Herbert Hoover put it right on the line: “The American people have from the earliest moments been alive to the evils of inherited economic power. Several million dollars is economic power and too often it falls into the hands of persons of little intention to use that power for public benefit either in expansion of enterprise and employment or for public services. It is the breeding ground of playboys and playgirls of morally obnoxious and degenerating character.”

For once, President Hoover was in touch with the majority of the American people. Most Americans dislike playboys and snobs, and estate taxes are a good way to give them their comeuppance. Estate taxes make good political sense.

But estate taxes make no economic sense. As Hans Sennholz clearly shows, estate taxes produce very little revenue (less than 1 per cent of projected 1983 federal receipts), consume scarce capital, distort the structure of production, lead to costly avoidance schemes, and promote more conspicuous consumption than perhaps any other tax.

Of course, estate taxes do not level factories like a B-29. But when the tax comes due, stocks, bonds, farms, and family businesses must be sold to pay the bill. This consumes productive capital which is needed in other sectors of the economy. The old factory remains standing; the new factory is never built.

Confiscatory taxation leads to avoidance and evasion. The simplest way to avoid estate taxes is to avoid leaving an estate. Sell the business, retire early, and spend it all while you can. Thus, even in the grips of recession, luxury items sell at a brisk pace, while essential industries languish for lack of investment capital.

Jewelry, furs, precious metals, gems, works of art, and bearer bonds are easily transferred, difficult to trace, and thus particularly amenable to tax evasion. When all else fails, there is always the Swiss bank account or Liechtenstein family foundation.