More Than Money
Issue #27

Lifestyles of the Rich and Simple

Table of Contents

“Fair or Foul - The Estate Tax Debate”

Better Off Without Them

PERSONALLY, I DON'T particularly mind taxes. I am not inclined either to quarrel with or to try to avoid them. I recognize the blessings in my life and the substantial benefits of government-based protections, structures, and safety nets. I even accept the notion that some of those benefits include some degree of pure wealth transfer. I am not ranting against taxes.

At the same time, I do mind violence, I resent stupidity, and I detest waste- and taxes involve all three. So I believe we must ask: What are we doing when we tax and why are we doing it?

Taxing authority is ultimately coercive authority at the highest level. Tax enforcement necessarily implies an awesome exercise of governmental powers fraught with extraordinary potential for abuse-this means guns, prisons, armies, police, confiscation, and destruction. The exercise of such authority requires compelling and justified reasons for it. Those reasons, ideally, should be based on well-developed philosophies of government, not just on temporary political advantage or perspective. Over the past 3,000 years we have seen more than a fair measure of governments I would be loath to trust. This has more than occasionally included the government of the United States of America and its governmental subdivisions.

"Progressive" taxes are morally grounded in these beliefs: (1) numerical equality (i.e. everyone having the same amount) is socially superior/desirable, and (2) government is both peerless steward of resources and ultimate lawful owner. In contrast, free markets presuppose the integrity of property rights, honor individual decision-making, and are relatively blind to human tragedies or needs. These twentieth-century presumptions, applied inconsistently to estate taxes, lead to the conclusion that property rights are malleable based on quantity alone. Yet, individuals frequently prove to be superb stewards.

Is it not ludicrous to conceive of the government as the object of effective philanthropy? Moreover, government confiscation, in my view, is always scary. I ask: Are heavy estate taxes the best use of collective capital (a scarce resource)? Is government dominion the best social policy? Are personal rights at all meaningful? Are individual property rights important? Can we encourage and anticipate effective private stewardship? Can government itself be trusted as an effective steward? Why? Can we build from this obsolete dialectic (capitalist/communist) into integrated money discussions serving twenty-first-century needs?

One consequence of estate taxes is that estate planning becomes entirely focused on tax avoidance, consuming enormous amounts of financial and intellectual energy, with little worthy discussion of either the benefits or responsibilities of capital.

Estate taxes gut private capital, forcing strange and difficult decisions, as property is transmitted from one generation to the next. What was already built is destroyed. What could build even more is diverted for other purposes. Would society as a whole be better off cultivating in its citizens a solid sense of stewardship and an expectation that wealth can serve as a creative resource-a source of answers and solutions, not just of problems? Or are we better off forcing sales, liquidations, and the break-up of functional concentrations of capital? I would argue that, from the point of view of the collective good, the energies wasted and the wealth not generated as a result of estate taxes is huge.

-Dick Wagner

Dick Wagner, J.D., C.F.P., is principal of the financial advisory firm, WorthLiving, LLC.

Protection from Plutocracy

IF IT'S TRUE-as libertarians like to remind us-that all taxes are collected at the point of a gun, let us also note that the finger on that trigger is our own-the collective will of the American people, as enacted through the democratic process. Of course, this is ultimately the case with all our laws, enforced by the sovereign power of the state, which is likewise a creation of the people of the United States. Some two centuries ago, a constitutional convention was convened in order to "form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity . . ."

Of course, conditions change over time, and U.S. revenue collection- originally based on land ownership, tariffs, and excise fees-eventually gave way, at the beginning of the twentieth century, to a more uniform and democratic tax code based on personal income. From its inception in 1913, the federal income tax has been structured progressively, where those who can afford to pay more do so. Spurred on by the work of muckrakers like Ida Tarbell and Upton Sinclair, who exposed the ruthless effects of unchecked capitalism in the boardroom and on the factory floor, Congress and the courts woke up to the danger of entrenched wealth and power in the modern age.

On its ratification at the end of the eighteenth century, the American Constitution explicitly forbade the conferring of titles of nobility on its citizens. By the end of the next century, it had become clear that this country's democratic experiment could be jeopardized not simply by the increasingly archaic institutions of monarchy and aristocracy, but from the quintessentially modern development of plutocracy-government by the wealthy. Not for nothing was the late nineteenth century remembered as the age of industrial revolution, as technological advances fostered quantum leaps in productivity-and with it, the creation of unprecedented private fortunes.

At the end of both the nineteenth and twentieth centuries, the world experienced technological explosions, powered largely by American ingenuity, which increased material productivity so quickly that its effects were experienced nearly universally in less than a generation. For those who were talented, shrewd, or fortuitously located enough to participate in this explosion, unimaginable personal wealth has resulted. But, as in the heyday of the Robber Barons, this past century has also witnessed the dangers of unchecked monopolistic power resulting from such vast accumulations of wealth. "Unchecked" is a misnomer, since the most egregious case of monopolistic power in our time-that of Bill Gates and Microsoft, Inc.-was indeed finally checked by federal intervention.

We can be thankful that our democratically- elected government expresses the will of the people and the vision of its founders by reigning in the excesses of accumulated wealth. Just as anti-trust legislation has provided a curb to corporate rule, so the income and estate taxes have provided a modern mechanism with which to help prevent rule by the rich. While mainstream economists, politicians, and pundits proclaim the last decade the greatest period of economic expansion in history, the majority of Americans who did not significantly participate in the expansion are left to wonder: economic boom for whom?

Democracy means one person, one vote. As wealth at the top further accumulates and our electoral process descends into a morass of soft money, it is clear that the greatest thing that stands between the people of the United States and their being ground beneath the well-heeled shoe of the affluent elite is their electoral rights. If they are foolish enough to have voted for politicians who have sold their votes to the highest bidder, the people will learn soon enough, as the infrastructure of the social contract dissolves beneath them. As America crumbles into a divided nation, a coterie of the superrich may well have constructed for themselves a gated enclave in which to play out a fantasy in which they can control all the players to flatter their interests for a while. But if the vision of the Founding Fathers has lasting merit in the history of human liberation, it won't be long before true democracy rears its beautiful head again.

Meantime, I would suggest that the estate tax continues to serve as an admirably progressive and eminently prudent check on the insidious encroachment of plutocracy.

- anonymous author

The author is a documentary filmmaker, currently working on a film about growing up with privilege. He serves on the steering committee of United for a Fair Economy's Responsible Wealth project.

Rights and Responsibilities

WHAT IS A "FAIR" tax rate, and how do we measure it? One could argue that the federal government is becoming increasingly reliant on taxation of America's wealthiest earners. In 1979, the richest ten percent of Americans paid 41 percent of the federal income taxes, but now their share is more than half. Meanwhile, the share of taxes of the lowest 60 percent dropped from 21.7 percent to 16.5 percent.

But we also know that the U.S. is currently experiencing wealth disparities of historic proportions. The average after-tax income of the richest one percent of Americans surged 157 percent from 1979 to 1997, but for Americans in the middle of the economic spectrum, it rose only ten percent; for those in the bottom fifth, it actually declined slightly. The wealthiest one percent now possess as much wealth as the lower 94 percent.3 Clearly, tax policies over the last two decades have been increasing-not decreasing-our country's income gap.

Tax reduction is often posited in terms of individual rights and self interest. The money belongs to the taxpayers, not the government, the argument goes, and individuals should have the right to dispose of their money as they please. The assumption is that given the choice, all Americans, especially the wealthiest, would choose to have the lowest possible taxes.

However, those Americans who have more than enough resources to make themselves and their families comfortable might well view tax policy less in terms of rights than responsibilities- the responsibility of the government to ensure basic economic and social justice to all Americans; the responsibility of a tax system to impose its burdens equitably and not privilege unearned income over working income, as it currently does; the responsibility of the affluent to use some of their resources to aid those less advantaged. If we believe that the government has abandoned some of its core responsibilities by passing tax polices that favor the wealthy, then it is up to us to pick up the slack, to act in ways that we wish our government would act. It is up to us to take personal responsibility to try to "even the balance" with our own wealth.

- anonymous author

The author is the foundation relations and advocacy associate at Pathfinder International, an international family planning organization. She serves on More Than Money's outreach committee.

1, 2 Congressional Budget Office, Historical Effective Tax Rates , 1979-1997, Preliminary ed., May 2001, presented in Center on Budget and Policy Priorities, "Pathbreaking CBO Study Shows Dramatic Increases in Both 1980s and 1990s in Income Gaps Between the Very Wealthy and Other Americans," May 31, 2001.

3 United For a Fair Economy, www.ufenet.org


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