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The Wealth Gap and the Estate Tax

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From the New York Times comes yet more evidence of the growing concentration of wealth in America, this time from an analysis of inheritances.

A lot of money is being inherited these days – $200 billion a year, in fact, more than three times the amount that was passed down 30 years ago even after adjusting for inflation.

But who’s getting it? In 2004, the median inheritance was $29,000 – down $10,000 from 30 years ago when adjusted for inflation. So most people are seeing less money, not more. The answer is that most of the money goes to the very rich: 7 percent of the estates account for half of it.

There are several reasons for shrinking inheritances, starting with basic demographic changes: parents are living longer and spending more of their money themselves, and most people do a lousy job of saving for retirement at a time when fewer and fewer people can rely on pensions and other traditional sources of retirement income. So what money they do save gets spent.

But simple demographics cannot explain the increasing concentration of wealth reflected in the statistic that 7 percent of estates account for half of the money being passed down.

The story notes that wealthy heirs are seeing more and more money:

“We are seeing bigger-sized estates,” said Myra Salzer, president of the Wealth Conservancy in Boulder, Colo., which helps heirs manage their inherited wealth.

“Wealth is just exploding,” said Daniel FitzPatrick, chief executive of Citigroup Trust, whose clients typically have hundreds of millions of dollars.

Add this to all the other evidence of wealth concentration in America, and other measures of disparity such as CEO pay, which now averages 500 times the wages of average workers. Fifteen years ago the ratio was 140 to 1; 40 years ago it was 40 to 1.

I don’t believe in “punishing the rich” simply for being rich. I’d like to be rich someday, after all. But I do think that it’s fair to tax someone’s second $300,000 at a higher rate than everyone’s first $300,000. And I think we all have an interest in the ill effects of excessive wealth concentration.

Tie up too much wealth in the hands of the few, and you damage the economy, limiting opportunity and driving social unrest. For extreme examples, look at France during the run up to the French Revolution, or Victorian and Edwardian England, or parts of South America today, where the wealthy live in fortresses, drive armored cars, and employ bodyguards, while the poor scavenge for food in city dumps. This is how revolutions are born.

Which brings us to the estate tax – or, as Republicans like to spin it, the “death tax.” Along with the Bush tax cuts that provided disproportionate relief to the wealthy, the gradual repeal of the estate tax plays a large part in increasing the concentration of wealth.

Republicans cast it as simple fairness: why should someone’s money be taxed twice? It’s a fair argument, but it ignores several things:

1. A lot of money is taxed twice, through sales taxes, for example. Or consider the gift tax. Give someone more than $10,000 a year, and it’s subject to tax. Why, then, does it make sense to exempt a gift from taxation simply because the giver has died?

2. The estate tax brings in about $70 billion a year. In a time of war and budget deficits, is it really good policy to blow another gigantic hole in the budget for a law that only benefits the very, very rich?

3. What is the social benefit of allowing heirs to receive millions of unearned dollars tax-free?

4. The government taxes nearly every transfer of money. What is the rationale for refusing to tax this transfer of money? What separates it from all the other transfers of money that we do tax?

It makes no sense to worsen our budget situation in order to provide a tax benefit to the least needy – especially when doing so actively harms society and the economy. I’ll give Bush the benefit of the doubt and call it a case of following a principle out the window instead of simply pandering to wealthy supporters. But it’s a move we simply cannot afford – in any sense of the word.

About Sean Aqui

  • gonzo marx

    now yer catching on…

    i’m a big fan of gridlock…

    but on a semi-serious note here…it IS practical…much quicker to getr a single thing done than these huge bits og bloatware that no one even reads

    example: the “Patriot Act”

    if passed, provision by provision, in each of it’s own Laws…and discussed as such….how much better would the results be?

    what the fuck do i care how long it takes…it’s their fucking JOB to get this shit right

    not to spew out quantity, but bring quality

    Excelsior!

  • http://www.elitistpig.com Dave Nalle

    how about only ONE “item” per Bill?

    stops all that nonsense right away….no “riders”…no “amendments”…just the Bill….vote it, sign it or not

    ya know, like the way the Constitution states

    The constitution doesn’t say one word about amendments positive or negative, which leaves how they determine what’s in a bill up to the process the Congress chooses to set, and for hundreds of years – well before the founding of our republic – the legislative process has included amending bills.

    Look at the current immigration bill. If not for the amendment process we would have had to choose between straight amnesty and fortress america and illegals in detention camps and their employers in jail. With the amendment process we end up with a nice balanced bill with the best of both approaches.

    Dave

  • gonzo marx

    again..i re-iterate the same position as the SCOTUS…Congress has the purse strings..and i hold to the contention that a line item veto woudl do no good, and only be used for political purposes

    as for my interpertation of Bills into Law…my point is ONE Law per Bill

    in the case of this immigration mess, you are setting all the details of a law…now adding some pork project or an amendment for a poison pill is what i am speaking against…

    one Law = one Bill

    clear enough?

    that stops folks from hiding shit , riding shit and otherwise fucking around with the system, thus eliminating any need for a line item type deal

    again, reverse it…do you GOP types want Pres Howard Dean to have line item power?

    Excelsior!

  • http://www.elitistpig.com Dave Nalle

    I agree that stuff unrelated to the main law should be kept off of a bill. In the case of the immigration bill this seems to be true, because the amendments are changing its core content, not tacking on marginally related stuff. Plus it’s not really an appropriateions bill.

    But the problem is that some things – usually big appropriations bills like the highway bill last year – are so comprehensive that you can tack on a lot of pork and it still looks pretty pertinent. That bill had 4000 amendments at least a quarter of which were pure pork. But they were in the form of bridges to nowhere, highways no one wants or needs, luxury bus stops, bizarre transportation subsidies and the like.

    Dave

  • http://www.elitistpig.com Dave Nalle

    Oh and I have no problem with President Dean having line item veto so long as congress can override it with a 2/3 majority just like a regular veto.

    Dave

  • Alec

    Sean – I tend to agree with you that the estate tax is a good thing, but with a few reservations. Economic wealth is not a zero-sum game; that Bill Gates is worth billions does not mean that he has stolen any money that might have been distributed to thousands of others. As long as an economy is growing, and a majority of citizens have the ability to earn, save, and spend, then the fact that there are some who have amassed great fortunes is not necessarily a big deal. And comparisons with pre-Revolutionary era France or Victorian England are largely irrelevant. Both of those societies had social and economic systems which greatly favored a hereditary aristocracy over other groups. But while people love to talk about “the rich” in America as though this is a monolithic everlasting group, the plain fact is that there are practically no families of great wealth from even the early 20th century America who have a monopoly on wealth today.

    Comparisons with South America are more on point, especially since the Bush administration has a great affinity for oligarchies and seems intent on decimating the American middle class.

    But it is simply, and absolutely not true, as Dave Nalle claims, that money from estates that would otherwise be taxed goes directly into the economy as investments. This is the kind of thing that you typically get from people who are long on theory but short on an actual knowledge of American history. And here is where we see a value in an estate tax. Many who end up receiving inherited wealth do not also inherit the drive or the ability to generate continued wealth, so they often devote their lives either to fighting one another over the spoils (like the descendents of the Dodge automotive brothers) or in trying to bribe politicians into passing laws which will grant them huge favors to help them try to protect their wealth. In the short and intermediate term, this distorts the economy and prevents others from competing against established monied interests.

    One of the smartest things that the founders ever did was to abolish titles of nobility and the entire machinery of maintaining a hereditary aristocracy. An estate tax continues this legacy by denying the ability of a hereditary economic aristocracy from getting a foothold in this country.

    By the way, both Congress and the Bush administration have been slow to address the AMT. Because distortions and a lack of indexing have pushed more of the middle class into the AMT, it is an easy way to get more tax revenues while maintaining the polite fiction that you have not raised taxes – you just let the system do it automatically.

  • gonzo marx

    Alec sez….
    *By the way, both Congress and the Bush administration have been slow to address the AMT. Because distortions and a lack of indexing have pushed more of the middle class into the AMT, it is an easy way to get more tax revenues while maintaining the polite fiction that you have not raised taxes – you just let the system do it automatically.*

    Quoted for Truth

    Excelsior!

  • http://theugliestamerican.blogspot.com Andy Marsh

    so then, taxes are already going up…we don’t need to raise any more???

  • http://www.elitistpig.com Dave Nalle

    The AMT may be an easy solution, but it’s hardly a fair one. Those people on the borderline between brackets who fall under the AMT but still have relatively low incomes really get raped out of proportion to their ability to pay. It’s like putting the highest tax burden on the middle class, and that’s exactly the wrong thing to do.

    Dave

  • http://www.elitistpig.com Dave Nalle

    But it is simply, and absolutely not true, as Dave Nalle claims, that money from estates that would otherwise be taxed goes directly into the economy as investments. This is the kind of thing that you typically get from people who are long on theory but short on an actual knowledge of American history.

    To not see the truth of this is to basically completely deny reality. Regardless of what other uses the inheritors of wealth have for that wealth, they inherit it in the form of investments, not in the form of cash, and they don’t put it in their mattresses and leave it there indefinitely. If they spend it on lawyers or yachts or anything at all it goes back into the economy. To suggest that this is not the case is to ignore basic reality in a way which can only be done by those who are blinded by ideology.

    Dave

  • gonzo marx

    comment #109 sez…
    *Those people on the borderline between brackets who fall under the AMT but still have relatively low incomes really get raped out of proportion to their ability to pay. It’s like putting the highest tax burden on the middle class, and that’s exactly the wrong thing to do.*

    Quoted for Truth

    note: mark this one on the calendar kiddies…

    Excelsior!