We should all know by now not to take economic advice from a former advisor to the George W. Bush Administration, especially one who brags about that status, as N. Gregory Mankiw does in this New York Times Op-Ed piece. Nevertheless, the Times, being the fair-minded paper that it is (in spite of what some people might tell you) has opted to give Mr. Mankiw yet another shot at riding a favorite W. economic hobby-horse: elimination of the estate tax, on the grounds that the tax unfairly discriminates against those who save versus those who consume--i.e., that it treats people who are otherwise "similarly situated" unfairly, because we tax income without taxing consumption.
Full disclosure: I'm not an economist. But some economic arguments require little more than a degree in common sense. Otherwise, there would be a positive correlation between economic degrees and wealth (and, if you believe there is one, not only do I have a bridge to sell you, but some underemployed PhD's for hire as well). And, quite frankly, this argument is one of them.
The Frugals (as Mankiw calls those who save) aren't just letting their money sit around. For the most part, they are not only frugal, but smart. They're parking their money into a variety of investment vehicles that generate returns--some of those fairly significant. The chances that they will, under most circumstances, end up with far more money than the consumption-oriented Profligates (again, Mankiw's term). And, luck playing the role that it does in investing, the Frugals might end up controlling 20% to 40% of society's wealth (in fact, this has actually happened).
The only thing that makes the Frugals and the Profligates truly similarly situated is the fact that, in the long run, they're both dead. The money, temporal thing that it is, is in this realm, while they are in another. And then, another tax principle comes into play: the fact that money is always taxed as it moves from point A to point B.
Does it make sense to confer an essentially unearned reward on a fortunate few, simply by virtue of their gene pool, without asking them in the process to contribute some portion of it to the society that makes it possible in the first place? Does it make sense, in a nation whose Constitution forbids a nobility, to effectively create an economic one? Does it make sense, in an age which has taught us the dangers of entitlement, to promote a form of entitlement that cannot help but distort the relationship between wealth and the virtues by which it is supposed to be earned?
As Mankiw notes, moreover, this "onerous" tax doesn't even begin to kick in until the estate in question surpasses the level of $5.45 million. That's million, times $5.45. It is more money than the overwhelming majority of Americans will ever see. For all practical purposes, there is no estate tax in America. There is, at worst, a small speed bump designed to prevent the 1% from completing the hostile takeover of the county. I'm happy that for Mankiw that he's in a position to regard $5.45 million as precious pocket change to be protected from Big Brother; if I had a fraction of that money, I'd spend the rest of my life counting my blessings--and my money.
Similarly situated, my assets. Get out into the real America, Mr. Mankiw. You'll find much bigger financial problems than the estate tax.