Just a few days ago, the Chairman of the President’s Council of Economic Advisers, Gregory Mankiw, got politicians all upset because he spoke the truth about “outsourcing” (a.k.a. shopping for the best deal). I’m sure he will be pilloried for this too; now he has told the truth about estate taxes. Populists like to hunt for votes among people who think that it’s good for them if rich people have to pay more in taxes. Opposing the elimination of the estate tax as a “giveaway to the rich” is one of their favorite soundbites. What Mankiw shows here is that the estate tax is counterproductive for everyone. By reducing capital formation and investment, the tax retards economic growth that is most beneficial to poorer people.
What the politicians think people believe is that a dollar in the pocket of, say, Bill Gates, goes to waste whereas if that dollar were put in the federal budget, it would help to do wonderful things. That’s the exact opposite of the truth.
Lots of Washington bigwigs are now calling for Mankiw to be fired over the outsourcing comments. That calls to mind a Civil War story. After the Battle of Shiloh, quite a few people told Lincoln that he ought to fire Grant because he was known to take a drink now and then. Lincoln replied, “I can’t spare this man — he fights.” Bush ought similarly to reply, “I can’t spare this man — he tells the truth.”
