By Robert Reich
First, let's watch John Oliver's brilliant 14-minute HBO segment on this same topic:
First, let's watch John Oliver's brilliant 14-minute HBO segment on this same topic:
In
a new Pew poll, more than three quarters of
self-described conservatives believe “poor people have it easy because they can
get government benefits without doing anything.”
In reality, most of
America’s poor work hard, often in two or more jobs.
The real non-workers
are the wealthy who inherit their fortunes. And their ranks are growing.
In fact, we’re on the
cusp of the largest inter-generational wealth transfer in history.
The wealth is coming
from those who over the last three decades earned huge amounts on Wall Street,
in corporate boardrooms, or as high-tech entrepreneurs.
It’s going to their
children, who did nothing except be born into the right family.
The “self-made” man or woman, the symbol of American meritocracy, is disappearing. Six of today’s ten wealthiest Americans are heirs to prominent fortunes. Just six Walmart heirs have more wealth than the bottom 42 percent of Americans combined (up from 30 percent in 2007).
The U.S. Trust bank
just released a poll of
Americans with more than $3 million of investable assets.
Nearly three-quarters
of those over age 69, and 61 per cent of boomers (between the ages of 50 and
68), were the first in their generation to accumulate significant wealth.
But the bank found
inherited wealth far more common among
rich millennials under age 35.
This is the dynastic
form of wealth French economist Thomas Piketty warns about. It’s been the major
source of wealth in Europe for centuries. It’s about to become the major source
in America – unless, that is, we do something about it.
As income from work has
become more concentrated in America, the super rich have invested in
businesses, real estate, art, and other assets. The income from these assets is
now concentrating even faster than income from work.
In 1979, the richest 1
percent of households accounted for 17 percent of business income. By 2007 they
were getting 43 percent. They were also taking in 75 percent of capital gains.
Today, with the stock market significantly higher than where it was before the
crash, the top is raking even more from their investments.
Both political parties
have encouraged this great wealth transfer, as beneficiaries provide a growing
share of campaign contributions.
But Republicans have
been even more ardent than Democrats.
For example, family
trusts used to be limited to about 90 years. Legal changes implemented under
Ronald Reagan extended them in perpetuity. So-called “dynasty trusts” now allow
super-rich families to pass on to their heirs money and property largely free
from taxes, and to do so for generations.
George W. Bush’s
biggest tax breaks helped high earners but they provided even more help to
people living off accumulated wealth. While the top tax rate on income from work
dropped from 39.6% to 35 percent, the top rate on dividends went from 39.6%
(taxed as ordinary income) to 15 percent, and the estate tax was completely
eliminated. (Conservatives called it the “death tax” even though it only
applied to the richest two-tenths of one percent.)
Barack Obama rolled
back some of these cuts, but many remain.
Before George W. Bush,
the estate tax kicked in at $2 million of assets per couple, and then applied a
55 percent rate. Now it kicks in at $10 million per couple, with a 40 percent
rate.
House Republicans want
to go even further than Bush did.
Rep. Paul Ryan’s “road
map,” which continues to be the bible of Republican economic policy, eliminates
all taxes on interest, dividends, capital gains, and estates.
Yet the specter of an
entire generation who do nothing for their money other than speed-dial their
wealth management advisors isn’t particularly attractive.
It’s also dangerous to
our democracy, as dynastic wealth inevitably accumulates political influence.
What to do? First,
restore the estate tax in full.
Second, eliminate the “stepped-up-basis
on death” rule. This
obscure tax provision allows heirs to avoid paying capital gains taxes on the
increased value of assets accumulated during the life of the deceased. Such
untaxed gains account for more than half of the value of estates worth more
than $100 million, according to the Center
on Budget and Policy Priorities.
Third, institute a
wealth tax. We already have an annual wealth tax on homes, the major asset of
the middle class. It’s called the property tax. Why not a small annual tax on
the value of stocks and bonds, the major assets of the wealthy?
We don’t have to sit by
and watch our meritocracy be replaced by a permanent aristocracy, and our
democracy be undermined by dynastic wealth. We can and must take action —
before it’s too late.
ROBERT B. REICH, Chancellor’s Professor of Public Policy at
the University of California at Berkeley and Senior Fellow at the Blum Center
for Developing Economies, was Secretary of Labor in the Clinton administration.
Time Magazine named him one of the ten most effective cabinet secretaries of
the twentieth century. He has written thirteen books, including the best
sellers “Aftershock" and “The Work of Nations." His latest,
"Beyond Outrage," is now out in paperback. He is also a founding
editor of the American Prospect magazine and chairman of Common Cause. His new
film, "Inequality for All," is now available on Netflix, iTunes, DVD,
and On Demand.
