Jewish World Review July 21, 2000 / 18 Tamuz, 5760
http://www.jewishworldreview.com -- I WASN'T BORN POOR, for which I am very thankful. Although I've sometimes been short on money, I am also thankful that I wasn't born rich, and very thankful that I wasn't born very rich. I am thankful, too, that I live in a country whose customs and laws allow non-rich people to get richer while it diminishes the possibility that families of great wealth will remain rich forever.
Hence my opposition to the recent Republican-passed elimination of the federal estate tax, a.k.a. "the death tax." Major reform is needed, but the GOP legislation goes too far, in a way that could change the American ethic. President Clinton should veto the bill, as promised.
The root question is whether America wants to encourage the hereditary transfer of wealth over many generations, creating, in effect, a permanent aristocracy.
I have no problem with people earning lots of money; such an incentive helps fuel the entrepreneurial zeal that creates new products and services that benefit us all. It's OK that rich people seek to pass along wealth to their heirs; that's a desire shared by all. It's OK that well-to-do farmers or small-to-medium-sized businessmen pass along their assets. I support some of the recent tax-cut proposals.
Still, the Republican proposal is potentially corrosive. Estates are now exempted from federal taxation up to $675,000 per person, with that floor scheduled to be lifted to $1 million by 2006. The tax rates on amounts over $675,000 rise quickly to 55 percent. The Republican bill would raise the floor earlier (2002), cut the top rate gradually to 40 percent, and then eliminate it entirely. Total elimination is the problem.
The estate tax was enacted in 1916 in some large part to "soak the rich." That may sound like the politics of class warfare, but it made some sense then, and it makes some sense now.
Some Americans had been getting very rich and some were called "robber barons." Rockefeller, Carnegie, Mellon and Morgan created industries that were of great value to the country (just as many of the high-tech billionaires of today have). A central question was: What would become of their wealth when they passed on? The estate tax established a principle: All their money would not go to their children.
It's hard to parse the motivation for a law. Was it passed because of vindictiveness toward, or envy of, the very rich? Was it a revenue raiser? Perhaps both. But it had something to do with what America would be. America had been seen as a "land of opportunity," with fewer class distinctions than in European societies. We rejected kings, queens, princes and princesses, dukes and duchesses, earls, counts, viscounts, barons, marquis and maharajahs. We rejected the idea of a "natural aristocracy."
The estate tax is of a piece with such a social view. It reduces a family fortune through taxation; then the fortune is further divided by offspring. There are legal devices that can reduce estate taxes, but even these ultimately yield a diluted fortune, despite the efforts of estate planners. Sooner or later, some beneficiaries down the line will have to think again about earning a living.
Our national myth holds that any American child will have the opportunity to gain great prosperity. (Before you ask: Yes, of course, being born on third base helps a lot, always has, and always will.) The corollary is that there will not be a class that is privileged by birth, forever. Do we want a hereditary Duke of Wal-Mart, a Maharajah of Microsoft, a Marquesa of Oprah or a Count of Cisco? Might not such a situation play a role in corroding the self-starting American spirit, clearly the most valuable of American assets?
Estate taxation can even be of value for the very rich. I do not envy persons born into extreme wealth. They may be robbed of the ability to establish the self-worth that comes through competition. They may have difficulty in knowing who is a friend, and who is a suck-up. They have the means to become wastrels.
Soon, the amount of wealth moved from generation to generation will be astonishing. Until recently it was estimated that about $10 trillion would be transferred via bequests during the first half of the 21st century. But new estimates come in at around $100 trillion (give or take a few trillion).
The current estate tax floor is too low. About $5 million makes sense. That would eliminate most of the estate planning paper-shuffling industry. And $5 million will not guarantee perpetual wealth for any family as it gets diluted over time. At some point, the family heirs will have to keep on truckin', just like the rest of us.
We can live just fine without the Marquis de McDonald's, the Sultan of
Sinatra, the Earl of Oracle or the Baron of