Our friends at NAM (National Association of Manufacturers) are waging a war of words with the liberal press, most often the Washington Post, concerning the Estate Tax. NAM is eloquently defending a succesful business owners’ right to pass the fruits of his or her life’s work on to the next generation without the government taking such a huge bite that the factory has to be sold, at least in part, to pay the tax bill. The liberals, predictably, view the matter as another class warfare issue and see repeal of the Estate Tax as another way for the rich to avoid paying taxes to the detriment of the poor. Both sides may be missing the essential point.
For many years I have traveled and worked in Mexico in the Maquiladora industry and have been struck by the generally dismal management of Mexican owned manufacturers. Of course some are excellent, but far too many are mired in mediocrity. I came to appreciate the wisdom of two moves that our Founders made that did much to create the ‘American Dream’. They virtually gave away all of the land in the U.S., and they created the Estate Tax. Mexico has done neither. By giving away the land to millions of Americans, the government put vast amounts of capital in many hands. They spread the wealth, which makes access to capital much easier for everyone. In Mexico, land reform has consistently failed and wealth remains in the hands of the government and the top tier of society. A young person with energy and an idea in Mexico has almost no chance of financing his dream.
The Estate Tax in the U.S. is not a money raising proposition so much as it is the great opportunity leveler. It assures that the deck gets substantially reshuffled so that every generation has a more equal chance to succeed, regardless of a person’s parents’ success or lack of it. In Mexico, with virtually no Estate Tax, that top 20 or so that controls all of the wealth passes it down intact from generation to generation. Too many Mexican businesses are owned and run by second, third, fourth or more generation folks who do not have the mental acumen or work ethic to run a taco stand, let alone a manufacturing entity. At the same time, energetic Mexican entrepreneurs either work in the factory, or hop the fence into the U.S. for the chance to fulfill their dream. My bet is that most Superfactory readers, had they been born into Mexico’s unprivileged mass, would have been over the fence and applying their energy in the U.S. long ago.
With the Estate Tax in the U.S., if Junior wants to be as rich as his father, he is going to have to earn it. Without the Estate Tax, Junior gets a grossly unfair leg up on the rest of us. As a father of four I want to pass on the ability for my children to live the good life as much as anyone, so I certainly understand the NAM point of view. I wish I could give my kids an advantage over your kids and the rest of the world. Thanks to the Estate Tax, however, the best thing I can do for my kids is to be sure that they get the best education possible and instill in them a strong work ethic. In the end, the value of the Estate Tax is that it forces us to be good parents and not simply good business people. Mexico, and many other countries, would be far better off by enacting a stiff Estate Tax themselves.
I cannot remember the last time I agreed with the Washington Post on anything and disagreed with NAM. On this one, however, for reasons the liberals will never fathom, I agree with them and hope the Estate Tax stays.