Robert Reich

Dynasty Dystopia

Wednesday, September 20, 2017

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 two 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.

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 one-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 10 wealthiest Americans alive today are heirs to prominent fortunes. The Walmart 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 intergenerational 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 Reich is professor of Public Policy at the University of California, Berkeley. He served as secretary of labor in the Clinton administration.

BoS
Past Columns
Bernie is Back

February 27, 2019

Watch Your Wallets

December 26, 2018

America’s Bullies

October 10, 2018

Meltdown Lessons Unlearned

September 19, 2018

The Next Crash

September 5, 2018

Preparing for War

March 28, 2018

A Prescription of Greed

March 14, 2018

The true path to prosperity

December 6, 2017

Anti-Labor Day

August 30, 2017

Trump’s Big Loss

August 2, 2017

The End of Trump

May 17, 2017

First 100 Days

April 26, 2017

Events
Today
Sue C. Boynton Poetry Contest

8:00am|Whatcom County

La Conner Daffodil Festival

10:00am|La Conner and the Skagit Valley

Regional High School Art Show

8:00am|Northwest Educational Service District

Essence of Bellingham Photo Competition

10:00am|Whatcom County

Cook It and Book It

3:30pm|Lynden Library

Artist Workshop

6:00pm|Bellingham Public Library

Flavors of the Philippines

6:30pm|Community Food Co-op

Skagit Folk Dancers

7:00pm|Bayview Civic Hall

Books on Tap

7:00pm|North Fork Brewery

Imar

7:00pm|Sylvia Center for the Arts

Punch Up Comedy Showcase and Open Mic

7:30pm|The Shakedown

Legally Blonde
Tomorrow
Sue C. Boynton Poetry Contest

8:00am|Whatcom County

La Conner Daffodil Festival

10:00am|La Conner and the Skagit Valley

Regional High School Art Show

8:00am|Northwest Educational Service District

Essence of Bellingham Photo Competition

10:00am|Whatcom County

Lynden Front Streeters

2:00pm|Village Books

Ferndale Book Group

2:30pm|Ferndale Library

Group Run

6:00pm|Skagit Running Company

Ferndale Books on Tap

6:30pm|DownTime Taps

Creekside Open Mic

6:30pm|South Whatcom Library

Balanced Plant-Based Living

6:30pm|Community Food Co-op

Moon Walk

6:30pm|Whatcom County

Milo Petersen Quartet

7:00pm|Sylvia Center for the Arts

Grain by Grain

7:00pm|Village Books

Burlington-Edison Choir Concert

7:30pm|McIntyre Hall

The Hunts Legally Blonde
Thursday
Sue C. Boynton Poetry Contest

8:00am|Whatcom County

La Conner Daffodil Festival

10:00am|La Conner and the Skagit Valley

Regional High School Art Show

8:00am|Northwest Educational Service District

Birding Adventures

9:00am|Skagit Valley

Essence of Bellingham Photo Competition

12:00pm

Imagine Convergence on Orcas Island

12:00pm|Rosario Resort

English Country Dancing

1:30pm|Bellingham Senior Activity Center

Dig Deep

3:00pm|Deming Library

Happy Hour Thursdays

4:00pm|Downtown Bellingham

Pub Run

6:00pm|Stone's Throw Brewery

Ancient Beauty

6:30pm|Deming Library

Native American Flute Workshop

6:30pm|Community Food Co-op

Cross-Country Bicycling Travelogue

7:00pm|Whatcom Museum's Old City Hall

Peter Pan, A Musical Adventure

7:00pm|Meridian High School

Balkan Folk Dancers

7:00pm|Fairhaven Library

Wild Mercy

7:00pm|Village Books

Asleep at the Wheel

7:30pm|Lincoln Theatre

Dyo Festival Plays

7:30pm|Sylvia Center for the Arts

Bellingham Puppetry and Mask Festival

7:30pm|Alternative Library

Asleep at the Wheel

7:30pm|Lincoln Theatre

see our complete calendar »

Trove Web Village Books The Hunts Legally Blonde Cascadia Weekly Subscribe Ad 1