White House National Economic
Council director Gary Cohn, former president of Goldman Sachs, said recently
that “only morons pay the estate tax.”
I’m reminded of Donald Trump’s
comment that he didn’t pay federal income taxes because he was “smart.” And
billionaire Leona Helmsley’s "only the little people pay taxes.”
What Cohn was getting at is how easy
it is nowadays for the wealthy to pass their fortunes to their children,
tax-free.
The estate tax applies only to
estates over $11 million per couple. And wealthy families stash away dollars
above this into “dynastic” trust funds that escape additional taxes.
No wonder revenues from the estate
tax have been dropping for years even as wealth has become concentrated in
fewer hands. The tax now generates about $20 billion a year, which is less than
1 percent of federal revenues. And it applies to only about 2 out of every
1,000 people who die.
Now, Trump and Republican leaders
are planning to cut or eliminate it altogether.
There’s another part of the tax code that Cohn might also have been referring to – capital gains taxes paid on the soaring values of the wealthy people’s stocks, bonds, mansions and works of art, when they sell them.
 |
| For more cartoons by Tom Toles, CLICK HERE. |
If the wealthy hold on to these
assets until they die, the tax code allows their heirs to inherit them without
paying any of these capital gains taxes. According to the Congressional Budget
Office, this loophole saves heirs $50 billion a year.
The estate and capital gains taxes
were originally designed to prevent the growth of large dynasties in the U.S.
and to reduce inequality.
They’ve been failing to do that. The
richest 1 tenth of 1 percent of Americans now owns almost as much wealth as the bottom 90 percent.
Many of today’s super
rich never did a day’s work in their lives. Six out of the ten wealthiest
Americans alive today are heirs to prominent fortunes. The Wal-mart heirs alone
have more wealth than the bottom 42 percent of Americans combined.
Rich millennials will soon acquire
even more of the nation’s wealth.
America is now on the cusp of the
largest inter-generational transfer of wealth in history. As wealthy boomers
expire, an estimated $30 trillion will go to their children over the
next three decades.
Those children will be able to live
off of the income these assets generate, and then leave the bulk of them –
which in the intervening years will have grown far more valuable – to their own
heirs, tax-free.
After a few generations of this,
almost all of the nation’s wealth will be in the hands of a few thousand
families.
Dynastic wealth runs counter to the
ideal of America as a meritocracy. It makes a mockery of the notions that
people earn what they’re worth in the market, and that economic gains should go
to those who deserve them.
It puts economic power into the
hands of a relative small number of people who have never worked, but whose
investment decisions will have a significant effect on the nation’s future.
And it creates a self-perpetuating
aristocracy that is antithetical to democracy.
The last time America faced anything
comparable to the concentration of wealth we face now, occurred at the turn of
the last century.
Then, President Teddy Roosevelt
warned that “a small class of enormously wealthy and economically powerful men,
whose chief object is to hold and increase their power,” could destroy American
democracy.
Roosevelt’s answer was to tax
wealth. The estate tax was enacted in 1916 and the capital gains tax in 1922.
But since then, both have been
eroded. As the rich have accumulated greater wealth, they have also amassed
more political power, and they’ve used that political power to reduce
their taxes.
Teddy Roosevelt, a Republican,
helped create a movement against dynastic wealth. Trump and today’s
congressional Republicans will not follow in his footsteps. I doubt even
today’s Democrats would do so if they had a chance. Big money has become
too powerful on both sides of the aisle.
But taxing big wealth is necessary
if we’re ever to get our democracy back, and make our economy work for everyone
rather than a privileged few.
Maybe Gary Cohn is correct that only
morons pay the estate tax. But if he and his boss were smart and they cared
about America’s future, they’d raises taxes on great wealth. Roosevelt’s fear
of an American dynasty is more applicable today than ever before.
ROBERT
B. REICH is Chancellor's Professor of Public Policy at the University of
California at Berkeley and Senior Fellow at the Blum Center for Developing
Economies. He served as Secretary of Labor in the Clinton administration, for
which Time Magazine named him one of the ten most effective cabinet secretaries
of the twentieth century. He has written fourteen books, including the best
sellers "Aftershock", "The Work of Nations," and "Beyond
Outrage," and, his most recent, "Saving Capitalism." He is also
a founding editor of the American Prospect magazine, chairman of Common Cause,
a member of the American Academy of Arts and Sciences, and co-creator of the
award-winning documentary, INEQUALITY FOR ALL.
