We need to rename the estate tax for the 21st Century, and call it an “Aristocracy Tax.” Because an aristocracy is exactly what the tax is trying to prevent. We live in a land where everyone is supposed to be created equal. And according to the American Dream, everyone is supposed to have an equal chance at birth of prospering. This doesn’t mean that everyone remains equal all along, just that we have equality of opportunity along the way.
The US has had an estate tax, sometimes called an inheritance tax, for much of our existence, and consistently since the 20th Century. This tax is typically applied only to those with the most wealth, and taxes some percentage of that after the death of a single person or both spouses. For 2017, this tax kicks in at $5,490,000 for a single person or $10.9m for a married couple. After that, transferred wealth is taxed at 35%. That’s a LOT of money — more than all but about .1% of Americans have — so this tax impacts very few people and only those who can afford it most.
One problem right now is that this tax has been seen very negatively since the 1990s, when GOP Congressional leaders led by Newt Gingrich rebranded it the “Death Tax” (!!!!!) Scary, isn’t it? They tax us on everything else, now they want to tax our death too! Damn those revenuers!!! Frankly, the framing here was a stroke of genius, and has proven very hard for opponents to fight. You have to be rational to understand why this tax is good, and “Death Tax” plays very well on fear and the subsequent irrational behavior of most people. Never mind that if you are afraid of it, the tax almost definitely doesn’t even apply to you! People in the .1% really aren’t afraid here, they are just calculating. And they can afford accountants and attorneys to help them minimize this tax as much as possible.
Even with that, someone might say “hey, they earned it, why can’t they keep it and give it to their kids?” A good question, and the fact is they can do that. A few things here:
- If you give your kids, grandkids or anyone else under $14,900/year, that gift is tax free. This applies to everyone, right now. It’s been the law for a while, and the number has increased in recent years to keep up with the times. The $5.49m is a lifetime cap, that literally can’t be reached until someone dies (do the math). So yes, the Federal government absolutely already taxes gift exchanges. Most of us are never affected by this, with the exception of a few who have rich grandparents or older relatives. And, of course, those of us who are in the uber-wealthy.
- We can also take care of our kids quite well during our lives without taxes being involved. We cloth, house and feed them. Gucci, a villa in Italy and caviar anyone? All perfectly legal if you have the money for it. We give them educations, and if you are paying for your kids there aren’t tax obligations. And if you are fortunate enough to own your own business, big or small, you can always give your kid a job, make them a manager, and let them earn ownership in the company — and good tax accountants will get you the best deals there on avoiding tax obligations. So yes, we can pass a LOT on to our kids — and for about 99.9% of us, “a lot” translates to “everything.”
- And what about those small businesses and family farms? Won’t they go away? In the real world, not at all. We need to remember that $5.49m in wealth is an enormous amount of money that most of us will never see, and this includes anyone who is a “small” business person. If your business is worth more than that, it is simply not “small,” and you also absolutely better have a good accountant/lawyer to help you with trusts and other things to avoid tax penalties. (notice any trends in how the rich are avoiding tax penalties here???) And if you go just over $10.9m and both of your parents unfortunately die together? Let’s say the business was only worth $11m — you get screwed, right? Not really, since the first $10.9m is still not taxable — the 35% only kicks in for amounts over that. So if you inherit $20m, you would still get to keep around $17m after taxes.
But why is it ok for the government to get ANY of my hard earned money? (Ignoring for the moment that a whole lot of people in this situation didn’t actually “earn” their money at all.) This is where Warren Buffet comes in, or as I like to call him, St. Warren of Omaha. He’s one of the richest human beings on the planet, the richest in any given year, and he is on record as in favor of a near 100% tax on the estates of the uber-wealthy after they die. Not 35%. ONE HUNDRED PERCENT. And his rationale is completely capitalistic. In this view, he and others like him are incredibly fortunate to have been born in the US, a country a capitalist system and the economic liberty and freedom to allow people like him to increase value, help the economy grow, and personally prosper while doing it. Capitalism allows those with talent to make whatever they can, and this is great. But they don’t do it alone. They live in a system with public works, infrastructure, support systems and a government type that allows this to happen. And they owe the system for that. Just as importantly, capitalism says that YOU can make whatever you can based on YOUR skills — and there is nothing saying those skills will be passed along to your kids. So take care of your kids, give them a great life and great education. Set them up for success. Allow them to work with you if they can cut it. And then when you die, they may get a small amount, but cut them lose in capitalist society to see how well they can do. And give the rest of your wealth back to the system to help it continue to succeed in the future. This is an uber-rich version of “paying it forward.”
What we have now though is definitely not that system, and this is a core problem that is leading to the massive inequality we see today. The uber-rich have influenced government, and set up a system that massively benefits themselves and their families. What we have is a system that allows wealth to continue to grow at enormous rates for a very small percentage of the richest in society, and to accumulate their over generations. And with this wealth comes power, both in business, in government, and over government. The wealthy can influence policies so that it benefits them more, and so that inequality not only continues, but grows.
When our country was founded, we had a name for people like this: the aristocracy. And as Americans we really didn’t like aristocrats. We wanted the American Dream, where anyone has a chance to grow up to be whatever they like, and where birth doesn’t give you any great benefits over your fellow citizens. While there will certainly be some inequality in life as some people use their talents and rightly benefit more than others, no one should start so far ahead of anyone else that they are effectively in a different class. We have created that class system though. The aristocrats don’t want to talk about it, or have us think about it too much, but it is there.
And it’s about time for a tax on the Aristocracy that helps to level the playing field and move us toward that American Dream again.
The Endless Files 
I’m not sure aristocracy is the right term…oligarchy perhaps, or the good old fashioned term, bourgeois elite, as most genuine aristocrats (the kind you find in Europe) in the 21st century are rather poor.
The nobility of Europe can testify to the fact that inheritance can be just as much of a curse as a blessing. Aristocrats live on rents, which depend in large part on the real estate value of the lands their family claim. And they are stuck with the lands, whether they are worth anything or not. If you are lucky enough to be born into the House of Westminster, which claims most of London, the rents are rather high. But this is the exception, rather than the rule. If you are the Earl of Rosebery, your lands aren’t worth much, forcing you to sell your family’s heirlooms and estate to the capitalist elite just to keep the creditors away.
Imagine if you were, in an aristocratic America, the Duke of Detroit. Even if you could sell your lands (which isn’t up to you), nobody would buy them. And since somebody has to speak for these lands in the House of Lords, it has to be you. This presents the uncanny circumstance, in many parts of Britain, where the local lord is actually closer to the poor than the MPs who represent it in the commons. An interesting historical note: the daughters of many robber barons and industrialists were courted by the aristocratic families of Britain, so that their aristocratic houses could get some much needed wealth. The industrialists were all too eager to comply, as the aristocratic houses offered one thing that the bourgeoisie didn’t have: aristocratic bona fides that didn’t rely on money to establish.
And that’s the key to understanding the super rich, Brian. They have a social system in place that no longer even relies on the wealth to maintain itself. Frankly, if I were Warren Buffet, I would have no problem with agreeing to a 100% estate tax. Because even if I do not leave my children a penny, I already know they will be millionaires, because I gave them the most valuable thing I could have: the last name Buffet. Besides this, if I am Warren Buffet, I have also given them an insider’s education into the financial industry, thousands of connections to the power elite, and built up a network of favors and reciprocal arrangements that will guarantee that my children will simply acquire their own fortunes, my estate notwithstanding. If my children go to Wharton and get an internship, he or she isn’t going to be doing the “scut work” that the middle manager’s daughter is doing; he’s doing projects with the CEO daily, and treated with the kind of preference the noble hostages of old (young princes who spend time abroad in an ally’s care) were given.
Those who look at the lives of the rich from the outside think it is the money that makes these people powerful. Nothing can be further from the truth. Money is, for the rich, a means; the end is always the establishment of exclusivity: the ability to exclude those masses of dubious worth from partaking in high society. How many times have we seen celebrities, industrialists, and sports figures end up in bankruptcy, only to re-emerge ten years later with fortunes either meeting, or exceeding, the value they lost? The very president today is an example of this, and while we may point to him as an example of why we need to “clean the slate” after each generation, it seems to me that a family like Trump’s will simply reacquire all that they have inherited, simply because they are in a society who will give them the means to do so.
The more I think about it, the more I think that a ‘true’ American aristocracy (or an oligarchy that has aristocratic dreams), would like nothing better than to establish a 100% estate tax at this point in time. Because the number one threat to the bourgeois elite was, is, and always will be the “social climber” who slowly builds up wealth through the generations to allow entry into high society. It is this class, what many have called the “aspiring 14%,” that is the true danger to the obscenely wealthy.
Who are these 14%? It’s the farmer in Iowa with a net worth of $5.4 million dollars. He is rich on paper, but the power elite just thinks of him and his children as dirty farmers with no social capital. Who it hurts are the farmer’s children, who are no longer able to use that wealth as a tool, just like the billionaires do. Who it hurts is the partner in a small law firm in suburbia working 80 hour weeks, who amasses $1.5 million dollars. A large sum, for sure, compared with part time factory workers and service economy wage laborers. But when we consider that many of these professionals who made modest (not obscene) fortunes may have come from families who were factory workers, we can see a bit more clearly what we are dealing with.
Trump and Buffet can leave their children two things: the wealth, and the high society that will generate and guarantee the wealth. Removing the wealth will do nothing to remove the ties among the rich and powerful that look out for one another. But the law partner? The farmer? They can only leave their children the wealth, and they can hope, with a steady upward trajectory, this wealth can be built to a place where there descendants can gain access to that society that will give them the opportunities money cannot buy.
Relying on the capitalistic dream of “genius” creating wealth ex nihilo, without any generational legacy, is a solution for the fraction of a percent of those who can actually find it. For the vast majority of people who are not, they want what Woody Grant wanted in Nebraska: to leave their children something. Sometimes, that’s nothing more than a new truck. Other times, it could be more. But to get rid of inheritance is, where I stand, to basically entrench the current ruling families in place, allowing no more upward mobility.
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Excellent points, thanks, particularly on the social status issues. I broadly agree with you in facts, but will twist the concept a bit. I’m using the term “aristocracy” here as a NEW aristocracy. While I didn’t specify this (thanks for forcing it, that’s a good thing!), I think we’ve replaced a landed elite with a monied elite in the 20th/21st centuries. This is absolutely about social class — and just like social classes of old, those in the richest class (different source of wealth) have a high society to themselves, including things like “old money” versus “new money” squabbles around the edges when someone has a big enough bank book to join the club. BUT the similarities to aristocracy are still very much present — social status, along with inherited money/power and perpetuation of that in law.
One place we differ — I’d suggest that very few of the modern monied elites will want to play the long game as much as you do here. My bet is that for most. keeping the money is more important than blocking access to status for a few. And if they are really concerned with the status, it doesn’t matter THAT much anyway b/c the old money network is still stronger than the new, rich kid at the key schools and clubs. (See Caddyshack for the golf club example!)
Overall though, good points and I’ll be incorporating several of them.
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