The Estate Tax is not a new idea. The current iteration was written into law in 1916 and has stood, with variations, for 101 years. The tax has not put an undo burden on the wealthy as the share of wealth owned by the top 10% has steadily risen, especially over the last 40 years. That top 10% owns about 75% of all wealth and many of them do not qualify to pay the tax.
Before the modern Estate Tax there was the War Act in 1898, the Revenue Act in 1862 and the original estate tax, a stamp tax, in 1797. All were designed to redistribute money from the wealthiest for public use. Leaders all the way back to the Founding Fathers have warned about too high a concentration of wealth being the downfall of our great experiment in capitalism and self-government.
The Founding Fathers didn’t write any provisions into the Constitution about wealth distribution, but they sure talked about it. They feared too much wealth would lead to tyranny. They were right. Eliminating the Estate Tax is the very definition of a tyrannical act–a billionaire leader demanding a billionaire-only tax advantage.
In Colonial times wealth was talked about in terms of land much like wealth today is spoken about in terms of a stock portfolio. So, when Thomas Jefferson said, “Legislators cannot invent too many devices for subdividing property.” he was talking about redistributing wealth. John Adams wanted legislation to force families to divide their land equally between heirs to prevent feudal estates. Adams went on about the goal of the Republic being to provide the “greatest happiness for the greatest numbers.”
Those who bought land early profited greatly. There is only so much land and the ones who bought early sold at a profit. In a similar action, Alexander Hamilton created a financial sector and issued bonds. He wanted to get investors to buy debt and foreign investors obliged. Those early bond buyers started the markets that translate to how we evaluate great wealth today. The early birds had a lot to sell–good for them. But, keeping and compounding wealth in the hands of a few families for centuries is ultimately bad for a capitalistic country.
Jefferson made his fear of concentrated wealth apparent when, after the Revolution, the cod fishing industry was in ruins. He offered a tax credit, or bailout, to cod vessels to help get the businesses up and running again. He contemplated where to direct the credit–to the owners or workers. Congress enacted law in 1792 directing 3/5 of the money to the workers, and 2/5 to the owners. This regulated owners from taking too much for themselves. Sound familiar? This is exactly what happened to the bank bailout money in 2010. The unregulated funds ended up going to wealthy financial CEOs and not to mortgage holders in need of assistance. They should have heeded Jefferson and Congress’s caveats from 225 years ago.
Today, 0.2%, that’s two out of a thousand people, qualify to pay the Estate Tax. About 2.6 million people die in the U.S. every year and about 1,500 pay the tax.
One of Mr. Trump’s favorite arguments for eliminating the tax, and deflecting the focus from his personal fortune, is that the Estate Tax “ruins family farms all across the country.” In fact, in 2016 there were only 682 farms or ranches across the U.S. that qualify to pay the tax and only then if the owner died. Plus, there are exemptions in place to mitigate the tax on land as opposed to monetary wealth, so none of the farms pay anywhere near the tax cap of 40%. 2.1% of farms qualified to file tax forms in 2013 but the exemptions excluded all but 0.6% (6 in 1,000) from paying any taxes.
Warren Buffett has spoken out loudly about the mistake it is to eliminate this tax. He notes that if he had 35 heirs, without the tax, he could give each a billion dollars. That is 35 people getting a billion dollars each, tax free, just because they happen to share genes with a smart, wealthy man. He does not think doing this benefits anyone. Don’t think these 35 theoretical heirs will have to pitch a tent in the streets. Even after a 40% tax hit, each would still inherit $600,000,000.00. Mr. Buffett goes on to illustrate the rarity of paying the Estate Tax this way: A person could start going to a funeral every month. In doing so, it would take 40 years before that mourner attended a funeral in which the deceased paid the Estate Tax.
We have a long history of taxing and redistributing concentrated wealth in our country trying to prevent just what is happening anyway. Our government is being run by Plutocrats, they may or may not be tyrannical, that is for another conversation, but having 10% of the population in control of 75% of the country’s wealth and making laws for everyone is not what the Founding Fathers had in mind. Be like Warren Buffett and speak out against eliminating the Estate Tax.
I apologize for this downer column about death and taxes–conversation not in sync with the spirit of the season. So, I’ll atone with Mrs. Making-Sentences and me wishing all of you a Merry Christmas!