A quote from Melinder Cooper’s ‘Family Values: Between Neoliberalism and the New Social Conservatism’ pp.128-131 (references removed)

At the beginning of the 1970s, fears that the wealthy American family might be under threat from inflation were accentuated by the simultaneous efforts of progressive tax reformers to increase the burden on large estates. During the 1972 presidential campaign, the left-wing Democrat George McGovern proposed to raise the estate tax to 100 percent on gifts or inheritances above half a million dollars. It was in response to this specific and credible threat that neoliberal economists first launched themselves into the estate tax debate, developing an elaborate account of the mutually beneficial relationship between private investment and the familial transmission of wealth. Virginia school neoliberals Gordon Tullock and Richard Wagner argued that the ability to pass on one’s wealth was a necessary stimulus to investment and therefore warned of the deadening effects of the estate tax on private enterprise. And in a strange inversion of the argument from meritocracy, Milton and Rose Friedman classified inherited wealth as an “accident of birth” — comparable to musical talent — that should not be taxed at all. Elsewhere, as we have seen, Milton Friedman characterized the family motive in wealth transmission as a mysterious force underlying and ultimately animating market freedom — a motive that he found “irrational” and “curious” but to which he nevertheless deferred.

These arguments were notable not only because they prioritized the economic role of the family in free market economics — rendering explicit what for the most part remained unsaid or latent within their theoretical frameworks — but also because they represented a radical departure from the principled meritocratic values of early Chicago school neoliberalism. In the 1940s, after all, Milton Friedman’s teacher, Henry Simons, held views on inherited wealth that were on a continuum with those of McGovern, going so far as to argue that inheritance and inter vivos gifts should be taxed progressively in the same way as income to ensure a fully meritocratic free-market system. In the intervening years, Chicago school neoliberals radicalized their critique of the New Deal welfare state, casting welfare recipients as the true “rentiers” and parasites of the free-market system, and by the 1970s they had definitively aligned themselves with the interests of bond and stockholders under siege from inflation. Inherited wealth was now reconceived as a necessary spur to the investment energies of the free market.

Yet, if the Reagan revolution had presented itself solely as a movement to protect large fortunes, it would no doubt have failed. As Kevin Phillips notes, outright defense of the interests of the idle upper class has rarely managed to mobilize the passions of American populism: Reagan-era ideologues such as George Gilder were therefore “not trumpeting inherited wealth” but rather innovation, entrepreneurialism, and risk-taking, even while they waged a covert war on estate taxes and other levies on private fortunes. This mixture of rhetorical meritocracy and political patrimonialism also fueled the conservative populism of the 1970s and radically shifted the class alliances of the late Fordist era.

The tax revolt of the 1970s had multiple points of origin, emerging in its early years from both left-wing and right-wing concerns with the redistributive politics of taxation at the local and state level. As it matured, however, and as business interests joined forces with local activists, the movement acquired a distinctly nativist tone that was heavily coded by race. By the time of its first major ballot-box success — the passage of California’s Proposition 13 in 1978 — the movement was almost exclusively associated with white suburban homeowners in revolt against income transfers to the poor. It was this popular uprising against the redistributive welfare state, more than the machinations of wealthy investors, that ultimately made the Reagan revolution possible.

The vigor of the tax revolt was astounding, not least because its prime demographic — middle-class homeowners — had made outright gains from inflation. Yet, even as they saw the value of their homes double or triple in the space of a few years, many of these owner-occupiers experienced their recent windfalls of wealth as precarious. Most of them had been pushed into higher tax brackets as a result of inflation and progressive tax reform and resented the fact that their rising property taxes were being squandered on the nonworking, nonwhite poor. Their fears extended from local and state property taxes to the estate tax, which they denounced as a subterfuge serving to undermine the family itself. Johnson’s Great Society programs had been successful as long as the working and welfare classes felt their interests to be somehow aligned; as unemployment increased and affirmative action programs continued to be rolled out, this fragile coalition broke down and white homeowners began to shift their allegiances toward the wealth-holding classes. The latter, it is true, had objective cause to fear inflation. But it was middle-class homeowners, not investors or bondholders, who took the initiative in defending patrimonial wealth against the redistributive functions of the welfare state.

Thus, if neoliberals and supply-siders could express their defense of inherited wealth only in the most circuitous and coded of language, middle-class homeowners had no such reservations and launched an open assault on estate taxes, in what was to prove a long-term victory for the super-rich. As one spokesman of the tax revolt expressed it: “the estate tax has become increasingly traumatic to the family of modest means…we do not want an estate tax to behave as a punitive tax that destroys the average family’s ability to retain a small family farm or business. We do not want an estate tax that destroys the continuity of the economic unit owned by persons of modest means who would like to pass that heritage to either their spouse or lineal descendants.” At a time when redistributive social welfare, rising public investment, and progressive taxation policies were attenuating the force of private familial wealth, white taxpayers recoiled in fear, preferring to claim their allegiance to a much older tradition of inherited wealth invested in the home.

In the latter part of the 1970s, then, the white middle class effectively refashioned itself in the image of the patrimonial, investment class and sought to exempt itself from forms of social redistribution that were now commonly denounced as subsidies to the family dysfunction of the poor. By articulating a defense of the private family as economic institution against the redistributive functions of the welfare state, the conservative populism of the 1970s provided the template for the fiscal and monetary politics of the Reagan era — and beyond. As the language of the taxpayer revolt makes clear, the neoliberal counter-revolution was intimately informed by a concern with private family wealth and its transmission.