This is part three of a four-part series on private property rights.
“If history could teach us anything, it is that private property is inextricably linked with civilization,” said Ludwig von Mises.
In addition to obtaining property through first possession or exchange, people can also receive property as a gift or inheritance. In this case, ownership and property rights transfer to the recipient.
This type of voluntary exchange is distinct because the person who receives the property does nothing to obtain the associated rights. According to John Locke’s theory of labor, first possession property rights are acquired through an application of labor. Similarly, the system of exchange awards property rights through trade – exchanging property obtained by my labor for property obtained by someone else’s.
A gift does not require labor or trade, yet the recipient maintains ownership and the associated rights.
Or do they?
Private property depends on social recognition, and some people are hesitant to recognize property ownership through gifts and/or inheritances. This issue comes up most frequently in regards to taxation.
Inheritance and gift taxes enjoy wide support in some political circles. These taxes are levied against gifts or inheritances that exceed a certain amount. While some might think it’s understandable for the government to tax people for receiving property they did not work for, most people would reject the notion of taxing children’s Christmas or birthday gifts.
"I’d like somebody to get rid of the death tax. That’s what I want. I don’t want to get taxed just because I died. I just don’t think it’s right. If I give something to my kid, I already paid the tax. Why should I have to pay it again because I died?"– Whoopi Goldberg, actress/comedian/author
As stated in the quote above, death taxes occur in addition to many other taxes on private property. Owners pay taxes when they first acquire property (sales tax) and throughout that property’s existence (land tax). Property is also taxed when it is used and maintained, including productive capital and some unproductive capital (private vehicle registration fees come to mind).
Although society has an interest in preventing some transactions (i.e., banning gun sales to violent criminals), seizing private property for the purposes of redistribution is built on the poorly supported assumption that the state can put the money to better use.
The death tax accounts for less than half a percent of all federal tax collections, making it a negligible factor in financing the public sector.
Additionally, proponents of the death tax often argue that death taxes are needed to prevent a handful of wealthy elites from hoarding wealth, but the death tax has had a negligible effect on inequality.
Alan Blinder, professor at Princeton University and former vice chair of the Federal Reserve, modeled the effects of inherited wealth and found that estate taxes do not reduce wealth inequality.
Furthermore, the Williams Group, a wealth consultation service, found that 70 percent of wealthy families lose their wealth by the second generation, and 90 percent by the third.
"The property of the people belongs to the people. To take it from them by taxation cannot be justified except by urgent public necessity. Unless this principle be recognized, our country is no longer secure, our people no longer free.” – Calvin Coolidge, former president of the United States
All citizens pay taxes through the process of acquiring and maintaining property, but taxes on gifts and inheritance are generally only applied to a small group of wealthy people.
This points to the true reason these taxes exist.
Estate taxes are a fee the government charges individuals for building and leaving a personal legacy; the gift tax is nothing short of social envy.
It should not be the place of the government to punish people for engaging in voluntary transactions. Our system of property rights depends on society recognizing and respecting all lawful, peaceful transfers of property.
It also depends on swift recourse when these parameters are violated, which will be explained in our next blog on property rights.