- Bill Barclay, CPEG and Ventura DSA
As I argued in my first “Taming Capital” post, the political landscape defined by the 2018 midterms has reinvigorated the discussion of economic inequality and what we can or should do about it. The problem of inequality was a focus of the Occupy movement. It was also the core 2016 campaign message of Bernie Sanders – who just announced he is running for president in 2020. Like Warren’s wealth tax, Sanders understands that the obscene levels of economic inequality in the U.S. today cannot be countered simply by raising the minimum wage or a more progressive income tax structure. The concentration of wealth must also be addressed. And Sanders has put forth an important proposal for doing so – but also one that has a long history in the U.S.
Making the Estate Tax Real: Bernie Sanders
The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes.
- Theodore Roosevelt, 1910
Over a century ago under urging from Theodore Roosevelt, Congress created the modern estate tax.[i] TR understood the need for an estate tax in terms that apply equally or even more so today: the problem of an inherited aristocracy based on private capital accumulation, arising from some combination of good fortune, innovation and, very importantly, coupled with institutional supports that allowed an individual to amass large amounts of wealth in a single generation. As TR argued, such inheritances were, for the next generation, free and unearned money. Not only were the inheritors of the next generation no more deserving of this wealth than any other citizen, TR believed that they would all too often fritter in away in lavish living – think of Paris Hilton, the $37 million dollar ranch that Bill Gates bought his daughter Jennifer because she likes to ride,[ii]etc.
But TR's concerns went deeper. He also saw, clearly, that the intergenerational transmission of privilege was a threat to democracy and, perhaps ultimately to the very system that allowed such agglomerations to be created and then inherited. From the perspective of political economy, he was trying to insure that the dead hand of capital accumulated in the past would not smother the needs of the living for public goods and services in the future. In this respect Theodore Roosevelt, like his distant cousin FDR, was concerned with reforming capitalism.
The right has long opposed the Estate Tax (“the Death Tax”) and even now Sen. Mitch. McConnell has proposed eliminating the tax. This opposition is almost always articulated in terms of the farming family forced to sell off land to pay the tax – despite the reality that, challenged to find an example of such outcome, the American Farm Bureau (and the Geo. Bush administration) failed to do so. While the right has failed to (so far) eliminate the Estate Tax, the rates and triggers have been chipped away such that today it applies to only inheritances of more than $11 million. In 2017, only 6420 estates, 0.2% of the 2.7 million deaths in that year – owed any Estate Tax, at an average rate of 16.5%. Under the 2017 “reforms” to the tax, less than 2000 estates will likely pay any tax.[i]
Sanders proposal has two components:
Sanders proposes to apply the estate tax to inheritances of $3.5 million or more and raise the marginal rate to 77% on inheritances of more than $1 billion. His plan has, of course, been attacked by the usual coterie of right wing pundits. However, it is instructive to compare the proposed $3.5 million trigger to the rates that were in the 1916 Estate Tax legislation. The tax was levied on the value of any assets above $50,000, equivalent to approximately $1.3 million today – and the economy did not collapse.
Sanders proposal would also make the Estate Tax more progressive. The initial rate would be 45%, rising to 77% on assets above $1 billion. This is not dramatically different than the Estate Tax rates in effect from the mid-1930s to the mid-1980s when the top rate varied between 55% and 70%.
Sanders goals – and they are ones that progressives and certainly all socialists should support – are much like those of TR. Of course extreme wealth, left untaxed, creates succeeding generations of inheritors who did nothing to create the wealth except get born into the right family. But, that is, in some respects the least of the problems in a country where the 3 wealthiest individuals owning more wealth than the bottom 50% of households.[ii] The more fundamental problem of extreme wealth are its undermining of both democratic decision-making destruction of social cohesion.
There is now a large body of evidence that policies supported (opposed) by the wealthy are more likely to be enacted (defeated) by Congress than those supported (opposed) by large majorities of the citizenry. Obvious examples include a more distributive tax system and a higher minimum wage, both of which are widely supported by the public as a whole but opposed by the top income and wealth households.[iii]
However, just as destructive is the “winner-take-all” society created by the growing concentration of wealth (and income). In an everyone for themselves world, organizing for social change becomes more difficult, not just because of the mobilization of resources against change, but also because too many of the people we want to organize have trouble envisioning social, as distinct fromindividual, change.
Sanders Estate Tax, coupled with Warren’s wealth tax, would not only generate resources needed for programs such as a Green New Deal. These proposals would begin to reverse the dynamics of class power that have left much of us with less and our children with reduced life chances than in the past. In my third post on economic inequality, I’ll look at one other progressive proposal that would alter the dynamics of class in the U.S., the idea of a guaranteed job for all.
[ii]https://inequality.org/wp-content/uploads/2017/11/BILLIONAIRE-BONANZA-2017-Embargoed.pdf; the three are Jeff Bezos, Warren Buffet, and Bill Gates.
[iii]See for example, https://www.cambridge.org/core/journals/perspectives-on-politics/article/testing-theories-of-american-politics-elites-interest-groups-and-average-citizens/62327F513959D0A304D4893B382B992B. And the NYT just reported on widespread support for “taxing the rich.”