Wealth of Nations August 2006

Two Wrongs Don't Make a Right

Twinning a radical cut in the estate tax with an increase in the minimum wage isn't just a cynical political ploy. It's bad policy--on both counts.
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Sometimes you have to wonder whether the effort legislators devote to plotting tactical advantage over their opponents has entirely crowded out considering the issues on their merits. Every democratic system involves some kind of balance between the two, of course: There is no point in being too purist about this. But a measure that passed the House last weekend, and which preoccupied the Senate for much of this week, did not weigh principle against expediency so much as recast the entire system as a parody of political degeneracy.

This so-called "trifecta" legislation proposes in one measure to raise the minimum wage, radically cut the estate tax, and extend a variety of expiring tax breaks. At most, only a handful of people in Congress would advocate both of the first two proposals—and therefore, on the face of it, the measure should have gotten nowhere. Most Republicans think it is a bad idea to raise the minimum wage. They argue that it will add to unemployment and slow the economy. The great majority of Democrats think it is a bad idea to virtually repeal the estate tax. They say that with inequality rising, and the long-term budget deficit a serious problem, a huge tax cut for the super-rich is wrong.

Why then did the House pass the bill? The Republican leadership calculated that some Democrats want the minimum-wage increase more than they hate the estate-tax cut, and would therefore back the measure. This tactic worked in the House. Thirty-four Democrats voted for the bill. If it works in the Senate, the Republicans would get what they want most: the estate-tax cut. (What about the rise in unemployment that Republicans normally say would result from a higher minimum wage? To hell with it.) And if the tactic fails, all is not lost, because Republicans will be able to say that they wanted to raise the minimum wage and Democrats would not let them.

If this is good politics, good politics stinks. Senate Minority Leader Harry Reid, D-Nev., called the bill "a cynical, cheap political trick" and promised to defeat it. As this column closed, the measure's fate was unclear. But here's hoping that Reid succeeds and it does fail—and that, in due course, the Republicans' intended spinning of the vote arouses the contempt it deserves.

The bill deserves to fail not only because it is wrong to bundle policies in a way that precludes, by design, proper debate. The case against it is stronger than that—stronger than Reid believes. He opposes the estate-tax change, and he is right to. But the Democrats are keen on a minimum-wage increase. They are wrong about that. Raising the minimum wage is a bad plan. Actually, as bad ideas go, it is up there with repealing the estate tax. So this politically ingenious trifecta, this tactically shrewd amalgam of dissonant proposals, is not merely an offense against the spirit of deliberative democracy, it also turns out to be a sackload of terrible ideas.

I don't oppose cutting the estate tax for the reasons most critics of that idea emphasize. Many Democrats and liberal commentators talk as though high taxes, other things equal, are a good thing. High taxes, they appear to think, are an expression of social justice in their own right: They are stopping the rich getting away with it. High taxes are redemptive, a meritorious repudiation of the "free-market system" (as though the United States has such a thing), a vote of confidence in government, and an expression of the country's commitment to fairness. You rarely get a sense from this side that taxes are a regrettable necessity. I'm guessing that most Democrats, given the choice between (a) repealing the estate tax and (b) leaving it in place and burying the proceeds at sea, would choose (b).

Low taxes, other things equal, are good. Economic liberty is good. The country has no prior claim on the income and wealth that individual effort and private enterprise generate. It is a good thing in itself that individuals keep the fruits of their labor and their saving, and are free to give or bequeath their wealth as they see fit. This applies to rich people as much as to anybody else: Being rich does not repeal your human rights. Arguments about the growth-promoting effects of economic liberty, important as they are, come later. The first reason for low taxes is that it is a good thing for people to retain as much of their income as possible; the second argument is that the more they retain, the faster the economy will grow. Societies that lose sight of these ideas are heading for trouble.

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