior or give you the right to keep all your money.