Tax breaks for the rich

Death by a thousand cuts by Michael Graetz and Ian Shapiro tells the story of the successful campaign to repeal inheritance (estate) tax in the US. It is a fascinating story, reviewed here by David Runciman.

The mystery is this: how did the repeal of a tax that applies only to the richest 2 per cent of American families become a cause so popular and so powerful that it steamrollered all the opposition placed in its way?

Part of the answer was the rechristening of the tax as the 'death tax', which implies that the tax was on the hard-working deceased, rather than those wanting to inherit wealth. The tax was also depicted as a form of discrimination,

By the time a few opponents of repeal started to make the case on more principled grounds, arguing that the estate tax was a crucial part of the American conception of giving everyone a fair chance in life, it was already too late. Graetz and Shapiro draw a blunt lesson from all this, designed to send a chill through the hearts of progressive politicians everywhere: ‘In politics, when you’re explaining, you’re losing.’

Social Policy Bonds are more about spending tax revenue than raising it, but this book does illustrate how the complexities of social policy can be readily abused by interest groups acting out of pure self-interest. Exactly the same goes on when lobbyists argue in favour of 'protection' for farmers (for example) that end up as subsidies to wealthy landowners and large agribusiness corporates while everybody else, and the environment, suffer. The true beneficiaries and victims are obscured by the formulation of policy in terms of funding of various projects or vague, mutually conflicting pseudo-objectives. A Social Policy Bond regime, in contrast, makes absolutely clear from the outset who shall benefit from particular policies.

Technorati tag: economics