Column, 670 words

Making the World Safe for Trust Fund Babies

Congress should reinforce the inheritance tax, not scrap it.

Chuck Collins

Real wages have stagnated for decades. Homeownership rates are down. College debt is weighing down young people entering the workforce. Millions of low-wage workers eke by on a minimum wage of $7.25 an hour.

As the American Dream slips away for millions of people in this country, one faction of Congress is doing its best to aid a select group of folks that least needs a helping hand: trust fund babies.

Take Your Loot with You, an OtherWords cartoon by Khalil Bendib

Take Your Loot with You, an OtherWords cartoon by Khalil Bendib

More than 222 House members — nearly all of them Republicans — have co-sponsored legislation to abolish America’s inheritance tax, a levy that only applies to the estates of multi-millionaires and billionaires.

Technically called the estate tax, and derided by its opponents as the “death tax,” this part of the tax code affects only one out of every 500 Americans.

If Congress abolishes it, the already wealthy will gain the privilege of passing unlimited inheritances to their children once they die. Scrapping it would rip a $210 billion hole in the federal budget over the next decade, according to the Tax Policy Center.

The lawmakers determined to kill the inheritance tax go out of their way to hide the facts and pose as populists.

Take Representative Kevin Brady, a Texas Republican and lead sponsor of repeal legislation. He circulates advertisements with two young farm kids next to a pickup trick with the caption, “The Death Tax crushes family farms, ranches and businesses.”

And a Kentucky PAC spent $1.8 million airing a TV ad featuring a farmer who bemoans the burden of the inheritance tax and praises Senate Minority Leader Mitch McConnell (The farmer, John Mahan of Lexington, did not complain about the $405,692 in federal farm subsidies he received between 1995 and 2012).

The inheritance tax “continues to be the number one reason family-owned farms and businesses aren’t passed down to the next generation,” Brady recently (and wrongly) claimed.

It’s hard to fathom how a tax that 99.8 percent of households don’t pay could be a bigger threat to farmers than volatile farm prices and competition from corporate agribusiness. But don’t bank on opponents of the inheritance tax letting the facts muddle their political agenda.

As a strong supporter of the inheritance tax, I’ve seen this playbook before. Between 1996 and 2004, America’s plutocrats, including the Walton and Mars families, invested millions in a propaganda campaign designed to save themselves billions.

They plastered the media with images of farm families, alleging that the inheritance tax would be the “death of the family farm.” The only problem was, when pressed by Pulitzer Prize winning reporter David Cay Johnston, foes of the estate tax couldn’t produce a single example of an actual farm lost because of the inheritance tax. It was a complete myth.

Congress wound up weakening the tax in 2001, when opponents failed to abolish it. Now this tired debate is back, with those phony farm images and fake populism.

Here’s what really matters: Couples with less than $10.6 million in wealth are exempt from the inheritance tax. So are individuals with wealth under $5.3 million.

The inheritance tax is important because the very richest Americans already benefit from enormous loopholes that enable them to pay taxes at rates lower than average workers. The inheritance tax levels the playing field.

And the huge family fortunes now being passed onto the next generation are creating a new wave of American aristocrats.

Who are the real faces of the inheritance tax? Try the sons and daughters of the billionaires who make the Forbes 400 list, standing next to their family limousines.

There is a real problem with the inheritance tax: Billionaires are paying expensive lawyers to weasel out of paying it. Casino mogul Sheldon Adelson, for example, used a system of trusts to funnel $8 billion in wealth to his heirs. This maneuver let his family dodge about $2.8 billion in estate taxes that would be due after his death.

Instead of abolishing the inheritance tax, lawmakers should focus on closing the loopholes that empower the richest Americans to legally dodge it.

Chuck Collins is a senior scholar at the Institute for Policy Studies and co-editor of www.inequality.org. He is co-author, with Bill Gates Sr., of Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes.
Distributed via OtherWords.org

  • Lynner

    Hey Model User, I don’t usually post comments, either. I read a book years ago called, America: Who Really Pays the Taxes? by Barlett and Steele. I learned a lot and still could stand to learn more. My biggest thought is this — if corporations and billionaires can avoid paying taxes, who will end up paying more? I think some middle class Americans are either going to fork over more money or get less in benefits and services. Too simplistic?

    • http://www.im-jus-sayin.com/ Robert Bostick

      Wrong premise.

      The U.S. has been a monetarily sovereign nation

      (http://en.wikipedia.org/wiki/Monetary_sovereignty) since 1971 which means the Federal Government does not depend on revenue per se to fund its expenditures. All it needs is an act of Congress (authorization/Appropriation.) Taxes; income and payroll, do not pay for Federal government expenditures. Why would a government issuing its own currency need to have revenue to spend? Our government taxes to first, force acceptance of its paper dollar, manage inflation and income distribution.

      The underlying reality of what a U.S. Dollar actually is, is that it’s simply a promise, by the U.S. sovereign government, that it will accept the Dollar as payment for a Dollar’s worth of taxes. That’s it. A Dollar—whether it’s a paper Dollar or an “electronic” Dollar—is nothing more than that promise. The sovereign government doesn’t promise to exchange a Dollar for gold or silver, or for anything else of intrinsic value. It promises only to accept the Dollar in exchange for the cancellation of a Dollar’s worth of taxes due. In other words, a Dollar is the I.O.U. of the sovereign government. The Dollar says: “I owe you one Dollar’s worth of tax credit.”

      This I.O.U. means a lot more to all of us in the Private Sector (households and businesses) because we also use this I.O.U. Dollar for our MONEY—we use it to buy goods and services from each other, to invest in business ventures, and to save for future spending in our retirement. But at its most official heart, the U.S. Dollar is simply the I.O.U. promise of our sovereign Federal Government.

      This underlying reality of what a Dollar actually is has a lot of importance for our new Diagram. First, it tells us why we (all of us citizens working in the Private Sector) are willing to accept Dollars in exchange for our very real goods and efforts: Because we need those Dollars in order to pay the taxes we owe the Federal Government! We can’t pay our taxes with apples or Pesos. We can only pay our U.S. Taxes with U.S. Dollars. So that’s why the FGSPENDING spigot works in the first place—because all the citizens and businesses in the Private Sector are willing to provide goods and services to the Federal Government in exchange for the Dollars they need to pay their Federal Tax bill.

      The second thing the underlying reality explains is why the Dollar is “destroyed” when it is used to pay U.S. Taxes. You give the Federal Government back its I.O.U., the FG declares your taxes paid, and the I.O.U. is cancelled. That I.O.U. is of no further use to the Federal Government. It is illogical for the FG to “keep” an I.O.U. that says it owes something to itself. It could recycle the I.O.U. and use it to buy new goods and services from the Private Sector. But even that is illogical, because it is far easier and more efficient, when the Sovereign Government needs to spend again, for it to simply issue a new I.O.U. This is especially true since the vast majority of Dollars issued and spent are electronic—simple keystrokes on a computer screen.

      Federal taxes drain Dollars out of the Private Sector pot and—POOF!—they’re gone. How many Dollars should be drained every year to keep price-inflation in check is a crucial question. For the complete presentation of why taxes and bond sales don’t fund the Federal government since abandoning the gold standard see this: http://neweconomicperspectives.org/2014/01/diagrams-dollars-modern-money-illustrated-part-1.html

  • http://www.im-jus-sayin.com/ Robert Bostick

    You wrote, “Scrapping it would rip a $210 billion hole in the federal budget over the next decade, according to the Tax Policy Center.”

    Wrong premise.

    The U.S. has been a monetarily sovereign nation
    (http://en.wikipedia.org/wiki/M… since 1971 which means the Federal Government does not depend on revenue per se to fund its expenditures. All it needs is an act of Congress (Authorization/Appropriation.) Taxes; income and payroll, do not pay for Federal government expenditures. Why would a government issuing its own non convertible fiat currency with a flexible exchange rate and all of its debt in own currency, need to have revenue to spend? Our government taxes to first, force acceptance of its paper dollar, manage inflation and income distribution.

    Your emphasis on income distribution is right on. However, when these taxes are paid the dollar is destroyed. there are required accounts which record national receipts but Treasury does not save those receipts for future spending. Why require the payment in the first place?

    The underlying reality of what a U.S. Dollar actually is, is that it’s simply a promise, by the U.S. sovereign government, that it will accept the Dollar as payment for a Dollar’s worth of taxes. That’s it. A Dollar—whether it’s a paper Dollar or an “electronic” Dollar—is nothing more than that promise. The sovereign government doesn’t promise to exchange a Dollar for gold or silver, or for anything else of intrinsic value. It promises only to accept the Dollar in exchange for the cancellation of a Dollar’s worth of taxes due. In other words, a Dollar is the I.O.U. of the sovereign government. The Dollar says: “I owe you one Dollar’s worth of tax credit.”

    This I.O.U. means a lot more to all of us in the Private Sector (households and businesses) because we also use this I.O.U. Dollar for our MONEY—we use it to buy goods and services from each other, to invest in business ventures, and to save for future spending in our retirement. But at its most official heart, the U.S. Dollar is simply the I.O.U. promise of our sovereign Federal Government.

    This underlying reality of what a Dollar actually is has a lot of importance for our new Diagram. First, it tells us why we (all of us citizens working in the Private Sector) are willing to accept Dollars in exchange for our very real goods and efforts: Because we need those Dollars in order to pay the taxes we owe the Federal Government! We can’t pay our taxes with apples or Pesos. We can only pay our U.S. Taxes with U.S. Dollars. So that’s why the FGSPENDING spigot works in the first place—because all the citizens and businesses in the Private Sector are willing to provide goods and services to the Federal Government in exchange for the Dollars they need to pay their Federal Tax bill.

    The second thing the underlying reality explains is why the Dollar is “destroyed” when it is used to pay U.S. Taxes. You give the Federal Government back its I.O.U., the FG declares your taxes paid, and the I.O.U. is cancelled. That I.O.U. is of no further use to the Federal Government. It is illogical for the FG to “keep” an I.O.U. that says it owes something to itself. It could recycle the I.O.U. and use it to buy new goods and services from the Private Sector. But even that is illogical, because it is far easier and more efficient, when the Sovereign Government needs to spend again, for it to simply issue a new I.O.U. This is especially true since the vast majority of Dollars issued and spent are electronic—simple keystrokes on a computer screen.

    Federal taxes drain Dollars out of the Private Sector pot and—POOF!—they’re gone. How many Dollars should be drained every year to keep price-inflation in check is a crucial question. For the complete presentation of why taxes and bond sales don’t fund the Federal government since abandoning the gold standard see this: http://neweconomicperspectives.org/2014/01/diagrams-dollars-modern-money-illustrated-part-1.html