A Weak Safety Net: Reasons and a Modest Proposal

I’ve been thinking quite a bit about the arguments for a weak safety net based on the logic that everyone who can work for pay, should. One argument would express this as concern for the national GDP and the federal budget. Work inside the home doesn’t increase GDP, work outside of the home does. Workers pay income tax on their external earnings (but not on the value of the home garden they plant, or the childcare they provide for their own children), and that helps sustain the government and its infrastructure. I haven’t usually heard this expressed, probably because those who oppose a strong safety net also tend to cast themselves as “anti-big government” and “pro-individual,” so they can’t articulate a motivation based on overall societal benefit.

A more commonly articulated motivation expresses the paternalistic concern for the worker, that they should experience “the dignity of work” through gainful employment. Certainly, professional work can be a source of pride and dignity, but this seems backwards. If a job well-done for an external hirer provides a source of pride and dignity that is not available by working in one’s own home, we would expect people to be motivated to seek it out on their own, without a sub-survival level of welfare forcing them into it. Additionally, the “dignity” available should not depend on the wealth (or lack thereof) of the worker. If we’re really concerned about poor people being lulled into a life of idleness because of the meager level of societal support they receive without a formal income, then we should be equally concerned about the loss of dignity (and economic productivity) of wealthy heirs and trust fund kids who never experience the “dignity of work.” By extension, in order to preserve the dignity of those scions of the wealthy, I propose that we link the inheritance tax to the level of welfare we provide to those without incomes. If benefits for the unemployed have a value of $15k/year, and that is deemed the level at which they retain an incentive to work productively, then the children of the wealthy should only be able to inherit a limited multiple of that value (say, 100 – their age at the time of inheritance). Under that system, when a billionaire dies leaving behind a 20-year-old child, the child would inherit $1.2 million, and they would still have the incentive to experience the dignity of work.

This might change the incentives of exceptionally wealthy people a bit. First, they may try to spend more of their money in their lifetimes. I would posit that this is a good thing; rather than concentrating exponentially-growing valuable assets in the hands of a few, their increased consumption would add to the economy and global incomes. Additionally, since this would not change the taxation of income (or gifts) during the individual’s lifetime, if s/he is solely motivated by passing on wealth (and opportunities) would have an incentive to live as long as possible, spending those resources on family experiences or other activities that would still improve their children’s well-being. Again, this seems to be a positive outcome to me. Finally, if they wish to increase the amount they can leave to their descendants, they could always lobby for greater benefits to the poor. Exceptions could be made for family farms/businesses up to a multiple of the inheritable value, though I might also question why, in a nation that was founded in opposition to hereditary monarchy, we should have an interest in creating inheritable sinecures for the children of the wealthy. If the children have been brought up in the business and have unique insight into it, surely they should be able to find financial backers of their own to keep it operational. The markets are, after all, efficient and the best assessors of value.

Lastly, some people might express the concern that a brilliant entrepreneur who might create a marvelous business would find him/herself unmotivated to start it if she is unable to pass along their wealth generationally. I find this unconvincing; the entrepreneur would still be able to earn (and spend) as much as she wants on herself and her family during her lifetime, so she would have to devalue her children’s current opportunities (in education, travel, toys, whatever) and overvalue those after her death in order to find this demotivating. Beyond the preservation of the dignity of work for the children of wealthy people and the improvement in tax revenues, limiting people’s competitive instincts in wealth accumulation might actually be a positive thing. If each generation has to (more or less) “start fresh,” we could see more investment of talented people’s time and energy in educating their children and equipping them to succeed. If I were worth $100 million, I’d imagine it’s much easier for me to make another $1 million (only 1% increase) than to teach my child to make $1 million from her own abilities (and her estimated $1.2 million inheritance), so right now my incentives skew in that direction. If I have all I need/want for my lifetime and I can’t pass it on directly, than I have an incentive to share my knowledge and skills with the next generation. The latter is almost certainly preferable for society (and maybe even for family relationships as well).

One might argue that the wealthy will try and find ways to hide and shelter their assets under such a system. That’s undoubtedly true, but they already have an incentive to do so. The fact that some people will game a system ought not to be an argument for never making changes.

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