The bad news about new ideas, technologies and businesses that come out of grad school and startups is that they can overturn existing industries. Your hotels could be undermined by Airbnb. Your oil well can be undermined by affordable solar panels.
There are two groups who are threatened by the gales of creative destruction. One group is the elites who own existing hotel chains, oil wells and other assets whose value can be eroded by the new. The other group are the folks who work for these elites and share their concern that innovation could disrupt their livelihood, people who may lose their coal mining jobs.
So startups and grad students are being taxed more but the Republican plan is advertised as a tax cut. So, who pays less? The folks who will get the most dramatic tax cut are the folks who inherit. Current law is already ridiculously generous to folks who inherit: if the value of the estate you inherit is $5.45 million, you don't have to pay a dime in inheritance tax. This new plan will double that.
Republicans are rewarding people who resist change by simply inheriting and punishing people who are encouraging change. This is not particularly surprising for social conservatives, people who see as a threat most change from the world they learned.
I recently put out a survey to ask this question:
Put aside for a moment whether you think that the highest marginal tax rate should be 5% or 95%. This question is about something else. Which of the following do you think should be taxed at the highest marginal rate?
- Income tax: I think money you make from your job, your labor, should be taxed at the highest rate
- Capital gains tax: I think that money you make from your investments should be taxed at the highest rate
- Inheritance tax: I think the money you get from inheritance should be taxed at the highest rate
- Consumption tax: I think the money you spend (on groceries, transportation, housing, clothes, entertainment and other consumption goods) should be taxed at the highest rate
The responses were as follows:
Taxing inheritance the highest isn't just about fairness. If we want a society where everyone has an incentive to work, we would want a society where work is taxed less than inheritance and one person isn't free of tax on the first $10 million they inherit while another person has to pay income tax as soon as she makes more than $10,000. That is partly about fairness but it is also just common sense: we want everyone to help with the work.
The older I get the more confident I am about what makes for good policy and the less confident I am about what makes for good politics. On the face of it, a Republican tax plan that hikes up the deficit by an additional $2 trillion, gives tax breaks to rich grandkids, and discourages entrepreneurship and education would seem like taping a sign to your back that says, "Vote for the other guy." Who knows, though. It might just be that the American people will fall in love with a plan that helps to discourage the progress that so many find disruptive.